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Article Title:
The World Is Your Playground: A Guide To International Investing

Article Description:
Over the last few years, while US markets were recovering from 
the bursting of the dot-com bubble, the economies of India and 
China were booming. Compared to the Dow Jones Industrial 
Average's dismal loss of 0.6% in 2005...

Additional Article Information:
1112 Words; formatted to 65 Characters per Line
Distribution Date and Time: Thu Jan 26 21:44:45 EST 2006

Written By:     Asif Suria
Copyright:      2006,,
Contact Email:  mailto:[EMAIL PROTECTED]

Article URL: 

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The World Is Your Playground: A Guide To International Investing
Copyright © 2006,, Asif Suria
SINLetter (Suria Investment Newsletter)

Over the last few years, while US markets were recovering from 
the bursting of the dot-com bubble, the economies of India and 
China were booming. Compared to the Dow Jones Industrial 
Average's dismal loss of 0.6% in 2005, India's BSE index gained 
42.3%, the Japanese Nikkei Index gained 40.24%, and Germany's DAX 
30 gained 28%. While US drivers continue to face rising oil 
prices that shot gasoline prices over the $3/gallon mark in many 
parts of the country, gas is cheaper than water in Venezuela (10 
to 15 cents per gallon) sparking a boom in auto sales there. This 
may be very surprising news to investors in auto stocks such as 
Ford and GM, who watched their investments implode to barely half 
their value in 2005.

Traditionally, financial advisors have advocated for holding 
15-20% of one's overall portfolio in international stocks. There 
seems to have been a change in this sentiment recently, with some 
advisors recommending that as much as 50% of a portfolio be held 
in international stocks. Fear could be driving this trend. Fear 
that the real estate bubble might burst (the median price of a 
home in San Francisco/San Mateo is now around $750,000); that 
huge budget deficits could push the value of the US dollar over 
the proverbial cliff; of the long term effects of rising 
inflation and missing out on opportunities in emerging markets 
around the world.

Why Invest Internationally?

There are three main reasons why international investments should 
form a big part of your investing strategy. International 
investing can

1. Serve as a hedge against your domestic portfolio of stocks and 
bonds. Hedging is often considered a big and mysterious word, but 
in the world of personal investing it boils down to something as 
simple as protection. International stocks may offer protection 
against a falling US market, protection against a plummeting 
dollar or protection against inflation. If protection against a 
declining US dollar is the objective, then care should be taken 
not to invest in markets (like China's) whose currencies are 
still pegged to the US dollar.

2. Reduce overall risk through diversification on an 
international scale, by lessening the chances that local 
catastrophes or recessions might wipe out a large part of 
your portfolio.

3. Provide a much larger pool of companies to pick from. If you 
feel that the pharmaceutical industry is likely to do well over 
the next few years but do not like the growth prospects of 
domestic companies like Merck (Ticker: MRK) or Pfizer (Ticker: 
PFE), you might choose to invest in Switzerland's Novartis 
(Ticker: NVS) or Israel's Teva Pharmaceuticals (Ticker: TEVA) 

How Can You Invest Internationally?

Make use of any of these three instruments that you have at 
your disposal.

1. Multinational Corporations:

Many of the brands you know and love are also brands that are 
known and loved by citizens of dozens of countries. Johnson's 
Baby Soap, Colgate Toothpaste and Gillette are brands that are 
recognized all over the world and the companies that own these 
brands derive a large portion of their income from operations in 
other countries. For example, Johnson & Johnson (Ticker: JNJ), 
Colgate Palmolive (Ticker: CL) and Procter & Gamble (Ticker: PG) 
generate more that 50% of their income outside the United States. 
Even Ford, which is facing tremendous pressure domestically and 
losing market share to Toyota and Honda, grew its sales in China 
by over 46% in 2005.

2. American Depository Receipts (ADR):

ADRs are actually international stocks that are quoted on the US 
stock exchanges like the Nasdaq or NYSE. Large American brokers, 
like JPMorgan, usually facilitate this process. Commonly known 
and widely held ADRs include Nokia (Ticker: NOK) and Sony 
(Ticker: SNE). If you really like Panasonic TVs and think that 
the company could greatly benefit from the explosion in sales 
of flat panel HDTVs, you could easily buy the ADR of its parent 
company Matsushita Electric (Ticker: MC) in the same way you 
would buy a domestic stock like Dell. In most instances ADRs 
quote very close to the price of the stock in its domestic 
market, but in some instances it could quote at a premium to the 
value of the actual stock. To determine the premium associated 
with an ADR, obtain the price at which the stock quotes in its 
local market (Yahoo Finance is a good source) and convert it into 
US dollars. The difference between this amount and the price of 
the ADR is the premium you are paying for the ADR.

When I bought the ADR for Wipro Technologies (Ticker: WIT), one 
of the largest technology companies in India, the ADR was trading 
at a premium of almost 25%. In another instance, when I purchased 
the ADR for Tata Motors (Ticker: TTM), a large automobile company 
based in India, the ADR was trading at a value very close to the 
value of the underlying stock. Both these ADRs have provided 
outstanding returns over the last few months. Sometimes each 
ADR may represent a fraction of the underlying stock or, in 
some instances, two or more shares of the underlying stock. 
This should be verified first before determining the premium 
associated with the ADR, if any. A quick glance at the SINLetter 
Model Portfolio will make 
it clear just how big a part international stocks play in my 
overall investing strategy.

3. Exchange Traded Funds (ETF):

For those of you who would prefer not to invest in individual 
stocks and/or have a more conservative investment strategy, ETFs 
could help provide the necessary international exposure. Exchange 
Traded Funds are like mutual funds, with one small difference. 
They can be bought and sold at any time like a regular stock from 
your brokerage account. ETFs also have very low expense ratios 
and hence provide an ideal low-cost vehicle for diversification. 
Investors who are interested in diversifying internationally can 
easily do so by buying an ETF, such as the iShares MSCI Brazil 
Index (Ticker: EWZ), which tracks Brazil's Bovestpa Index. On 
the other side of the globe, Japan (emerging from a 15-year 
recession), is now showing signs of recovery. If you feel that 
there is still a potential upside to the Japanese market after 
the 40.24% run-up in 2005, you could easily invest in Japan 
through the ETF iShares MSCI Japan Index (Ticker: EWJ) which 
tracks the Japanese Nikkei index.

International investing has its risks but, if done right, it 
can serve as a balance, and reduce the risk of a portfolio that 
exclusively holds domestic stocks, bonds and mutual funds. Using 
the Internet and the vast number of free news services to keep 
informed about events around the globe, the world can easily 
become your investing playground. 

Asif Suria is the editor of the free investment newsletter 
called <a href=>SINLetter (Suria Investment 
Newsletter)</a>. Find out 
which of his picks is up over 75% in less than 3 months at and subscribe to receive his free 
investment newsletter every month by email.



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