Investing in a Country

Global investing entails significant political and economic risk. Even the biggest global corporations disappoint their investors. Still, I believe that the best portfolio model for security traders is 50 percent foreign stocks weighted.

Jack Welch, when he was CEO of General Electric, once said: "Ideally, we (GE) would build all our plants on barges." That may have been Jack musing on the management issues of operating in a world theater, but I think the analogy is particularly well suited for global securities trading.  Investors are by and large aware that conducting business in a global environment is inherently unpredictable. I suspect they know that numerous variables have a material effect on corporate operating results and share prices.

Should international securities trading be something you have not much thought about, consider the issue in the following terms. Most of us have a pretty fair understanding of what goes on in our own homes, but not in the homes of our neighbors. Still, in the case of close-by neighbors, we might venture a guess.  Now take that case to people in other countries, and we typically don't have a clue.  Publicly traded corporations are required by law in all jurisdictions to fully disclose their operations and their accumulated resources; but, we are better equipped to understand that which is happening locally.  With regard to investing around the world and, in particular, buying stocks of globally active corporations, I believe the only successful approach is to take a defensive posture.

There are in fact greater market risks when investing internationally, but, in my view, the principle of portfolio diversification is the overriding factor in one's decision to set up and manage a global portfolio.  To effectively manage market risk, I believe that the best portfolio model for security traders is one that is 50 percent foreign stocks weighted.  Given that the market risk is elevated, including currency risk, I feel you have to buy international equities for short-term (quarterly) gains of 7% to 15%, cutting losses with running stop sell orders placed between 5% and 8% below the recent high.

To accomplish my minimal expectations of a 7 percent quarterly increase in portfolio value (net of currency gain/loss), I feel the extra time in active portfolio management is worth it.

Readers of this website are from well over 60 different countries, so it's a challenge to write material for them all. But, for the purposes of building a diversified global investment portfolio for purposes of active securities trading, I'm going to suggest the following percentage weightings:

50% USA
07% Americas including Canada and Latin America
30% Europe including UK and Russia
13% East Asia including mostly Japan and China
----
100% total

After the securities trading environments, including regulatory conditions, of the economically emerging jurisdictions mature somewhat, these percentage weightings will change.  For example, by the year 2010, I could foresee a weighting of 40% in the U.S., 10% in the other Americas, with the increase being in Latin America (bringing it to 6% plus 4% in Canada), 30% in Europe but with a much heavier group weighting coming from Russia and other Eastern Europe countries, and less in the UK, Germany and Switzerland, and 20% in East Asia, with the increase coming in China and India.

American Depository Receipts (ADR)

The UK Stocks