The World Is Global. Investing Should Be as Well.

Over the past several years, we have noticed an interesting occurrence in our portfolios. The American Depository Receipts, (ADRs) of foreign companies have begun popping up frequently in our portfolios. ADRs were specifically created to enable U.S. investors to easily buy and sell foreign stocks. There are several reasons why I like ADRs. Recent studies show foreign companies that list on U.S. exchanges are more highly valued than comparable foreign companies that don't list. Also, ADRs allow us an easy way to invest our portfolio into foreign securities, therefore tapping into these growing capital markets without the complications of currency exchange and other rules. As ADRs began appearing way too often on our buy list and too disproportionately to be mere chance, we determined that international stocks were worth investigating further. We also found that our quantitative tools worked especially well on non-U.S. stocks. In fact, our analysis worked all around the globe in both stabilized nations and fast-growing emerging markets.

As we began to delve deeper into non-U.S. issues, we found a lot of things to like about the idea of investing globally. Although the United States is one of the most innovative nations around the world, it's not the only one. New products, new ideas, and new technologies are being discovered and developed all around the world. In addition, as free trade booms, the world becomes a smaller place. A whole new world of consumer markets has opened, increasing demand for cell phones and computers, automobiles, homes, and all kinds of consumer goods and services. Banks, retailers, cement companies, and even life insurance companies have sprung up all around the planet and their burgeoning new markets of hungry consumers allow them to grow much faster than their U.S. counterparts. We also discovered, to my surprise, that 10 of the world's largest companies are located outside the United States. They may do a significant portion of their business in the United States, but home is on another shore. According to Forbes magazine, the largest construction, auto, business equipment, and food companies are all non-U.S. companies.

To our delight, we also found that one of the biggest hurdles to global investing for folks like us who rely on extensive examination of quantitative and fundamental data has fallen by the wayside over the last decade. Until recently, information on day-to-day non-U .S. stock prices was difficult to obtain, to say nothing of the near impossibility of accessing accurate corporate financial information. The Internet really has opened the world to almost anyone with an Internet connection, and now we can get accurate information from Hong Kong, Japan, Russia, Brazil, or any of the world's exchanges and markets with just a few clicks of a mouse. Once we had the data we could crunch it, and crunch it we did. As ranked by our quantitative grades, the top 10 percent of our global stock picks absolutely creamed the performance of the S&P 500. The top 5 percent doubled that return again. Clearly we were onto something that worked.

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