Our philosophy, in a nutshell, is that there’s always a growth trend and bull market somewhere in the world.
We begin by researching and identifying the best growth trends which, like the wind behind a runner or the current behind a swimmer, makes success all the more probable.
And no question, one of the most prominent growth trends in the world right now is the rise of emerging markets.
Representing 85% of the world’s population in countries brimming with confident, better- educated young consumers, they have more money in their pockets and are riding economies with growth rates that are 2-3 times greater than in well-developed markets.
But we also look beyond emerging markets to markets such as Canada, Europe, Australia, Japan, which are full of world-class companies capturing growth and profits from around the globe.
We follow global growth trends and find specific, actionable ideas that have the potential to deliver big gains to subscribers.
This is the mission my investment advisory focused solely on international investments.
We believe how much and where a company gets its revenue and profits is more important than where the company has its headquarters.
Take Apple. An iPhone is largely sourced and assembled in Asia.
This why while Apple products are “designed in America” and not “made in America”
Starbucks will soon have 6,000 outlets in China while it’s closing poorly performing outlets in America. Meanwhile, a Chinese challenger has opened 4,500 outlets in China in the last two years and just went public on NASDAQ.
International Investment is an Engine of Growth and Jobs
And if you think it’s not patriotic to invest in international companies, you should know that international companies make a significant contribution to America’s economic growth and jobs.
Guinness, a subsidiary of London-based multinational Diageo, has announced an $80 million investment to open a brewery in the U.S.
Toyota has the largest manufacturing facility in the world based in Kentucky.
BMW churns out 1,500 autos each day at its Spartanburg, South Carolina, plant in which it has invested $8 billion, employs 10,500 workers and relies on 230 American auto-part suppliers.
Japanese automakers now make two of every three cars sold in America.
And roughly, 20% of the American manufacturing workforce and about half of all American manufacturing jobs created in the last five years are due to international investment.
International investment accounts for nearly 7 million high-paying jobs in America and – here’s a stunner – these subsidiaries of international companies produce 22% of total U.S. exports.
For example, L’Oreal, headquartered in Paris, has the world’s largest cosmetics manufacturing facility in Little Rock, Arkansas, and employs 11,000 American workers with 65% of the company’s U.S. sales made in America.
Take Your Portfolio to the Next Level
Let’s face it—the average investor is just more comfortable investing in their home country than in companies based overseas.
And for Americans, U.S. markets have enjoyed a decade-long bull run and provide plenty of opportunities.
But let me ask you a few questions:
- Do you really want to be an average investor?
- Can you count on U.S. stocks going up forever?
- Are you comfortable with all your eggs in one basket?
- Do you really think that all the best companies are based in your home country?
- Don’t you want to capture some of the best emerging market companies, achieving growth two to three times faster than most of the world?
The world is filling in fast, powered by breakthroughs in technology & communications. Now, more than ever, you need a global perspective in seeking investment opportunities.
After all, America still represents only 5% of the world’s population and 22% of world GDP. If you only invest in American companies, you’re neglecting 95% of the world and 78% of the global economy.
So, it’s essential – and potentially quite profitable – to invest outside U.S. borders. The question is, where do you invest? How do you sift through an entire world of stocks, and know how to separate the good from the bad? That’s where this report comes in.
To help get you started, I’ve come up with six rules for finding, and investing in, the best stocks in the world. Consider this your “Passport to Profits,” so to speak.
Let’s get started.
6 Rules for Investing in the Best Stocks in the World
Rule #1: To Get Ahead, Get Organized
Most portfolios I reviewed as an investment advisor were disorganized and rarely reflected a well thought out strategy.
Investors would be better served by separating their investments in a number of buckets based on goals and risk tolerance.
Why not follow a “core & explore” strategy by setting up a core investment portfolio for U.S. stocks, and an explore portfolio for international and emerging market stocks?
This keeps everything in their proper places, reduces stress, and can lead to better performance.
Your “explore” portfolio is dedicated to international stocks at the heart of high growth global trends.
We normally aim for a fully invested portfolio of 10 stocks from around the world.
If you are attempting to follow the portfolio as closely as possible, you will determine the amount of your investable cash that you wish to allocate for our portfolio and divide it into 10 equal-dollar positions.
Each full position you buy, then, will represent about 10% of your allocation. Keep in mind that a 10-stock portfolio is an aggressive portfolio – diversified enough to avoid being crushed by a single loser but concentrated enough to get a significant benefit from a few winners.
How much money you allocate to your explore portfolio is a personal decision based on a number of factors. Perhaps you could discuss this with your financial advisor.
There is no need to invest in every recommendation. We will clearly highlight ideas that are more aggressive. You should be open to new ideas but also stay in your comfort zone.
Rule #2: A Rifle is More Accurate than a Shotgun
The days of just allocating 10% of your portfolio to an international mutual fund without thinking are over.
You need more exposure to international markets and a more sophisticated strategy to achieve your goals.
Some advisors recommend a “shotgun” approach using exchange-traded funds (ETFs), which are essentially baskets of stocks. ETFs are more flexible, transparent, and tax efficient and have lower fees than mutual funds.
But we believe that, for a chance at significant gains, you are going to have to invest in specific stocks – I call this the “rifle” approach.
And you can access international companies that trade right on U.S. stock exchanges through ADRs (American Depositary Receipts). Investing in ADRs strips away the headaches and uncertainty of having to buy stocks from exchanges with which you’re unfamiliar. You also avoid any potential foreign currency risks.
Above all, when you buy an ADR, you’re investing in an emerging market company that has met all U.S. accounting and reporting requirements.
Rule #3: Invest in Global Growth Trends
The first step is to identify channels of accelerating and lasting growth.
Here are just some of the trends that we are closely following for our subscribers right now.
The Global Infrastructure Boom
$94 trillion is expected to be spent on infrastructure in the coming decade. Find out the best ways to play the infrastructure boom, from large multinationals to smaller niche companies.
The Age of the U.S.-China Rivalry
Where are the opportunities – and the risks to avoid? What companies will come out on top of this intense competition for the commanding heights of the global economy.
The Global Battle for Resources
As the competition heats up, the gains will be considerable if you select the right commodities and companies at the right time.
The Internet Platform
China, India, the U.S., Southeast Asia and Europe all boast large, tech-savvy populations increasing shopping, entertainment and gaming online. For example, Chinese companies from Alibaba to Momo to IQ have an open highway to growth.
Better Health, Better Food
As incomes rise in emerging and frontier markets, spending on health and food by families rises even more. But our research discovered that this extra disposable income is spent on pretty specific things – like coffee!
Rule #4: Look Ahead & Play the Middle of the Field
No one can predict the future but we highlight global growth trends as they emerge.
Sometimes the first movers have the edge but companies that come later with scale and capital can vault to the head of these channels of growth.
We do our best to recommend companies with momentum and in an upturn. The adage, “The trend is your friend,” is a good one to keep in mind.
But sometimes markets overreact and quality companies posting strong revenue and profit numbers can be suddenly trading at “value” prices.
It’s also important to manage risk and, from time to time, take some money off the table after a position becomes profitable.
And while it’s true that some of the greatest investment ideas come at the extremes of deep value and high growth, it’s usually smarter and safer to play the middle of the field.
“I don’t buy low, I don’t sell high, I play the middle 60%.” – JP Morgan
We also work hard to avoid investing in trends and companies that are running out of steam
or facing strong headwinds that will likely slow growth and profitability.
In international, and especially emerging, markets, political change can be an important factor in successful investing. Great bull markets often start with economic, free market and political reforms and investors can make a killing if they come to the party early.
“The job of an investment company is to decide to invest in the right thing
in the right place at the right time. But the right thing is the least important. If you picked the very best share in St. Petersburg in 1917 you could be the greatest genius in the world and still go bust … You have to be able to see the swings in the market.” – Sir James Goldsmith
Rule #5: Protect Your Portfolio
While our intention is to recommend ideas that we believe have substantial upside potential, sometimes markets move against us or a company reports some unexpected negative news.
We need some discipline to protect the portfolio.
Normally, we recommend that subscribers put in place a 20% trailing stop loss in place so that if a stock pulls back 20%, it is removed from the portfolio. This is a personal preference issue, of course, and some investors may wish to have a tighter stop loss.
One of the best ways to avoid losses is to follow the trends and, when they move against you, reduce your exposure.
Our Cabot Emerging Markets Timer is our indicator for measuring the intermediate-term trend of emerging markets stocks.
The indicator uses the iShares Emerging Markets ETF (EEM), which tracks 800 emerging markets stocks traded on U.S. exchanges.
In addition to monitoring EEM, we look at the EEM’s 25-day and 50-day moving averages. (A moving average simply smoothes out the daily fluctuations in any index. A 25-day moving average, for instance, takes each of the last 25 closing values, adds them up, and then divides by 25.)
The Cabot Emerging Markets Timer is bullish (positive) when two criteria are met:
EEM must be standing above the lower of its two moving averages; and the lower moving average must itself be advancing.
When neither of these criteria are met, the Emerging Markets Timer is negative, and the trend of emerging markets-related stocks is deemed bearish.
This is a cue for us to either add new ideas to the portfolio or reduce positions and raise cash.
In addition, from time to time we might also add exposure to EUM, an ETF that moves opposite EEM. In a market downturn, this will be positive and serves as a “shock absorber’ for your portfolio.
Rule #6: Be Alert to Value Opportunities
While growth investing and following trends is the easiest and most dependable way to invest, keep in mind that some of the greatest investors of all time have been value investors.
This quote from Winston Churchill does a great job of capturing this trait:
“A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty.”
Benjamin Graham, Warren Buffett, J. Paul Getty, Sam Zell, John Templeton, Carlos Slim, Li Ka-shing, and Howard Marks all had an innate instinct for distressed situations and bargain priced assets.
Unfortunately, value investing takes more effort and discipline than most of us consistently possess. Deep value opportunities can be time consuming to analyze and it takes courage to take a grubstake when most investors are running for the exits. Then we may lack the patience to wait for the catalysts to kick growth into high gear, unlocking the value of the company.
Here is how Getty puts it in his classic book, How to Be Rich:
“The big profits go to the intelligent, careful and patient investor, not to the restless and overeager speculator. ……The seasoned investor buys stocks when they are low, holds them for the long-pull rise and takes in between dips and slumps in his stride.”