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Read This If You Plan To Bail Out of AmericaBy
Wednesday, November 16, 2011
This year, my unusual take on American stocks is making people money.
Meanwhile, the kind of popular advice you get in magazines and most newsletters is losing you money.
Here's the story...
Many advisors will tell you to focus on the "hot" emerging markets like China and India. They'll tell you these markets have billions of new consumers coming online, ready to buy products like beer, soda, cars, and telephones. They'll tell you America's economy is slowing, or about to fall off a cliff... and if you want to protect your money, you need to bail out of American stocks... or America in general.
My advice is to buy American. I think the "doom and gloom" analysts are wrong. And the world's most successful investor, Warren Buffett, agrees with me. Buffett is buying U.S. stocks in huge amounts right now. As Steve Sjuggerud pointed out, he bought $24 billion worth of stock last quarter. It's his biggest buying binge in 15 years.
And as I'll show you, when you buy the right American stocks, we win both ways. We'll start with the table below...
This table shows the performance of various countries, as measured by the returns of their major indexes over the past year. You'll see the supposed "hot" emerging markets – like India, Brazil, and China – are among the worst performers.
The U.S. is the only market in positive territory.
What's going on here? Didn't anyone tell investors that the U.S. is in terrible shape... and that "hot" emerging markets are the place to be? Or could it be that conventional thinking is wrong on this one?
The problem with conventional thinking is that it doesn't see how America's best companies are becoming the world's best emerging market investments. Take Coke (NYSE: KO), for example. It's based in the U.S. But it's benefiting from major growth in emerging markets.
Coke sells the No. 1 soda in China: Sprite. Sprite is the No. 2 sparkling beverage in India. While the per-capita consumption in both countries is 15% of what it is in the U.S., most beverage experts believe consumption will grow faster in the Asian nations. Coke sells nearly 3,300 beverage products worldwide... and gets most of its revenues (77%) from outside North America.
So with stocks like Coke, I get to enjoy the growth of "hot" markets, but I still get U.S. regulatory structures and corporate governance standards. I get to collect growing dividends, and I sleep well at night with my money in these companies.
I'm not so sure this is the case with Chinese companies.
This year, for example, Sino-Forest – a popular timber company with its assets in China – plummeted 90% in just a few months. The details are unclear right now, but the company is accused of grossly overstating its assets and hiding losses. Billionaire investor John Paulson – one of the smartest guys in the investment business – lost hundreds of millions of dollars on the position.
Now remember... Paulson's firm employs an army of analysts and accountants. It has a huge research budget. If Paulson's firm has trouble in places like China, it's unlikely the average investor will do much better.
It's especially hard to do well in these types of markets in a volatile year like we've had in 2011.
Not only have emerging markets like China, Brazil, and India performed poorly this year, they've done so with enormous volatility. Many of them lost at least 25% of their values during the August crash. Meanwhile... elite, dividend-paying, U.S. blue chips like Coca-Cola held their value and are trading near their all-time highs.
Don't get me wrong. I think the economies of China and India are going to grow several times their current sizes over the coming generations. But I'd much rather take the "unconventional" approach and invest in their growth through stable, dividend-paying, U.S. companies.
And as you can see, that approach is making money.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Further Reading:
Warren Buffett just bought 1.5 million shares of an American company. "I suggest following in his footsteps," Frank Curzio says. "This company has plenty more upside."
Market NotesBUFFETT LIKES WORLD DOMINATING DIVIDEND GROWERS Warren Buffett agrees with the "World Dominating Dividend Grower" thesis. That's the message behind today's chart.
Regular DailyWealth readers are familiar with the concept of World Dominating Dividend Growers. It's a label introduced by our colleague, Dan Ferris. Only the world's best brand names, with the most reliable dividends, carry this label. They are the stock market's ultimate safe compounding vehicles. And as we recently pointed out, these companies "sailed" through the August stock panic.
One World Dominating Dividend Grower we've written about many times is Intel (NASDAQ: INTC). Intel is the world's leading maker of semiconductor chips... the tiny engines that power computers. It has a dominant position in its industry, generates huge cash flows, and pays a relentlessly growing dividend.
Intel's positive attributes were enough to attract the interest of super-investor Warren Buffett. The billionaire just revealed he now owns 9 million shares of the stock. Buffett's buying has helped send shares to a new high. We state again: Great things happen when you buy great businesses on the cheap.
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