The Capital Markets - According to the Wizard
Sector rotation of stocks
In the classic investment cycle, the ten GICS sectors (Energy stocks, Basic materials stocks, Capital goods and industrials stocks, Consumer discretionary spending stocks, Consumer Staple spending stocks, Healthcare and biotech stocks, Financial stocks, Technology stocks, Telecom service stocks, and Utilities stocks) rotate in and out of favor as the economic cycle evolves. When you hear the "rising tide floats all boats" saying, bear in mind that not all boats are on the same body of water. For some, the tide is rising but for others it is bottoming, peaking or falling...
About the American Depository Receipt (ADR)
The ADR is a U.S. listed security that mirrors a foreign-listed security. There may be legal reasons that the actual stock cannot be listed for trading in the U.S. but this factor should not concern you. If the underlying corporation and its share price represents a good value, then buy. The best source of information I have found on ADRs comes from JP Morgan (www.adr.com). They offer a good daily review of foreign markets, which you can access prior to the market open in North America. They also have an extensive listing and research on the foreign issues called ADR...
The offshore market
"Offshore" is a term meaning not only out of your country (residence or citizenship) but presumably out of the tax reach of your country. Assuming I am not a terrorist or drug dealer, I have no care about whether I trade from fully-disclosed or omnibus accounts in offshore jurisdictions. Neither should you. To disclose identity or not is not an investment decision. Nor should it be a regulatory issue because in my experience the controls in place offshore to prevent or catch money laundering, terrorist activities and whatever are no less strong than those onshore...
The British stocks
In building an international portfolio from the S&P high-quality Global 1200 list of securities, I would have 12% to 15% of my total holdings selected from among the S&P UK 150 list. As the British market trades at about half the S&P 500 P/E multiple the values are relatively attractive. British stocks can be traded using a broker connected to the London Stock Exchange or many of them can be bought in the United States. Some of the biggest British stocks trading in the U.S. as ADRs are BP plc (BP), Vodafone plc (VOD) and HSBC plc (HBC). These are high quality companies...
The Canadian stocks
In building an international portfolio, I would have about 4% to 5% of my holdings selected from the S&P/TSX 60 list, which offers exposure to 60 large, liquid high-quality Canadian companies. The S&P/TSX 60 index is market cap weighted and balanced across 10 GICS economic sectors. A few well-known U.S.-traded Canadian stocks are Nortel (NT), Alcan (AL), Inco (N), Scotiabank (BNS), CIBC (BCM), RBC (RY), Toronto-Dominion Bank (TD), Bank of Montreal (BMO), Thomson Corp (TOC) and Sun Life Financial (SLF). Beyond the S&P/TSX 60 list, most Canadian stocks are thinly traded...
The Chinese stocks
The Chinese economy is growing at the fastest pace of any in the world today. In building an international portfolio, I would have about 3% of my holdings selected from Chinese stocks that trade in Shanghai and Hong Kong as well as ADRs on the NYSE. I would have more but the risks are excessive, so I prefer to play China through seasoned stocks of international companies that operate there. Regardless of how fast the economy grows, and how alluring the stories promoted by Wall Street, you have to stick to sound investment principles. A few top-quality Chinese stocks are...
The European stocks
In building an international portfolio, I would put 20% of my holdings into the S&P/Europe 350 list of European securities. You can electronically trade German and Swiss-listed stocks at Interactive Brokers (www.interactivebrokers.com) or on the NYSE, which lists European stocks from many countries. Some solid German corporations are Deutsche Telekom (DT), Allianz (AZ), Bayer (BAY), SAP (SAP) and Siemens (SI). The big Swiss corporations include Novartis (NVS), Credit Suisse (CSR) and Ciba (CSB). These high-quality stocks trade at lower P/E multiples than the S&P 500...
The Japanese stocks
The Japanese stock market's remarkable history of booms and busts have had global economic and political repercussions. The Nikkei-225 bubbled from 86 in 1950 to 40,000 in 1989, with a 600 percent rise in the last seven years. For a time, Japan accounted for 45% of the world market cap; the 1990s saw it shrink from larger than the U.S. to a fifth the size. Now, led by technology, deregulation, and restructuring, Japan appears to be in recovery. There are intricacies of Japanese stock picking and economic analysis, but I would put 10% of a portfolio into these stocks...
