| Sargent & Lundy Savings Investment Plan |
| GLOBAL INVESTING |
| The following excerpts are from an
article in the Tuesday, January 6, 1998 "Wall Street
Journal". The opinions expressed by the author,
Jonathan Clements, may or may not reflect those of the
SIP Committee. Kick 'em when they're down . That may make sense in a barroom brawl, but it's a lousy approach to making money. Which brings me to the current demonization of international investing. After 1997's foreign-stock-market drubbing, some folks are arguing that American investors should keep their money close to home. I think they're dead wrong. Here are just some of the dubious arguments getting tossed around by the isolationist crowd: History has spoken. Foreign investing makes no sense, the detractors maintain, and the recent performance proves it. If you find this argument convincing, cast your mind back to year-end 1978. Over the previous eight years, Standard & Poor's 500-stock index had spluttered along at 4.6% a year, while foreign stocks had gained 13.5% annually, as measured by Morgan Stanley Capital International's Europe, Australia and Far East index. A sell signal for U.S. stocks? Of course not. It was a great time to buy. Today, the tables are turned. If you bet the bank on U.S. stocks, you are betting on a market that has enjoyed an unprecedented 15-year bull market. But if you venture overseas, you are buying shares that have returned just 4.3% a year since year-end 1988, vs. 18.2% for the S&P 500. Those who head abroad should do just fine - as long as they give it time. There's no place like home. Stick with what you know, say the isolationists. Keep your money at home, they argue. This suggestion might sound entirely sensible if your home market is the envy of the world, as the U.S. market currently is. But the advice may not seem quite so compelling if you are Korean, Japanese or Thai. The fact is, in a world where national markets generate radically different returns each year, sticking close to home can't make sense for everybody. Sure, overseas markets involve greater uncertainty. True, you may have a better sense of your local economy and local companies. But there is no guarantee that this greater knowledge will translate into greater returns. Currencies can kill. As detractors are quick to note, not only did foreign stocks take it on the chin in 1997, but the dollar soared as well. That made foreign shares even less valuable for U.S. holders. Another argument for avoiding foreign stocks? Hardly. In fact, you want to own foreign stocks because of the their contrary performance. As 1997 made clear, foreign markets can perform quite unlike U.S. stocks, and a big reason is currency fluctuations. Last year, the contrary performance worked against you. In 1998, it may help. The real value in owning foreign stocks comes when U.S. shares are struggling, not soaring. World stock markets are more closely linked than ever before, and when there are big jolts, U.S. and foreign stocks tend to sink simultaneously. But over longer periods, U.S. and foreign shares don't rise and fall in lock step, so you get smoother portfolio performance by owning both. this provides psychological solace and makes it easier to tap your portfolio for cash. America the Bountiful. Invest with the best, say the xenophobes. Buy American. This notion may ring a bell with the Japanese. Remember 1989? Tokyo was going to rule the world. Japanese management techniques were all the rage and yuppies everywhere were gagging down sushi. It was, of course, a terrible time to buy Japanese stocks. Conversely, in the mid-1980s, Americans were talking about the Ruse Belt, the budget deficit seemed suffocating and Detroit appeared incapable of fending off foreign imports. Anybody who bough U.S. stocks earned handsome returns over the next 10 years. America now reigns triumphant, and the rest of the world appears to be in economic meltdown. is this really the time to wash our hands of foreign markets and load up on U.S. stocks? |
This page updated on 1/9/98