The World Is Your Playground

  • January 24, 2006

Over the last few years, while US markets were recovering from the bursting of the dot-com bubble, the economies of India and China were booming. Compared to the Dow Jones Industrial Average’s dismal loss of 0.6% in 2005, India’s BSE index gained 42.3%, the Japanese Nikkei Index gained 40.24%, and Germany’s DAX 30 gained 28%. While US drivers continue to face rising oil prices that shot gasoline prices over the $3/gallon mark in many parts of the country, gas is cheaper than water in Venezuela (10 to 15 cents per gallon) sparking a boom in auto sales there. This may be very surprising news to investors in auto stocks such as Ford (F) and GM (GM), who watched their investments implode to barely half their value in 2005.

Traditionally, financial advisors have advocated for holding 15 – 20% of one’s overall portfolio in international stocks. There seems to have been a change in this sentiment recently, with some advisors recommending that as much as 50% of a portfolio be held in international stocks. Fear could be driving this trend. Fear that the real estate bubble might burst (the median price of a home in San Francisco/San Mateo is now around $750,000); that huge budget deficits could push the value of the US dollar over the proverbial cliff; of the long term effects of rising inflation and missing out on opportunities in emerging markets around the world.

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