The Little Book of Bull Moves in Bear Markets: How to Keep Your Portfolio Up When the Market is Down

Chapter 8. Favorite Nations: Money Cat Knows Where the Money Tree Grows

When It Comes to foreign investing, I'm a top-down kind of guy, meaning I decide first where I'm going to invest, then the sectors to invest in, and last what stock I'm going to buy. In the bottom-up approach, analysts focus on particular companies in hopes of finding hidden values that might cause a stock price to rise despite negative industry or economic conditions. This approach has an important place in investing generally, but it doesn't work well in international investing. International returns come mostly from wise country and sector selection.

So for our purposes, I make regional and country selection my first order of business, and sector selection my second. Once I've done that, I figure my stock will be a winner if it gets me a positive return from at least two of three sources: dividend income, currency exchange, and capital appreciation.

Dividend income, of course, is company-specific and always positive. While yields are generally better abroad than in the United States, keep in mind that they do range higher or lower from country to country. But with the dollar sinking against foreign currencies, your profits on currency conversion are likely to outweigh even the highest yields—depending on the value of a country's local currency relative to the United States dollar. I discuss my favorite countries later on.

Capital gain or loss is subject to the vagaries of the market, but is more often than not ...