Author: Vivian Lewis
Covestor model: International Yield
Disclosures: none
Awful August is over at last. If you weren’t aware, there was also no hiding place with non-USA stocks, the part of the market my International Yield model focuses on. While US stocks went into shock over the S&P downgrade coming after the congressional budget ceiling circus, matters were not that much more conducive to stockholders in other markets either.
In fact, the big news from the August awfulness is how very closely markets are correlating. When Wall Street has the vapors, other markets faint as well. And yet, and yet, there is still a case to be made for buying non-US stocks and closed-end funds investing in non-US stocks. Diversification by country, currency, sector, region, riskiness, or growth-rate is always compelling in portfolio management. I personally try to remember the warning from the milkmaid: don’t put all your eggs into one basket.
Even if one watches global news carefully to try to avoid trouble spots for investing, not only political and economic developments can cause a stock or its market to swoon. Think of the disasters of the past couple of years: the Macondo platform exploding, the Japanese tsunami, Hurricane Katrina, Tropical Storm Irene. Then there are business surprises like Enron or the Canadian Halloween massacre of investment trusts or the spate of Chinese frauds being revealed.
I cannot forecast the weather or seismology or failures to follow guidelines of auditors from Ernst & Young. Because of risks one cannot forecast, there is no single best stock everyone should own. Anyone telling you otherwise – especially with an e-mail blast or a tweet from someone whose identity you don’t actually know – is a stock shill. Unlike the Covestor process, these benevolent providers of free information are probably dumping the very stocks that they are pumping on the world. Unlike them, I am investing alongside Covestor clients who subscribe to my model. We are all trading in and out together.
There are other good reasons for going international in the way my model does. The main one, our focus with the Covestor model, is yield. Respectable, growing companies outside the USA often have to pay higher dividends than their American counterparts to keep shareholders happy. I do not, however, pick securities mechanically using a screen to find the highest payouts. That way lies disaster. Instead, each company is rigorously analyzed to make sure that it is earning its keep and appears likely to continue to pay up.
Like Warren Buffett, we desire high-yielding preferred stock, but unlike him, we’re not interested in Goldman Sachs or Bank of America. They are domestic, and in the USA we cannot get the yield Berkshire Hathaway manages to negotiate. But outside this country we sometimes can.
We balance that focus with, at present, one stock under offer, and two others with meager or non-existent dividends. These companies are under pressure from shareholders and analysts to treat their owners more generously. Both of them can afford to.
And as we come out of the sell-off into September, we’re holding a British bank, a Finnish tech company, and a Colombian energy company, all of which most American investors know little about. Look at my posted portfolio on the Covestor site if you want to learn their names and monitor their performance.
