International Diversification

My colleague Bob Quinn has been pushing me to rethink my current skepticism on international investing.

It's not that I don't understand the arguments: more than half of the world's stock market capitalization is outside the US; growth rates may be better outside of this country; foreign markets may offer welcome diversification to domestic stocks, etc.

The problem I'm having is that I have been convinced of the virtues of international investments several times during my career. In fact, I wrote a long paper in graduate school back in 1981 (!) about the virtues of international investing.

But then, when I go ahead and commit capital, the results are often not as appealing as they should be. Moreover, the correlation between foreign markets and the US is often quite high (with the exception of Japan), so the diversification argument has often not carried the day.

But I am once again thinking I should be pushing for more international stocks, especially in the emerging markets. I'm not all the way there yet, but I'm doing alot of work on the subject.

There was a good column in this morning's Wall Street Journal about international stocks written by Jason Zweig, who's a pretty savvy journalist. Here's the link:

http://online.wsj.com/article/SB10001424052748704343104575033103904554046.html?mod=WSJ_hp_editorsPicks