Wow — talk about a disaster. Bad news at AIG, Lehman, and throughout the financial sector led to a world-class pummeling on Wall Street. The Dow lost more than 504 points, while the S&P 500 dropped more than 4.6%, the worst single-day decline since right after the 9/11 terrorist attacks.
Definitely stay tuned to Money and Markets for more updates on where we're going next.
What else is on my mind? Well, whenever the pinstripe suit crowd in Manhattan starts to agree with me ... I get real worried.
I start to sweat ... I begin to question my research ... And I look for every possible hole in my conclusions.
Why?
Because the Wall Street crowd is better at being a day late and a dollar short than anybody I know. And I've learned over the years, that you can make a ton of money by NOT listening to them!
It's not that they're stupid
The Wall Street crowd isn't stupid. Heck, most of them attended more prestigious colleges than I did. And they can drop more names than I ever could.
So what has me worried?
The chief investment strategist at Citigroup just recommended that investors increase their stock portfolio's allocation in foreign stocks to 55%.
That's way, way up from the 30% he had been recommending. And it's roughly quadruple the 12% to 15% that the typical mutual fund investor owns in foreign funds.
Why the sudden and dramatic increase?
Jeffrey Applegate, the head of Citigroup's Global Wealth Management, said: "The primary engines of growth have shifted away from the United States. Investors need to position themselves to take advantage of global opportunities."
Applegate is right ... but a little late to the party.
From 2003 to the end of 2007, the average annual return for the Dow Jones Wilshire Emerging Markets Index was 46% while the S&P 500 only returned 12.8%.
Those gangbuster returns have increased the impact of foreign stocks on global markets. According to Russell Investments, the value of U.S. stocks in the world market fell below 50% in 2005. And now they only represent 43% of the capitalization of the Dow Jones Wilshire Global Total Market Index.
If you think those oversized returns mean that investing in foreign markets automatically means more risk ... you would be wrong. According to Morningstar, the standard deviation (a measure of an investment's volatility) of the U.S. stock market was 15.4 for the past 10 years. And for foreign stocks it was 15.5.
That's right. Investing in foreign markets has no more risk than investing in U.S. stocks ... plus you get paid a lot more for doing so.
China's the best house in a great neighborhood
I think Citigroup and Russell are dead right. And investors should have a meaningful, if not heavy, weighting in foreign stocks. I may be biased.
