Love, liberty and the pursuit of happiness is considered The American Dream. But there’s another American Dream; or at least a derivation of that ‘pursuit of happiness’. We’ll call it the Wall Street dream.
Yes, the Occupy movement has been active in critiquing the excesses of professional money managers and investment banks — and with some justification. But the companies that make up the proverbial ‘big end of town’ in the USA continue to set new share price highs — and earn ever more in sales and profits from not only North America, but right around the world.
Focussing on just the fat cats misses the greater point — that enormous wealth is being created for shareholders of some of America’s — and the world’s — greatest companies.
Just think. Australia makes up around 2% of the world’s global share markets. That means 98% of the potential lies outside our borders. And when you think our market is dominated by two industries — banks and resources — it makes that 2% seem even less diversified.
By comparison, the major US markets, the New York Stock Exchange and the Nasdaq, make up over 40% of the world’s stock market value. And as a kicker, one-third of revenues earned by companies in the US S&P500 come from outside the US.
Isn’t it just possible, that the world’s largest stock markets, with more than 20 times the value of the ASX, have something to offer Australian investors? Not only are there more companies that are significantly larger, but US markets offer access to different geographical regions, different industries and companies we just can’t access here in Australia — not to mention currency and regional diversification.
Names you know
You might have heard of Berkshire Hathaway (NYSE:BRK-A, BRK-B), the company run by the world’s most successful investor, Warren Buffett. Or Amazon.com (Nasdaq: AMZN) the online retailer single-handedly revolutionising global retail. For full disclosure, I own shares in both. But there are many, many more wonderful businesses in the USA. Think about the the credit cards in your wallet. Visa and Mastercard are listed on the NYSE. Facebook and Twitter are US-listed. Nike, Ford, Google, Starbucks… the list goes on.
Isn’t it just possible that one, two or more of those companies will end up making a lot of money for their shareholders? Of course it is. In fact, given the quality and potential of some of the best companies on the US markets, it’s very, very likely.
Yes, it’s a different market. It’s a different timezone, and yes, it’s a different currency. If you’re looking for reasons not to invest in the USA, you’ve probably already thought about those three elements. It’s easy to find reasons not to invest in the US, just as its easy to find reasons not to do a lot of things. But let me but those myths.
The US is obviously a different market. But it’s not that different. You know most of the companies, products and service already — including the ones I’ve mentioned above and many, many more. And the US regulatory environment is very slightly different from ours here in Australia, but not in meaningful ways. Perhaps the largest one is the lack of franking credits, but US market returns tend to come more significantly through capital gains anyway, as these companies have much greater opportunities to grow by reinvesting their profits.
The timezone might be different, but honestly, every investor would likely be better off with the natural hand-brake of having to wait a few hours to make their trades, to stave off the natural inclination to respond to every market jitter.
The currency is potentially the biggest consideration. It’s no longer offering the ‘free kick’ it was at US$1.10, but at just over US$0.81 at the time of writing, the dollar sits comfortably above the US$0.75 ‘vicinity’ that RBA governor Glenn Stevens suggested was an appropriate valuation, making now a good time to be buying shares in quality US companies.
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Scott Phillips is a Motley Fool investment advisor. He owns shares in Berkshire Hathaway and Amazon.com. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).