We were fortunate enough to attend the US Open Tennis Championship in Queens, NY over the Labor Day weekend. It is one of the more enjoyable sporting events due to the ability to choose between multiple matches on several courts. As I had not been to the U.S. Open championship for a few years, I noticed one major difference at the Open from 20 years ago. And that was the large number of excellent international players competing for the championship.
The list of men’s top tennis players included Roger Federer (Switzerland), Novak Djokovic (Serbia), Andy Murray (Great Britain) and Juan Martin Del Potro (Argentina). It is also similar on the women’s side with players such as Maria Sharapova (Russia), Petra Kvitova (Czech Republic), Peng Shuai (China) and Agnieszka Radwanska (Poland). As you look over the tournament bracket, you feel sorry for the sports newscaster who will have to state the winners and losers from these matches nightly due to their long foreign names.
What struck me was what has occurred in the world of international tennis is very similar to what has gone on in the business arena. While there are still strong American tennis competitors especially on the women’s side with Serena Williams, the Americans do not dominate the tennis game as they once did.
Other countries have worked hard to develop their youth tennis programs in order to be able to compete on the international circuit. This is very similar to what has gone on in the business arena.
While the United States still has a very strong presence in the business arena, international companies have also grown their respective businesses to compete – not just with the American companies – but with companies in their own regions and across the world.
This is why you need to own international companies, as they now account for approximately 50% of the total value of all worldwide companies traded on a publicly traded stock market in June 2013, according to Dimensional Fund Advisors (DFA).
The overseas companies can be listed like the tennis competitors above. The list of well-known companies selling products in America and the world include the obvious international automobile companies such as Toyota (Japan) and Mercedes-Benz (Germany), but also include even the omnipresent beer Bud Lite which is now owned by a Belgian company. They include a financial/insurance company from the Netherlands (ING) to French water company (Evian) and a Canadian bank (TD Ameritrade). It is hard for the average American to go the day without purchasing a product from an international company.
Over the past few decades there has been an enormous shift in the relative stock market capitalization of the world. Stock market capitalization is a calculation which values all the companies traded on a publicly traded stock market. While the U.S. remains far and away the largest country by market capitalization, the availability of non-U.S. investment choices has grown rapidly.
According to Prof. Jeremy Siegel of the Wharton School of the University of Pennsylvania, by 2050, it is believed the United States will only account for approximately 17% of the world market capitalization. Not from U.S. value declines, but from rapidly increasing value of the overseas firms.
As a long-term investor, make sure that your ownership exposure to the great companies is not limited only to the United States companies – as great as they are. But be sure to include the great companies of Europe and Asia as well as the companies from the emerging markets countries such as those found in Brazil, India and China. This will give you the best opportunity to own the champions of today as well as the champions of the future – whether they are in tennis or the business arena.
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