I have a buddy in the industry that’s a heck of a stock picker.

I’ve met very few stock investors like him. He just has a knack for finding the pockets of value in the markets, even when stocks were bleeding last year.

But he’s been a U.S. stock guy for some time. So it says a lot to me that he’s been looking at international stocks lately.

In fact, he called me the other day to ask me about what I do. He wanted to know how I play the Forex market, how I evaluate various countries, etc. My buddy called me because he already knows what few retail investors realize…

Every single foreign stock is ALSO a foreign currency play. You always want to buy a company from a strong country, with a stronger currency than the dollar. This way, you’re actually earning profits on both the stock’s potential appreciation AND any currency appreciation should that company’s home currency rise against the dollar.

How to Fish in the Best Pond Possible

Back to my buddy for a second… When he called me, he asked how I would start weeding through the thousands of stocks and various exchanges around the world.

I replied: “First, pick the right pond to fish in.”

What do I mean by this? I mean you need to find out which country is MOST worth your investment at any given time. In other words, you always want to buy stocks from the county with the best fundamentals.

To do this, you have to look at a country’s “macro” story first. Look at employment, local GDP, debt ratios, etc.

The reasoning for this? If you’re investing in the country that has the best fundamentals AND you’re picking a great company from within that country…it’s much better than picking a good company within a larger “ho-hum” economy.

So as he was looking for his first “international plays”, I steered him to Australia. Right now, I’d say Australia has the best fundamentals of any of the major G-8 countries. Sound, growing economies help to produce sound and growing companies and vice versa!

Therefore, Australia is the “best” pond to fish in when trying to “hook” a good company.

Here’s another reason why I say that.

How to Tell Where Money Will CONTINUE to Flow AHEAD OF TIME!

I’m picking Australia because superior fundamentals are going to draw money “inflows” into the country. That will push the Aussie dollar even higher vs. the U.S. dollar. So as he (one day) takes profits on his Aussie stock, he will then convert his Aussie dollar profits back into U.S. dollars and grab a nice extra profit.

Therefore, he’s made money on a strong company in a stronger overall economy. Plus, he’s made extra cash on the currency conversion even OVER AND ABOVE the stock gains in the Aussie stock market.

That’s a win-win situation any way that you look at it.

My buddy has fallen in love with the idea. So he’s planning to call me next time he goes “fishing” for another stock…so he can use his next stock as a currency play too.

By the way, this works the other way too. You want to avoid buying stocks from countries that has a sinking currency. I’ll be back tomorrow with more on which markets to avoid right now.

Till then…

Happy Trading,
Sean Hyman, aka Professor FX