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Herro Answers 'Why Go Overseas?'

Any time you can broaden your subset, broaden your investable universe, you have a higher probability of achieving success, says the Oakmark manager.

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John Coumarianos: Broadly speaking, I think American investors sometimes have a difficult time investing internationally. They worry about it. Make the case for international investing and tell us what part of the overall world stock market capitalization foreign stock markets represent.

David Herro: Yeah. I think, to answer your second question first, foreign markets are now a majority, they're probably 55% or 60%. But that, per se, isn't the reason to do it. The reason to do it is why limit yourself to one place? And the analogy used early on--I started in this business in 1986, and I find myself continuing still to fight this battle on "Why go overseas?"

It's like, if you're looking for a car, would you shop at one dealer to buy a car? And in fact, if that dealer knew [he was] your only dealer, you probably wouldn't get a very good deal.

So what you have to do is you have to look at all your options and especially since we have a very healthily growing, vibrant world, there's all kinds of different situations wherever you look. No two markets, even though they're looking a lot more a like from the surface, when you dig down, no two markets are the same. They all have unique aspects to it.

But to me, any time you could broaden your subset, broaden your investable universe, you have a higher probability of achieving success. And success to us is defined by being able to find stocks that meet our value proposition. Low price, high quality. So it has really helped us, in fact, because there are certain times when certain markets are systematically overpriced.

Just think if you were a Japanese investor in the '80s and you only invested in Japan. And you would have been exposed to a systematically overpriced market. Or one can even argue, in the late '90s in the U.S., during the tech bubble, at least a huge swath of the U.S. equity market was systematically overpriced.

Coumarianos: You were buying the S&P 500 at over 40 times earnings in 2000.

Herro: Even that was--yes. Now, there was the old economy and new economy. You could still find value in the old economy. But the fact is, you would never want to limit yourself to one area. So I think that's the biggest reason, is you should use all tools and all geographies at your disposal to find the best companies that are selling at the lowest prices.

John Coumarianos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.