It was another exciting trading session yesterday for the 30 stocks of the Dow Jones industrial average. In the first two hours, the average dropped 150 points, but it finished 37 points ahead. Whew!

Rather than paying attention to the exertions of the Dow -- or of the broader Standard & Poor's 500-stock index or the tech-heavy Nasdaq, which took similarly volatile courses but ended down for the day -- you should be seeking distraction.

If you own a diversified portfolio of good American companies, don't worry about them. They'll do just fine. Focus on something you may be seriously lacking: foreign stocks.

A recent report by Leila Heckman and Holly Sze at Salomon Smith Barney Research points out that there are "2,728 companies around the globe with a capitalization of $1 billion or more" and that "1,634 of them [are headquartered] outside the U.S."

In other words, only four of every 10 mid-cap and large-cap stocks are American. Neglect foreign stocks and you are neglecting some of the world's best companies -- many of them, as we'll see, at excellent prices.

Just as important, putting foreign stocks in your portfolio decreases your risk by increasing your diversification. Heckman and Sze divide the past 15 years into three equal periods. In the first, 1984-88, Japan vastly outperformed Europe and the United States; in the second, 1989-93, the emerging markets of Asia and Latin America were on top; and in the third, 1994-98, U.S. stocks finished first. European stocks were in second or third place in each era.

Still, the researchers point out that the divergence among markets is dropping. If the United States is having a rotten year, Europe and Japan are more likely than in the past to be having one as well. So an account that is invested 70 percent in U.S. stocks and 30 percent in foreign stocks is still less risky than one that is invested 100 percent in U.S. stocks -- but not by a whole lot.

More and more, then, "the reasons to invest globally have to do with opportunity. There will be companies and countries which offer as much of and at times a higher return than investing solely in U.S. companies."

What is remarkable is that U.S. investors don't seem to understand this simple notion. Between August 1998 and April 1999, a total of $10 billion has flowed out of foreign funds -- or more than 5 percent of the funds' current assets.

This distaste for foreign stocks pervades the investing atmosphere at just the time that James Grant, one of the most erudite market mavens, is launching a new newsletter, Grant's International (212-809-7994, but be warned that it's $620 a year).

The letter is filled with interesting intelligence, such as the fact that "the Japanese are golfing again," with average country club membership fees (which trade on an open market in Japan) rising from $45,600 on Dec. 25 to $54,200 on April 2.

Grant's conclusion is to buy Adidas-Salomon AG, a German company that trades here as an American Depositary Receipt (like a normal U.S. stock) on the New York Stock Exchange under the symbol ADDDY. (All the foreign companies in this column trade as ADRs.) In 1997, Adidas, the global sport shoe manufacturer whose main rival is Nike Inc. (NKE), bought Salomon, a French sports equipment company whose top label is Taylor Made, which produces classy golf clubs.

As Nike has boomed in 1999 -- up 48 percent -- Adidas has languished. Its stock, which lost 26 percent in 1998, hasn't budged since the start of this year.

But Adidas is cutting costs and acting like a shareholder-friendly U.S. company. Its prospects, says the Grant's analyst, are not much different from those of Nike, yet it "commands a P/E multiple less than half of Nike's." The price-to-earnings ratio for Nike, based on earnings estimates for the current year, is 37.

Another foreign stock cited enthusiastically by Grant's International is Nintendo Co. (NTDOY), a company that "by favoring creative content over exotic special effects . . . is becoming the Disney of interactive entertainment." Nintendo's hot game right now is Pokemon (short for pocket monster), which is played on a hand-held Game Boy video screen and has become the source of the number-one kids' TV show.

Thanks to the success of Pokemon, analysts figure that earnings for the year 2000 could generate a P/E ratio for the stock (at its current price) of a mere 18, meaning that you can buy $1 worth of Nintendo's earnings for $18. By comparison, the P/E for Walt Disney Co. (DIS), based on forecasts of year 2000 profits, is 31.

Foreign stocks are "value" plays -- in other words, many of them are overlooked bargains. Consider Tele Danmark A/S (TLD), a telecommunications company, owned 44 percent by Chicago-based Ameritech Corp. (AIT), that was recently recommended by the Zacks Advisor newsletter.

Tele Danmark, serving 11 European countries, is taking advantage of telecom deregulation that is more advanced on the Continent than in the United States. Analysts expect earnings of $3.41 per ADR in 2000 for a stock that closed yesterday at $51.50 (down by nearly one-fourth since the start of the year) despite earnings that should soon be growing at double-digit rates.

Promising foreign stocks can be found in developing countries as well. Salomon Smith Barney recently upgraded to "buy" ratings both TV Azteca SA de CV (TZA), which owns two national television networks in Mexico, and Fomento Economico Mexicano SA de CV (FMX), a holding company with interests in beer and convenience stores.

Although Mexico's main stock market index is up 39 percent this year (in dollar terms), Azteca is down 22 percent. Fomento, say the Salomon analysts, is also trading at a discount, and its earnings are soaring.

If you're looking for a foreign-stock mutual fund, the highest-rated by Value Line are Founders International Equity (1-800-525-2440), with a well-diversified portfolio headed by Cable & Wireless Communications PLC (CWZ) of Britain, and Janus Overseas (1-800-525-3713), a personal favorite, led by Wolters Kluwer NW (WTKWY), the huge Dutch professional publisher.

Glassman's e-mail address is jkglassman@aol.com; he welcomes comments but cannot answer all queries.