The 5 Best Places to Invest

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If pressed, could you tell me the country that offered the best stock returns over the trailing 12-month period? What about any members of the top 5?

It's harder than you probably think, because they're not the countries you might expect.

You call that a bull market?
Despite recent volatility, the S&P 500 has still returned more than 10% annually over the past five years. While that's an impressive number on the surface, it's abysmal when compared to the rest of the world's equities.

And over the past year, the S&P has been down, while many foreign markets have been booming. Without further ado, the top performers over the past year:

Country	Return
Bangladesh	126%
Cote d'Ivoire	118%
Oman	99%
Mauritius	81%
Qatar	76%

Source: Motley Fool Global Gains.

This list is incredible to me. Tiny Mauritius?

We can learn a few things from this list. First, if you're an American investor, it's absolutely crucial to be invested abroad. The potential returns to be had there are too good to pass up. Second, the best returns often come from obscure places -- not from the countries we read about every day in the papers. And finally, there is some risk involved in investing internationally. For example, Bangladesh isn't exactly a nation known for its corporate governance, and Qatar is in a region not generally known for its stability.

Buy what others aren't
The main lesson here is old hat: To get the best returns, you need to be willing (and able) to look where other investors aren't. That's why the 10 best domestic stocks of the past 10 years were all small caps.

See, huge numbers of investors and analysts watch large companies and popular markets. Goldman Sachs (NYSE: GS), UnitedHealth (NYSE: UNH), and ConocoPhillips (NYSE: COP), for example, get coverage from 20 or more analysts. Those three popular stocks also have more than 2,000 ratings each in our Motley Fool CAPS community intelligence database.

In other words, they're probably pretty efficiently priced.

You'll get the best returns, however, by finding market inefficiencies. And while another 2,300 and 4,500 investors, respectively, are covering Corning (NYSE: GLW) and Sirius Satellite Radio (Nasdaq: SIRI) in CAPS, there's not a single Bangladeshi stock that you can buy on a U.S. exchange.

The Foolish bottom line
That's where your opportunity lies as a Foolish investor, though it makes investing in Bangladesh extremely difficult. But as I said, international investing is not without risks, and know that you don't need to find the best foreign market over a trailing 12-month period in order to do better. Even the more developed European markets, which you can access here in the U.S., will give you greater diversification and better returns.

If you'd like some help finding worthy international investing ideas that you may never have heard of, click here to try our Motley Fool Global Gains international investing service free for 30 days. There is no obligation to subscribe.

This article was originally published on Dec. 13, 2006. It has been updated.

Tim Hanson does not own shares of any company mentioned. UnitedHealth is a Motley Fool Inside Value and Stock Advisor pick. No Fool is too cool for disclosure.