The Biggest Lie Ever Sold

For years, investors have been told to invest internationally, largely for the sake of "diversification." The argument went that when one country's stock market had problems, those issues would likely be local and wouldn't bleed over to the rest of the world. It's a nice concept, and 30 to 40 years ago, there may have been some merit in it.

Then, China happened. In one day, the Chinese stock market dropped nearly 9%, taking much of the rest of the world down with it. Granted, China and Chinese-related companies took the brunt of the damage, but in general, other markets headed the same way -- down. The fact is that China, far from being an isolated market, is an increasingly critical part of our global economy.

Many countries, one world
The more tightly integrated the world becomes, the more likely we'll see things like that happening again. The key lesson: Don't buy international stocks merely for the "diversification" benefit. If (and it's a big "if") that benefit ever really existed, it's pretty much gone now. Instead, pay attention to the real reason for investing abroad: There are a lot of great companies whose headquarters simply don't happen to be in the United States.

In fact, across a broad swath of industries, global leaders and strong competitors have headquarters practically all around the world. This chart showcases just a handful of multibillion-dollar companies, what they do for a living, and the area of the world they call home:

Achieve global success
The good news is that finding great companies abroad looks a lot like finding great ones at home. Great companies tend to be strong businesses with competitive edges that offer compelling reasons -- like tremendous growth or an unbelievable bargain price -- to invest. Unfortunately, investing abroad isn't quite as simple as investing at home. It carries its own set of unique risks. Hugo Chavez, for instance, seems determined to renationalize much of the Venezuelan economy. Similarly, the way Russia handled Yukos seemed to hearken back to the heavy-handed days of Soviet central planning. Even on a more mundane basis, currency fluctuations and accounting differences can cause trouble. At their worst, they can turn an otherwise successful international investment into a dud when you try to get your cash back from your journey overseas.

So to be a successful overseas investor, you must pay attention not only to what companies you're buying, but where they're located, too. That home base, and all its subtle and not-so-subtle risks, can make all the difference between your success and your failure as a globetrotting investor.