Admittedly, the term foreign investing sounds, well, foreign. The companies are far away, regulated by other governments (if at all), and are seemingly less transparent than those under SEC scrutiny in the United States. All of these reasons make American investors far more comfortable sticking with American stocks.
That's too bad, because some international investors are beating the pants off those huddled around only U.S. companies. While the U.S. stock market appreciated 15% last year, it ranks near the bottom when compared with world markets.
The first things that come to mind when considering international investing are probably some combination of these three:
- High risk.
- Only professionals do it.
While these are some of the most common beliefs about international investing, they also propagate oft-repeated myths. Consider how each of these can be blinding you from a world of great stocks:
Myth No. 1: International markets are unstable and too volatile.
No doubt, foreign investing isn't a no-risk business. But many think international investing means stomaching volatile markets in China, Russia, or Brazil -- none of which conjures up feelings of stability. But these are not the only profitable, emerging international market opportunities. Actually, companies in places such as Australia and Chile are far more stable, with more genuine growth prospects than many U.S. companies.
In truth, getting a good price on shares in an international conglomerate growing at more than 20% a year could involve less risk than putting money behind U.S. competitors Intel and AMD as they slug it out for profitable semiconductor market share. And if you're willing to venture into volatile stocks highly exposed to litigation risks and costs such as Research In Motion
Myth No. 2: I have to invest in exotic shares or exchanges to get a piece of a foreign company.
Many international companies offer shares on U.S. exchanges in the form of American Depositary Receipts (ADRs), which are receipts exchanged for company shares on their home exchange. This makes it easy for U.S.-based investors to invest in hundreds of international firms. You may not even know that some of the largest, best-known companies in the world trade as ADRs, such as British petroleum conglomerate BP
While some investors choose to buy shares on other exchanges through brokers, it's not a requirement. Tapping into exploding international markets may come from investing in a U.S.-listed company that derives significant revenue from outside the country as well.
Myth No. 3: You have to be a professional to do well.
Yeah, this is the same story that was pushed on U.S. individual investors a decade ago -- you can't do it yourself, you need to pay someone else to do it, you'll lose all your money, etc. All bunk. If you're diligent about finding good investments in the United States, you're ready for the next level -- it's only a short hop to navigate international stocks. The process is the same: Find a solid company with good management, great products, and a growing market. And buy the stock at a reasonable price compared with prospects.
It's time to go global
If your goal is market-beating returns in 2007, international stocks must have a spot in your portfolio. To help you get there, check out our Motley Fool Global Gains international investing service. Lead analyst Bill Mann and his team dispel the myths and help you find great, undervalued international stocks.
In fact, Bill is departing for India, China, and Taiwan on June 2 in search of new investment opportunities in these fast-growing economies. You can receive all of his updates and analysis live from the field by sending him an email at BillTrip@Fool.com.
This article was originally published on Jan. 20, 2007. It has been updated.
Fool contributor Dave Mock just learned from his seven-year-old son that the tooth fairy is a myth. No verdict yet on Santa Claus or the Easter Bunny. He owns shares of Intel. The longtime Fool is also the author of The Qualcomm Equation. Intel is an Inside Value recommendation. InterDigital Communications is a Stock Advisor selection. The Motley Fool has a disclosure policy.