If pressed, could you tell me the country that offered the best stock returns over the past year? What about any members of the top 5?

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

You call that a bull market?
Despite recent volatility, the S&P 500 has still returned nearly 12% 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:





Cote d'Ivoire








Source: Motley Fool Global Gains.

This list is incredible to me. Cote d'Ivoire? Tiny Mauritius? We can learn a few things from this list:

  • If you're an American investor, it's absolutely crucial to be invested abroad. The potential returns to be found abroad are too good to pass up.
  • The best stock returns often come from obscure places -- not from the countries we read about every day in the papers.
  • There is some risk involved in investing internationally. For example, given its problems with inflation, Zimbabwe isn't exactly a no-brainer for foreign investors.

Buy what others don't
But the main lesson here is old hat: To get the best returns, you need to be willing (and able) to look where other investors don't look. 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. General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), and Advanced Micro Devices (NYSE: AMD), for example, get coverage from 20 or more analysts. Those three popular stocks also each have more than 2,500 ratings 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 3,000 investors cover Pfizer (NYSE: PFE) and Chesapeake Energy (NYSE: CHK) in CAPS, there's not a single Bangladeshi stock that trades on a major U.S. exchange.

The Foolish bottom line
That's where your opportunity lies as a Foolish investor. But as I said, international investing has risks -- particularly if you're investing in frontier economies via the gray sheets. But you don't necessarily have to assume that much risk to find promising international investments.

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

This article was originally published Dec. 13, 2006, as "The 10 Best Places to Invest." It has been updated.

Tim Hanson does not own shares of any company mentioned. Wal-Mart, Pfizer, and Chesapeake are Motley Fool Inside Value recommendations. Pfizer is also an Income Investor pick. No Fool is too cool for disclosure.