Could you tell me the country that offered the best stock returns over the past 12 months?

You call that a market?
Given our dismal performance this year, you might guess that the U.S. is not on the list ... and you’d be right. In fact, the S&P 500 is down 22% over the past year. That's abysmal ... and it’s particularly abysmal when compared to some other global markets.

Without further ado, the top five performers:













Source: Motley Fool Global Gains research.

This list is incredible to me. Lebanon? 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. Not only will a global portfolio offer better returns, but it will also help you diversify away some of the risk that comes from having all of your assets parked in the States. 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, because of crime, corruption, and treacherous inflation, Zimbabwe isn't exactly a country American investors should be interested in.

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 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. Archer Daniels Midland (NYSE:ADM), Autodesk (NASDAQ:ADSK), Electronic Arts (NASDAQ:ERTS), and Adobe (NASDAQ:ADBE), for example, get coverage from 10 or more analysts.

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

You'll get the best returns, however, by finding market inefficiencies. And while more than 1,000 investors are covering Best Buy (NYSE:BBY) and Sony (NYSE:SNE) in our Motley Fool CAPS community-intelligence database, you can't find a stock from any one of the above countries 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 is not without risks. If you'd like some help finding worthy international investing ideas that will help you diversify your portfolio, click here to try our Global Gains service free for 30 days.

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

Tim Hanson does not own shares of any company mentioned. Electronic Arts and Best Buy are Stock Advisor picks. Best Buy is also an Inside Value selection. The Motley Fool owns shares of Best Buy. No Fool is too cool for disclosure.