FEAR OF FLYING Yet how many times have you heard a Mexican cement company being hyped at a cocktail party? Exactly. That may be because of a subconscious—perhaps even a natural—reason many U.S. in- vestors don’t care for international investing. It’s called home equity bias and, according to Professor Jeremy Siegel’s The Future for Investors , “Recent data show that U.S. investors, both profes- sional and individual, hold only 14% of their stocks in non- U.S.- based companies, less than one- third of the indexed proportion.”
WE ARE THE WORLD 167 International investing may frighten more than just the xeno- phobes. There are added layers of due diligence that create more work for you—keeping up with not only the minutiae of compa- nies, but entire countries. We do this every day in Global Gains . For example, early in 2008, Venezuelan President Hugo Chavez decided to nationalize the domestic cement industry. Cemex gen- erated 2% of its revenues from operations in Venezuela but had no say in the decision. For U.S.-based Cemex shareholders, it was a reminder of the sometimes Wild West nature of operating in emerging (or frontier) economies. But you should be up for Global Gains investing anyway. You are likely familiar with some of the other companies affected by Chavez’s nationalization plans: American oil concerns Exxon- Mobil and ConocoPhillips, to take two examples. “Foreign” events don’t just affect “foreign” companies. Exxon and Conoco both do significant business outside the U.S. As I mentioned earlier, Georgia-based Afl ac—originally the Ameri- can Family Life Assurance Company of Columbus—does 70% of its business in Japan! Heck, iconic American brands McDonald’s and Coca- Cola actually generate more than 65% of their revenue outside the United States. If you hold these “U.S.” companies, you already have a lot of exposure to the idiosyncrasies of inter- national investing. That’s not to suggest that owning foreign stocks is no differ- ent from owning American stocks. There is almost no difference, but there is a difference. LET’S FOCUS ON THAT MAGICAL WORD “ALMOST” Almost no difference , is, of course, not the same thing as no dif- ference. There are, in fact, differences between foreign compa- nies and American ones. Some of these matter, some not so much. But it’s good to be aware of them all.
168 THE MOTLEY FOOL MILLION DOLLAR PORTFOLIO 1 . An ADR (American Depositary Receipt) is not common stock. 2 . Foreign companies use different accounting methods. 3 . Foreign companies have different shareholder laws and practices. 4 . You may have little recourse if something goes really wrong. 5 . Your dividends are taxed immediately, and some foreign countries have been known to jack up their taxes on foreign shareholders.
You've reached the end of your free preview.
Want to read all 283 pages?