Friday, June 10, 2011

Added Risk with Non-US Stocks

At least 35 years ago, when I was an expert in stock market investments (generally speaking, I was much smarter then than I am now, not only about stocks but about most everything else), I invested in some publicly traded Canadian oil exploration company stocks. These stocks were somehow connected to William F. Buckley's family, and that gave me comfort. There was nothing wrong with these companies, except for one thing: they were Canadian companies about the time that Pierre Trudeau became the Prime Minister. He was the darling of the left, and one thing he did was semi-nationalize the oil companies, and the prices of my modest positions in those Canadian stocks dropped like a rock as a result.

My view of that investment is that it was money well spent, because it gave me an appreciation that I had never had before of the US stock market environment. This is not to run down Canada (we are blessed to have such a neighbor), but it is a foreign country and investment risks in foreign countries are different than the investment risks here in the US with US companies.

I was reminded of this today in reading reports in the WSJ of difficulties with stocks in Mainland Chinese companies that are traded publicly. One former "small gem," according to the WSJ, is China MediaExpress:

Boasting rapid growth and big profits from selling advertising on video screens in Chinese intercity buses, [Chinese MediaExpress] drew tens of millions of dollars from marquee investors. It listed its shares on the Nasdaq Stock Market, where its chief executive rang the opening bell last June.

Today, MediaExpress is in chaos, its shares no longer traded on NASDAQ after a turbulent few months marked by investors' concerns over the size of its business and questions over its accounting.

It is one of dozens of companies from China that have come under fire by investors and regulators for allegedly misleading investors, exposing a loophole that has U.S. regulators concerned.

This doesn't mean that one should not invest overseas. It simply requires a prudent approach. For the amateur, that means an advisor who prizes diversification, the right allocation, and low expenses, and makes a special effort to determine one's suitability to the investment recommendations he or she might make.

I can't help but observe, however, that it has always seemed the prudent approach to go easy on investments in the home of Tiananmen Square.

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