Small-Cap Value

Jul 3rd, 2007 | By Jim Nelson | Category: International, Investing Strategies

“Capital goes where it’s welcome and stays where it’s well treated.”
– Walt Wriston, former Citigroup Executive

Sometimes we talk about foreign companies in Penny Sleuth. When we do this, often we get people asking why we would not just stick to U.S. small-caps. The answer is best described by Christopher Browne, from legendary Tweedy, Browne Co. LLC:

“[I]f you think of the universe of stocks as a grocery store as I do, why limit yourself to half the merchandise that exists in the world? While the United States contains approximately half the publicly traded companies in the world (out of a total pool of more than 20,000 stocks), if you expand your horizons to all the developed countries of the world, you can double your chances of finding cheap stocks.”

Investing globally is sometimes a turnoff for many investors. Understandably, it is not always easy. Different exchanges around the world require different prerequisites for companies to be listed. Many of these exchanges don’t require nearly as much financial information as say the NYSE or the NASDAQ.

Obviously, when this happens most people tend to shy away from those types of investments. But, it doesn’t have to be like that…

Why do you have to trade on foreign markets to buy shares of foreign companies? You don’t. Many companies trade on the NYSE as well as their own country’s exchange.

Even if a killer company is only on foreign exchanges, most people don’t have the time to dig into the nitty-gritty research. (On a side note, investigating foreign companies is the specialty of one of our finest Sleuth contributors. Right now he has four amazing foreign picks, including this company, which he calls the “world’s best growth stock.”)

Investing abroad does require much more work. First, you have to learn what is going on politically in that country to make sure it’s still a safe bet. You don’t want a government seizing control of the company without paying out the shareholders.

Once you are sure the company won’t be taken over by a government, you have to make sure that the currency used by the company is stable.

Then, you might also have to find out about the company’s industry in its country to make sure it can even compete.

After all of this, is when you should start your real research on whether or not it is a solid company for you to invest in just like you would here. It is a lot of work, but sometimes it may be some of the only good investments.

Take a look at this:

As you can see, at least one foreign market destroyed the United States’ every year for over a decade. But what’s really interesting is if you take another look at that chart, notice not one of those countries are unstable third world countries. They are all large and, for the most part, Westernized countries.

Well, however you feel about putting your money in a foreign company’s hands, it’s undeniable that there is money to be made by doing it.

Sincerely,
Jim Nelson
July 3, 2007

P.S.: If you are interested in these investment opportunities abroad, one of my fellow Penny Sleuth editors will be of some help to get you the information you need by doing all the painstaking research, himself. Currently, he has four beautiful picks from four different countries (all can be bought on the major U.S. exchanges).

Jim Nelson

Jim Nelson is the managing editor of Penny Sleuth. He has been playing the stock market since he was 14, always with a preference toward smaller companies. He has honed his stock picking skills at Agora Financial since 2004, effectively combining a growth and value approach. Like Greg Guenthner, Jim also contributes to Penny Stock Fortunes on top of bringing you the Penny Sleuth every weekday.

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