International Investment Analysis

International Investment Analysis

1. History

* In the early years of U.S. finance, many U.S. investors bought European government bonds, considering them safer than U.S. government bonds. In the late 1800s, many U.S. companies created overseas projects, such as the Panama Canal and United Fruit, that gave investors the opportunity to profit from foreign companies. However, investing in unstable countries was risky. Many Americans who owned property in Mexico or Cuba, for example, saw it confiscated in the 1900s after revolutions.

More recently, international investing has grown as countries including Germany and Japan approached the United States in economic activity. Meanwhile, fast-growing countries such as China and India are providing more opportunities for investors.

Selecting International Investments

* Investors tend to use either "top-down" or "bottom-up" investment strategies. A top-down strategy might involve starting with an industry, then picking a country that would do well if that industry did well, then selecting investments on that basis. An investor who is optimistic about oil might decide that this would help Russia's investment prospects, and thus could invest in Russian oil companies. A "bottom-up" investor might hear about an individual airline that was doing well, and then realize that this airline operated out of Brazil. In either case, the result would be an international investment.

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How to Invest Overseas

* Many foreign companies offer what are known as American Depository Receipts, or ADRs. These are essentially U.S. shares of the foreign company. A U.S. investor can purchase them in order to get the equivalent of owning the stock directly, though not always with the same voting rights. Some companies exist to manage ADRs for investors, picking companies to represent in...