Growing Rich - Arabictrader.com

KIRK KAZANJIAN
untried financial systems, inefficient small-sized production, and, for
most of us, language barriers. I go to bed saying, ‘Thank God I live
and invest in America.’ Obviously, we also have some of these problems.
But when did you last wake up worried that we would be attacked,
faced with runaway inflation, a political coup, or just a
neighbor dropping some bombs on us?”
THE RISKS OF INVESTING IN FOREIGN EQUITIES
After pointing out that many of today’s international fund managers,
who are supposed to be experts on the entire world, are under
40 and haven’t even been to many of the countries they’re investing
in, he lists some of the risks Americans take on when dabbling in
stocks domiciled on foreign soil.
“First is the currency risk, because you can encounter some
enormous swings,” he begins. “Second, the accounting in many foreign
countries is different from our own. I call it funny accounting. Third
is the fact that most of the world’s markets are rigged and dishonest.
People get caught doing things you simply can’t get away with in
the United States. Fourth, the cost of transactions and maintaining
custody of securities abroad is high. Fifth, you have political and socioeconomic
risks in foreign countries.” To back up his thesis, he offers
the following illustration: “I went to Switzerland thinking that was
the safest place to invest. What happens? In early 1997 word breaks
out that Switzerland was sympathetic to the Nazis during the war
and cheated the Jews and Germans. That adverse publicity hurt the
financial markets. Now let’s talk about Thailand, Malaysia, the Philippines,
Turkey, or even Japan. These markets have all been through
the wringer. Yes, the U.S. market can get hurt too, but not in the same
way.”
Furthermore, in the process of turning dollars into foreign currency
to buy overseas stocks, you get hit with currency risk from both sides.
“When you buy shares in U.S. companies that do business internationally,
it’s true their earnings are also impacted by currency swings,”
Papp points out. “Let’s say the value of the dollar increases by 7 percent.
Instead of earnings being up 14 or 15 percent, they may increase
by only 11 or 12 percent. But suppose you bought a foreign stock
and had a 7 percent change. You wouldn’t lose 7 percent of your
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