Go West (and East) Young (and not-so-young) Man (or Woman)!
This post was originally going to be about a few specific foreign (to the US) companies involved in alternative energy that look like potentially promising investments. But talking specifics seemed to be putting the proverbial cart before the horse (especially before we get a good sense of who our readers are), so consider this the “horse-post†(hopefully, not to be confused with the com-post)….
Are you from the US? Do you have stock-related investments (mutual funds and/or individual stocks) in a 401K or other retirement account and/or in a non-retirement account? What percentage of those stock-related investments are invested in NON-US companies?
Limiting your investment dollars to US companies is akin to letting some of your money blow away in the wind (yup, several of the big players in the wind energy arena are foreign-based; more about them in future post). As noted in the chart above, only 32% of the top 500 global companies (by revenue) are located in the US (figures as of end of the year 2006).
A common occurrence in investing is “home country bias,†meaning that people who have stock investments are likely to be too heavily invested in their own country. There are generally thought to be two reasons:
1. Perceived Safety
Though keeping your dollars in your own country may seem “safer,†it’s actually safer to be globally diversified. If you’re from the US, why limit yourself to about 1/3rd of the universe of stocks (note: the 1/3rd ratio is fairly constant, so it not only applies to the largest 500 companies)?
And if you’re, say, a German who only wants to invest in large companies (the Global 500 listed here), well, you’re limiting yourself to a minuscule 7% of those 500 companies. (Note: the German stock market, as a whole, has had a very good year – it has trounced the US market, as have many foreign markets, but several years back that was far from the case.)
2. Available (and Reliable) Financial Data
This factor is – and should be – a concern. Companies that are listed on the various US stock exchanges must comply with certain regulations, including accounting methods used and making financial data public in a timely manner. Regulations vary from country to country. Would I feel safe investing in a Chinese company that was NOT listed on a US exchange (more on this follows). Nope. Their regulations are not as stringent as US regulation and not considered to be as “investor-friendly.†This is likely – hopefully – changing rapidly as China and other developing countries become more developed.
I mention China because there are some major – and profitable – alternative energy companies (notably, solar) located there which I plan to discuss in future posts. China not your cup of tea? Well, there are alternative energy companies in the US and Europe which I’ll discuss, too.
So what about my “more on this†bit above? As some may know, there ARE foreign-based companies listed on US stock exchanges. They trade as “ADR’s†– American Depository Receipts. These companies must comply with the same regulations – as US companies – in order to be listed on US exchanges.
A word about preferences and value judgments. Many (most?) readers may favor a particular alternative energy source or two. Some may even be opposed to one. Some may want to only invest in their country as they want to keep their dollars “at home†(which is not so clear-cut these days anyway as many foreign-based companies have major US locations and employ many Americans and vice versa). Some may want to avoid investing in specific countries. My posts are going to discuss investment potential in an objective (ok, as objective as possible) manner. The subjective part is up to you.
Remember that “com-post?” Well, if you don’t like the alternative energy source and/or country discussed in a future post, just put that post in your virtual compost pile, but do check back (as alternative energy source topics and geographic regions will change) and feel free to suggest green investment topics of interest.
(Note: Some countries have regulations considered just as investor-friendly as the US — or perhaps even more so — so I’m not implying investing directly in ALL foreign markets is risky.)
