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. However, talking specifics seems 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 com-post).
Are you from the US? Do you have stock-related investments 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 posts). As noted in the chart above, only 32% of the top 500 global companies (by revenue) are located in the US (figures as of year end 2006).
Home Country Bias
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 believed to be two main reasons for this bias:
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 let’s say you’re a German who only wants to invest in large companies (the Global 500 listed here), you’d be limiting yourself to a minuscule 7% of those companies. (The German stock market has had a great year – it has trounced the US market – 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 listed on US stock exchanges must comply with certain regulations, including permissible accounting methods and the timely provision of financial data to the public. Regulations vary from country to country. Would I feel safe investing in a Chinese company that was NOT listed on a US exchange ? Nope. China’s regulations are not as stringent as US regulations and not considered to be as “investor-friendly.” Hopefully, this will change 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 that I plan to discuss in future posts. China not your cup of tea? Well, there are alternative energy companies in the US and Europe that I’ll also discuss.
American Depository Receipts (ADRs)
As some may know, there ARE foreign-based companies listed on US stock exchanges. They trade as American Depository Receipts, often referred to as “ADRs.” 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 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 will attempt to discuss investment potential in an objective manner. The subjective part is up to you.
