'Hot Spots' Stumbles

The other day James Altucher had an interesting interview with David Riedel, author of the recently published Finding the Hot Spots: 10 Strategies for Global Investing. The name of the book and the author seemed familiar; it turned out the publisher had recently sent me a copy of the book to review. (Full disclosure: The publisher, Wiley, has approached me in the past about writing a book, but nothing has come together.)

The general premise behind the book is that foreign investing is important, is not that difficult and could become more important in the coming years to help U.S.-based investors gather enough for retirement. To this, I say amen! I could not agree more.

But skimming through the book, I found that the author thematically portrayed foreign investing as being easier than it really is. I emailed Riedel, and he was gracious enough to reply point by point to most of my questions. I will recount a couple of these along with his reply and some context about how to approach these issues in a more practical manner.

Not So Easy Does It

On pages 14 and 15, Riedel discusses buying foreign stocks, saying it's as easy as buying domestic issues. He cites Microsoft (MSFT - commentary - Cramer's Take) as an example of a domestic stock and Athens-based Diana Shipping (DSX - commentary - Cramer's Take) as a foreign stock.

Well, any foreign stock traded on the NYSE, American Stock Exchange or Nasdaq is just as easy to trade as any domestic issue; that's exactly right. Unfortunately, many foreign stocks available to U.S. investors trade on the bulletin board or the Pink Sheets and are not easy to trade. Your first clue that a stock might be difficult to trade is a five-letter ticker symbol. Not all five-letter stocks are difficult, but all the difficult ones have five letters.

As an example, last spring after doing research on a column about Iceland, I bought shares in the Stockholm listing of Iceland's largest bank, Kaupthing (KPBIF - commentary - Cramer's Take), through my Ameritrade account.

I was able to place the order online, but because the symbol ends in F, Ameritrade sent it to a Canadian market maker who could not trade the stock. I had to follow up on the phone with Ameritrade to make sure the order got where it needed to go in order to get executed. I subsequently transferred the account to Charles Schwab. Schwab would not let my order to sell be entered online and wanted $100 in commission to execute a trade.

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At the time of publication, Nusbaum had no positions in any of the stocks mentioned, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.