A Guide to International Investing

Here is an example:

The price of BHP Billiton (BHP.AX) ordinary shares is AUD (Australian Dollars) 43.10 (1 AUD = 0.875 U.S. Dollars).

There are two ordinary shares for every ADR.

Thus, the theoretical price of the BHP Billiton ADR (BHP) equals:

43.10 x 2 x .875 = $75.43

As you can see the risk in investing in ADRs is multivariate.

Also, sometimes there are natural spreads between the ADR and its theoretical price. This is due to supply/demand conditions, conversion fees, arbitrage activity and taxes.

All of this adds to the complexity of investing in individual foreign companies.

Given my background and experience, I am comfortable holding ADRs. A few I own include China Life (LFC), the largest insurance company in the largest country, China Mobil (CHL), the largest mobile carrier in the largest country and Australia-based BHP Billiton, a major global commodities player.

3. U.S. multinational companies: There is a multitude of American companies that have huge revenue and cash-flow generation from overseas operations. Take for example a company like McDonald's (MCD), which I own. McDonald's has roughly 50% of its revenues sourced from international markets.

A company's international business information can easily be obtained in its quarterly earnings releases and annual reports or earnings conference calls. In addition, some companies provide easy-to-read fact sheets or "tear sheets" with operating information on their Web site (look for the "Investor Relations" section).

In addition to McDonald's, my multinational holdings include stocks such as Freeport-McMoRan (FCX) and Google (GOOG), both of which have significant international revenue sources.

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