Get Rich with Dividends: A Proven System for Earning Double-Digit Returns

Other Risks

When you invest in a company that is located and trading in another country, you take on additional risks, such as political, economic and regulatory.

Although American regulators and auditors are by no means perfect, as investors who lost money in Enron or with Bernie Madoff will attest, the system does offer a reasonable amount of assurance that reported financial results are legitimate. Someone who is sharp and committed to defrauding investors will likely succeed, but that is by far the exception, not the rule.

In some other countries, investors generally do not know how good the regulators and auditors are. As an average investor, you may do your due diligence on a Chilean telecom company, but, in truth, you have no idea how thorough regulators and auditors are in Chile. They may be terrific—the best in the world, for all you know. But that’s the point. You don’t know.

So when a foreign company reports financial results, there has to be a certain level of trust—even more so than with an American company, especially if the country we’re talking about is an emerging market.

You might think that’s ethnocentric to say, but it’s the truth. Countries with long-standing stock markets, such as England and Australia, generally have solid accounting practices and rules. On the other side are countries like China, which are notorious for hosting shell corporations and companies that cook the books.

If that’s not scary enough, in certain countries you run the risk of political ...