The U.S. stock market may be the largest and most well-known market, but it is not the only one available. If you’re thinking about international investing there are stock markets in countries all over the world, ranging dramatically in size, volatility, and every other factor.
One common question that I get is whether or not the principles of Rule #1 investing still apply with international investing. The short answer is yes, Rule #1 investing applies no matter what you are buying or where you are buying it.
However, there are still a few important things to keep in mind when investing outside the USA or if you’re investing in another country’s stock market.
1. Invest in What You Know
One of the most important principles of Rule #1 investing is investing in what you know.
This means buying companies that you understand and believe in within a market that you understand as well.
This makes it easy for investors who live in the United States given that the market they are most familiar with is also the largest and best one to invest in.
But what about investors who live outside the United States?
Take, for example, a South Korean investor who has lived their entire life in Korea and understands the companies that make up the Korean market.
In spite of the fact that the Korean market is more volatile and faces a number of challenges, our hypothetical investor may still be better served by investing in companies that they understand rather than trying to blindly choose companies in the U.S. market that they are not familiar with.
Of course, there are plenty of companies in the U.S. market that have reached international recognition.
For example, a South Korean investor is just as likely to understand the business model and products of Apple as a U.S. investor.
Companies such as this present a great opportunity for investors outside the U.S. to access the United States stock market while still investing in companies that they understand.
2. Trust the U.S. Stock Market
While it’s certainly important to invest in what you know, it is still my advice to stick to investing in the U.S. market if at all possible.
The reason behind this advice is simple – the United States has the most stable democracy and largest consumer market in the world. If a company is going to succeed, it is more likely to succeed in the USA than it is anywhere else.
While the U.S. market has its ups and downs like any other market, there are fewer risk factors in the U.S. market than there are in other markets.
Therefore, assuming that you are able to understand the U.S. market, you can’t go wrong betting on the United States economy.
So, how does Rule #1 investing apply to investing outside of the United States?
If you do decide that investing in a market other than U.S. market is in your best interest, you can rest assured that the principles of Rule #1 investing will still apply in exactly the same way.
You’ll need to find a company you understand, make sure that it has a solid moat, ensure that you are able to trust the integrity and competency of its management and purchase it at a price that is discounted relative to its value.
3. Don’t Lose Money
These simple principles apply no matter what company you are purchasing or where it is located.
In fact, you can even apply most of the principles of Rule #1 investing to purchasing things outside of stocks in a stock market such as real estate or investments that you make in a company that you own.
Remember, Rule #1 is don’t lose money.
Always follow it.
Investing in markets outside the USA certainly requires a degree of caution, but the keys to success remain the same.
If you live outside the United States and are far more familiar with your local market than you are the U.S. market, you can rest assured that the principles of Rule #1 investing can still help you achieve success.
Learn more about the principles of Rule #1 Investing and how to invest both internationally and in the U.S. at my 2-Day Virtual Worksop.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.