American Depositary Receipts: Finding Profitable Markets

The world is rife with profitable opportunities, and sometimes the best chances for a solid ROI appear in markets outside of the United States.

For many American investors, these opportunities remain untapped, simply because the idea of trading foreign stocks is unknown territory.

It doesn’t matter if you’re monolingual…even if you think the “Mexbol” is something you can order at Chipotle, you can take action across the border. The answer is American Depositary Receipts (ADRs), denominated in US dollars and available on NYSE, NASDAQ, AMEX, and OTC.

Three Good Ways to Invest in Mexico:

Which ADRs Are Profitable?

Domestic markets don’t exist in a vacuum, and all of that volatility we’ve been experiencing after 2008 is just as observable in the world market. Things got ugly, but we’re in the midst of a recovery that often appears as phantasmal fits and starts. That being said, there’s still plenty of time to “buy low” in almost any market, stateside or otherwise, and attempt to ride the steady climb of recovery into a better position.

Of course, that ideology isn’t so simple and foolproof. Sometimes a down stock stays down, and sometimes a trend of recovery is suddenly punctuated by a devastating downturn. That’s just the nature of stocks, and it applies everywhere in the world. This means that you’ll still need to do your research and due diligence.

Picking Markets & Stocks Abroad

Stock picking is rarely regarded as a solid strategy, despite the fact that some investors seem very good at doing it. Many will agree that a long-term buy-and-hold strategy is the preferred way to go in the vast majority of situations. Of course, your mileage will vary depending on your age, portfolio, and goals.

That said, volatile markets are the most profitable markets – but they won’t be for you unless you have a proper plan. Some people lose out, others make gains. You want to be in the latter category, and that requires a good bit of research and thought. Perhaps even more than you might expect, as foreign markets are notorious for slack transparency.

Minimize the risks associated with poor disclosure by sticking to Level I and Level II ADRs. These are subject to the same disclosure regulations as stocks traded on American markets, so you’re less likely to get blindsided. It’s a good limiting factor to consider as you begin to shop all of the ADRs that are out there for you to trade.

We’ve also posted about some specific ideas for opportunities in Japan, Europe, and China.