International investments can be terribly lucrative, but they also bring to the table unique risks that aren't necessarily factors when investing at home.
Between 1950 and 1959 American investment abroad had increased to 2.5 times its size at the beginning of the period, and increases were pretty well scattered throughout the world. The point to be made in this presentation is that the American investment abroad is very substantial and has been growing. The owners of the $30 billion who invested apparently feel that the investment is sound. Otherwise it would not have been made.
While the stock market and the correct assessment of the future of securities is probably the most difficult of all studies, the analysis of foreign investments ranks just behind it in difficulty. The problems arise because of several factors: distance from the investment, the risk of devaluation of the currency of the foreign country, exchange control so that you cannot get your money out of the foreign country, and outright expropriation which is synonymous with international thievery. In 1959 American investment in Cuba was $955 million nearly one billion dollars. Now that, if anything, is problematic.
In December 1958, I had a meeting with the owner of a hotel located in Havana, Cuba. The meeting took place in a fancy Miami hotel, and the proposition that was offered to me appeared to be most attractive. The owner of the hotel stock was in need of funds to enter into some kind of a business deal. He wanted $100,000, and he was willing to pay annual interest of 15 percent. His security was the entire stock holdings of his new Havana hotel, which was showing a handsome profit.
On the surface the deal looked fine. A return of 15 percent was good, and the collateral looked good. If he defaulted I would be the owner of an excellent income-producing property. But I was an avid reader of True Magazine, and I had been fascinated by the rise in power of Fidel Castro. I hardly dared mention the fact that I had some fear that perhaps Castro would take over Cuba. I recall when I mentioned this doubt everyone at the meeting immediately laughed.
The possibility did seem to be a remote one to everyoneexcept the owner of the hotel who knew the local situation better than anyone present at the meeting but fortunately not better than True Magazine. By obtaining the loan he would secure $100,000 in cash for a year. In that time, the way the wind was blowing could be determined. Either Castro would be defeated, and he could pay $15,000 and get the stock of his hotel back, or Castro would take his hotel over which he didand he would keep the $100,000 while I was left holding the hotel. Fortunately, I did not make the loan.
Expropriations of foreign properties by local governments are rare, but they have taken place, the most prominent being the Nazi expropriations of all kinds of properties in all conquered European countries and the Mexican expropriation of oil properties. Any time an opposing faction gains strength, particularly a revolutionary, military faction; there is great fear of the loss of foreign investments. It is popular for the new regime to steal these properties officially and give them to the people or some to the people and some to themselves personally.
As an investor, you need to be very cautious when entering into the international investment arena. Incaution and carelessness will likely cost you a portion, if not all, of your investment. On the other hand, cautious research and meticulous planning of foreign investments can pay off in spades.