Investing in US markets

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3. Special features of the US market

The two main reasons for investing abroad are diversification and opportunity.

The economies of the US and UK are quite highly correlated, and the diversification argument is not particularly valid - US and UK markets tend to rise and fall together. The opportunity argument, however, is very powerful:

• Most of the world's leading hi-tech companies are American. Think Microsoft.
• Many of the world's largest consumer goods companies are American. Think Coke.
• Many of the world's largest manufacturers industries are American. Think General Motors.

The fact is that on the world stage, American companies often play the leading roles. We've all heard of Oracle, AOL Time-Warner, Disney or Wal-Mart, and probably consumed their products and services too. They impinge on our daily lives and make headlines on the business pages. If they are the stuff of news bulletins, why not look at them as investments?

Apart from the fact that the US has so many leading companies to choose from, there are other reasons why, of all foreign markets, the US is the preferred option of many UK-based investors.

• We share a common language, which makes it easy to analyse company documents.
• It has a tradition of openness and disclosure when it comes to price sensitive information.
• Its markets are well regulated.
• Most major stocks have good liquidity.
• There is copious background information available about companies on the web.

It hardly needs adding that the common and familiar ratios used for valuing companies - P/E Ratio, Dividend Yield, Price to Sales Ratio, Gearing, Return on Equity and other measures - can be applied equally well to US companies as they can to UK ones.

1. Diversification 2. Opportunity 3. Special features of the US market 4. You are already investing abroad! 5. Opening an account to deal in US securities 6. Inputting orders 7. Cash management 8. Currency factors 9. Tax 10. Trading on margin 11. Short selling 12. Types of investment - introduction 13. Shares (common stocks) 14. Indices 15. Bonds 16. Offshore mutual funds 17. Exchange-traded funds 18. ADRs 19. Options 20. Researching US companies - the basics 21. National newspapers 22. Regional newspapers and specialist magazines 23. Business TV 24. Company annual reports 25. Corporate web sites 26. EDGAR 27. Financial portals 28. Broker research 29. Charts 30. Conclusion

• Investing in Latin America