|March 5, 2008|
Investment U E-Letter: Issue # 507
Overseas Investments: Another Fine Mess For U.S. Stocks…and the Growing Case For Investing Abroad
Just one provision of the law (the infamous section 404) cost the average company $4.36 million last year. Total compliance came to $6.1 billion to public companies overall. As a result of "it," the four largest accounting firms have raised their fees 78% to 134%.
In fact, according to Citigroup, in 2000, nine out of every 10 dollars raised by foreign companies through new stock offerings were done in New York rather than London or Luxembourg - the two other main choices.
Today, nine out of 10 dollars are raised overseas through new company listings in London or Luxembourg. The chart below illustrates the big migration:
The fact is that Sarbox is unnecessary. The private market was already cleaning up the accounting scandals without government help: Financial magazines exposed the frauds, accounting firms were establishing more rigorous standards, and the ivy league business schools (including Columbia, where I taught) were busy expanding courses in business ethics.
It's pointless to write your Congressman and complain. Leave it up to the lobbyists. (The complaints by small business have been so intense that the SEC has recommended exempting companies with a market cap under $150 million from the ugly 404 regulations.)
The best bet is to invest overseas. Foreign markets will continue to outperform U.S. markets due to the cost advantage of going abroad, and their economies are growing faster than ours.
Last week, I recommended investing in the MSCI Emerging Markets Fund (AMEX: EEM). It continues to rise. Today, I suggest you add The India Fund (NYSE: IFN) as an overseas investment to your portfolio. This is where companies are benefiting from outsourcing and Sarbox regulations. It's on the move.
Today's IU Crib Sheet