Foreign Stock Brokers

Saturday's Wall Street Journal's Money & Investing section greeted me with an article that I had to start twice to be sure I was reading it right. Suffice to say, it lent more credence to my business partner's belief that the Journal's expansion to a weekend edition has seriously diluted the quality of its columns in that edition.

A guy named Jeff D. Opdyke wrote this piece, extolling the virtues of investing in overseas individual equities using foreign brokers.

According to Opdyke, many "bigger and more important markets" now include: Hong Kong, Auckland, and Cairo. Other markets one may ostensibly access from these include Shanghai, Shenzhen, UAE, Oman, Morocco and Turkey.

Apparently, liquidity and market manipulation are no longer considered risks in these outposts of capitalism. Forget about mutual funds that invest in foreign equities. Or the foreign exposure to be gained by investing in US global large-cap companies.

Further on in the piece, Opdyke warns of various risks, like one-day, 15% drops in the Thailand market due to government currency restraints, foreign exchange value risks, and unexpected closing of outfits like the Beirut exchange for days.

Honestly, I cannot understand who this article helped. Anyone with sufficient money to be able to, as Opdyke writes, "lose a chunk of it if their investments fall apart several time zones away while they are asleep," probably already uses a foreign country mutual fund. Those people would tend to understand these undiversifiable risks. That is why you pay professionals to enter markets like these.

Those who can't afford that, probably shouldn't know any more which helps them to hurt themselves. Frankly, the average retail investor in the US who already uses a broker is being sufficiently badly-served. Why compound the pain by introducing them to the same scourge in overseas markets?

I don't know anyone who still uses, voluntarily, a full-price, full-service retail broker. Between mutual funds and discount, execution-oriented brokers, the role of the stock broker in America is finally diminishing. Information is plentiful and cheap, if not free, while transactions costs are low and self-trading technology is excellent and likewise inexpensive.

When the service-oriented brokerage model is finally near extinction in the US, why is this Journal writer hyping its use in markets that are of far less quality and reliability than the American equities markets that already can deliver so much loss and pain to the average retail investor? This strikes me as, at best, irresponsible journalism and, at worst, reckless in inviting investors to lose even more money on specious investments beyond the reach of recovery for American investors.