AS THE WEST WING'S

would say, in chess, you've got to "see the whole board." The same thing goes for the market. Let's

.

"Home bias" still permeates most Americans' investment perspectives, even though other markets might offer better opportunities for multiple expansion. Although most people still believe the U.S. remains the best destination for new investment dollars, I'm once again sniffing at names abroad specifically in Latin America.

As longtime readers of this column know, I've dabbled in both foreign bonds and foreign stocks before, most often with mixed results. Last year, for example, I lost some money in Japan.

But while the adult side of a trader needs to respect history, the kid side can't be afraid to repeat it. Even if you've been burned on a particular idea before, it's important go with it if you believe it to be the best of the bunch once again. As I wrote last week, oftentimes trading can be an emotionally draining endeavor, and while we all carry the scars of tickers gone bad, a trader must always keep an open mind. It's never too late to redefine premises.

Back in the early and mid 1990s, before tech stocks were all the rage, it was international stocks especially Latin American names that were topping performance charts. From 1987 to 1997, the Morgan Stanley Latin America Equity index averaged a 27% annual return. In 1993, the index beat the Standard & Poor's 500 by 40 percentage points.

There's something about a good trade that compels you to take it. And what inspires me right now about many Latin American stocks is that, despite the unappealing press coverage of riots, devaluations and general economic meltdown, many of the region's equity markets look quite strong. For example, the major indexes in Peru and Argentina have had nice runs of late, even in the face of predominantly negative economic news.

As the old saying goes, you want to buy when there's "blood in the streets." And unfortunately for the people of many Latin American countries, there has been blood in the streets several times during the last few years.

Indeed, if you're shopping for economic turmoil and moral despair, you'll find lots in Latin America and particularly in Argentina. Consider a recent survey by the Pew Research Center. 60% of Argentines feel their lives are worse today than five years ago, and only 36% expect things to get better five years from now. More than half are dissatisfied with their income and only 1% think the economy is in good shape. That's the worst score of any of the 44 countries surveyed. Eighty-eight percent think the national government is a bad influence on the country. Sounds a bit like moral capitulation to me.

By every conceivable measure, investing in Latin America is quite risky. But as we first pointed out last year, the "riskiest" trades often have better payoffs than the "sure things." As a trader, it's always been my preference not to avoid risk, but to take it in a reasonable fashion. As with most trading decisions, success is ultimately determined by technique, not security selection. There's a lot more to making money than simple "buy, sell or hold."

One of the biggest elements in sound trading is product selection. If you're sold on the notion of looking at Latin America, there are plenty of ways to consider getting some exposure. Don't take this decision lightly: Choosing the most appropriate investing product goes a long way in ensuring the best odds of portfolio success.

For the smallest accounts, no-load or low-load open-end mutual funds are most likely the best option. While they don't offer intraday liquidity, most offer broad diversification with low transaction costs. Many major mutual fund companies offer Latin American funds, although as with many big institutional products, these funds tend to own the biggest and most liquid names.

Larger investors might want to consider mutual fund products that trade intraday, specifically ETFs and traditional closed-end funds. On the ETF side, EWZ (Brazil), EWW (Mexico) and the S&P Latin America 40 Index Fund all bear watching at current levels. Closed-end funds focus on both individual countries (such as the Chile Fund) or larger regions (such as the Latin America Equity Fund).

The only problem with mutual funds is that, like their open-ended counterparts, these funds tend to own the large-cap, highly liquid names. It's one of the nuances of ETFs we first highlighted a few months back.

To that end, it's worth looking under the hood of any fund product you're considering. My favorite new source of information on them is Nuveen's ETFconnect. All I can say is, "Watch out Morningstar!"

For the largest accounts, my preferred way of getting foreign exposure would be to buy ADRs. Sometimes called GDRs (global depositary receipts) or ADSs (American depositary shares), ADRs (American depositary receipts) are foreign stocks with shares also trading in the U.S. Some trade on the New York Stock Exchange or Nasdaq. Others trade only on the over-the-counter bulletin board or "pink sheets." Among the widely owned names, Nokia is probably the most liquid and well known.

Despite relative outperformace by a number of countries, the number of new ADR offerings actually dropped some 70% in 2001 and another 50% in 2002, according to a recent report in The Wall Street Journal,. Volume has slowed, causing some companies, such as LVMH Moet Hennessy Louis Vuitton, to delist their ADRs altogether.

And while many ADRs are quite thinly traded, I believe their illiquidity is actually an advantage especially to smaller institutions or bigger individual investors. I'm of the belief that illiquid markets present the best opportunities. In the truest sense, the function of an investor is to provide liquidity (read: take a risk).

One of the best resources on the Web about ADRs is the Bank of New York's superb site. Although ADR.com also provides excellent information, the Bank of New York site is far more complete.

And if you like penny stocks, you'll love many beaten-down Latin American names. Instead of canceling their ADR programs, these companies could follow the lead of Lucent and Palm and undertake a reverse stock split. If real volume ever returns to many of these once-hot names, I suspect they will do so.

Jonathan Hoenig is portfolio manager at Capitalistpig Asset Management, a Chicago-based hedge fund. At the time of writing, Hoenig's fund held positions in many of the securities mentioned in this article.