Time to Invest in Europe?

What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
Financial Times is reporting that distressed debt investors are circling (free registration required to view link) a number of European companies that have run into trouble, as the continent's mounting economic woes put pressure on smaller businesses that are often highly leveraged and have nowhere else to turn.

Some context
Most of these distressed debt investors are big, U.S.-based hedge funds that have been in Europe two years already. But the slew of buying opportunities they expected never materialized -- until now, that is. Tumultuous markets, an economic environment in steep decline, and increasingly frugal banks have finally opened up some interesting opportunities for them.

Understand that this isn't "bad" debt these big investors are after. They're on the lookout for fundamentally sound companies that are suffering more from their poor operating environment than from being poorly run. This situation, of course, is exactly what the typical value investor is after, i.e., fundamentally sound but undervalued companies that can be scooped up cheaply.

What you need to know
So, should individual investors also be looking at Europe? Sure. But here are a few rules of thumb to keep you on the safe side of things:

  1. Keep your trading on an American exchange: the NYSE (INDEX: ^NYA) , the Nasdaq (INDEX: ^IXIC) , or the AMEX (NYS: ^XAX) . Our exchanges offer the best financial transparency in the world, and will let you run any Europe-based company through the most rigorous fundamental analysis you can muster.

  2. Stay in your investing wheelhouse. If you run across a company that seems like the continent's best value-buying opportunity ever, but whose business model you just can't get your head around, steer clear of it.

  3. Don't put any money in the market that you're going to need for the next three to five years. That's a standing Motley Fool rule, and it's always served our investors well.

Down markets provide investing opportunities for the thoughtful, Foolishly wise investor. Have fun roaming the continent in search of good deals.

Keep track of what's happening with the exchanges mentioned here by adding them to My Watchlist, a free service of The Motley Fool that lets you easily keep up with everything on your investing radar.

At the time thisarticle was published Fool contributor John Grgurich loves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.

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