Last week’s answer

In 1894, my founder accidentally created a wheat flake. In 1906, he established me in Battle Creek, Mich., to sell toasted flakes made of corn. In 1916, I launched an all-bran cereal, and in 1928 I gave the world a little snap, crackle and pop. My rooster, named Cornelius, debuted in 1953, followed by a big cat named Tony in 1958. Some of my brand names include Pop-Tarts, Froot Loops, Nutri-Grain, Smart Start, Kashi and Morningstar Farms. In 2001, I bought the Keebler Food Co., adding some elves to my payroll of more than 15,000. Who am I? (Answer: Kellogg)

Global investing at home

With the U.S. economy struggling, it’s natural to consider investing abroad. But beware: International investing carries some risks.

For starters, many countries can be dangerous places to invest. Shareholder rights and protections offered in America don’t exist everywhere. Placing your money under the regulatory oversight of developing economies is risky. Some countries (such as China) have even created different classes of shareholders, domestic and international, with no guarantee that these classes have equal rights to the free cash flows of companies in those markets.

Another concern is currency risk. Earnings in other countries are recorded in the native currency, be it ringgits, shekels, euros or drams. You may have done all your homework on a company and picked a winner, yet your returns might lag due to external economic factors causing the local currency to weaken against the dollar. Imagine, for example, that the currency of a country you’ve invested in falls by 20 percent against the dollar. If so, then you may see the earnings of companies in that country (as stated in that currency) diluted by 20 percent.

Different reporting standards pose another problem. A company listed in the United States and based here must publicly report its earnings each quarter. Not so in the rest of the world. In the United Kingdom, for example, this must be done only twice a year. Few nations have reporting requirements as stringent as ours. Many don’t track insider buys and sells, lock-ups, deals with related entities, executive salaries and dividends. Each country has its own form of generally accepted accounting principles (GAAP), which isn’t always easy to understand. If you’re not well-versed in a country’s accounting standards, you’re at a disadvantage.

If you’re very familiar with a country and company, you may do well investing in it. But most of us should consider investing internationally through multinational U.S.-based companies. McDonald’s, for example, generates about 50 percent of its revenues abroad, as does Procter & Gamble. It’s closer to two-thirds for ExxonMobil and IBM. You needn’t leave home to gain international exposure.

Reinventing Kmart

It’s been less than a year since shareholders of Kmart stock were wiped out by bankruptcy proceedings, yet plenty of folks are still willing to hitch their success to the back of this shopping cart.

Kmart emerged from bankruptcy protection in May after stiffing creditors to the tune of about $7 billion. Its new shares, which the company issued to pay down debt, debuted in June. But buyers, beware: Kmart is still a weak business.

The company reported a $1 billion drop in net sales, due partly to the closing of 316 stores in its bankruptcy restructuring. Sales at stores open more than a year dropped 3.2 percent, while Kmart’s distribution infrastructure is inefficient and its profit margins remain weak compared to competitors.

Kmart’s emergence from bankruptcy in a struggling economy and an intensely competitive retail environment is a risky move, especially when many of the problems that drove the firm into bankruptcy still exist.

The new management team is a strong point, and the company has cash on hand. But the retailer has been losing ground to Wal-Mart (NYSE: WMT) and Target (NYSE: TGT).

If you’re considering taking a flier on this turnaround story, remember that history isn’t on the side of those who go digging in the bottom of the retail basket. Often, all they come out with are plaid polyester bell-bottoms and a few leftover coupons.

Commodities

I got the idea once to try investing in commodities. So I walked into a brokerage house, gave the nearest idle broker $2,000 and said “commodities.” There followed a blizzard of buy and sell notifications, and in a few weeks, the broker had dissipated my $2,000. He did well on his commissions though. — Don Goodall, Lake City, Fla.

The Fool Responds: Commodities, which include foods, metals, foreign currencies and financial instruments, often trade as futures contracts, where investors essentially make bets on future prices. They can be extra-risky investments and generally should be avoided by most investors. Also, know that brokers typically earn money via commissions, which means they have an incentive to do a lot of buying and selling in your account. Your best bet is to learn enough to make your own informed decisions, even if you decide simply to plunk most of your investing money into well-regarded index funds. If you want help finding a financial professional, click over to www.fool.com/fa/finadvice.htm and www.sec.gov/investor/brokers.htm#checktips.

How to tell if a business is a scam or legitimate

Is multilevel marketing a scam like a pyramid scheme? — Ruth Weisberg, via e-mail

In pyramid schemes, participants are often promised riches based on recruiting more participants, with any products (there are often no products) being incidental. These are zero-sum games, where any money made is money someone else has lost.

Multilevel, or network, marketing can be a legitimate and effective way to run a business — witness Avon, Mary Kay, Tupperware, Shaklee and Amway. It involves real products or services being sold for reasonable prices, resulting in a win-win scenario: The customer gets the goods and the seller makes a profit.

Learn more at www.ftc.gov/bcp/conline/pubs/alerts/pyrdalrt.htm.

What are the “ask” and “bid” prices for stocks? — N.I., via e-mail

Remember that when you buy and sell stocks, you’re doing so through the folks who keep the markets liquid — brokerages and the market makers. They earn their keep via the “spread” between bid and ask prices. The bid is the price that they’re willing to pay to buy a security from you (when you sell), while the ask is the price at which they’ll sell that security (when you buy).

Spreads are typically pennies per share, and don’t amount to much for us small investors. But with billions of shares exchanging hands each day, spreads generate hundreds of millions of dollars. In recent years, as the markets have switched over to decimalized pricing for stocks, spreads have decreased in size — though they can still be big for infrequently traded stocks. Learn more about stocks and buzzwords at www.fool.com/school and www.investorwords.com.

Got a financial question? Ask Fool co-founders David and Tom Gardner on The Motley Fool Radio Show on National Public Radio. Call anytime toll-free at 866-NPR-FOOL.