(MONEY Magazine) – Ah, the joys of international investing! Why, it's gotten so easy for Americans to buy stock of foreign companies that many investors have forgotten exactly what it is they're buying.

That's the lesson from this month's subject: Telafonos de Maxico S.A., known in English as Telephones of Mexico and known by some Wall Street wits as Taco Bell. That's because Telafonos is Mexico's Ma Bell. It offers local and long-distance phone service throughout the country, just as old AT&T did here before the courts broke it into eight separate pieces.

Sometimes it's easy to forget that Telafonos is a foreign company. Its stock trades on the New York Stock Exchange the same way AT&T stock does. You get dividend checks in dollars. The stock is easily bought and sold in large quantities--in fact, last year Telafonos became the first NYSE issue to trade more than a billion shares in a single year. It's widely held by U.S. mutual funds and pension funds, and by individual investors as well.

However, Telafonos isn't a typical conservative phone stock, as investors learned to their pain late last year. It opened the year at $67.50 and rose to more than $75 in February, but it was down to $50 on Dec. 19 and went into free-fall on Dec. 20 when the peso was devalued. The stock finished the year at $41 and has dipped below $37 since then. Its 40% loss for the year was triple that of the NYSE's utility index.

Mind you, nothing in particular was wrong with Telafonos. Its revenues and profits grew by 2% and 4.5% respectively last year. The problem was that first Mexico and then the peso tanked. Since Telafonos, despite its NYSE listing, does business in pesos, reports profits in pesos and declares dividends in pesos, it went the way of the peso--right off the cliff.

The Telafonos securities you buy on the NYSE are actually American Depositary Receipts, each of which represents 20 so-called L shares that trade on the Mexico City Stock Exchange. Although the dividends you get are declared in pesos, they are converted into dollars as part of the process that turns Telafonos' Mexican shares into U.S. ADRs.

All this means that U.S. investors who buy Telafonos take on what's known as currency risk--in this case, the everpresent threat that the peso will decline relative to the dollar.

Therefore, in addition to having to analyze Telafonos' business and prospects--which means understanding Mexican accounting, something I, for one, don't begin to grasp--you also have to worry about the peso. And there's plenty to worry about. The peso cratered after the Mexican government stopped propping up its currency after pouring $10 billion of its foreign reserves into what was obviously becoming a futile effort. The peso's sickening fall, to the equivalent of 20¢ to the dollar at year-end from 29¢ on Dec. 19, reduced Telafonos' net worth in dollars by 31%, while leaving its value in pesos untouched.

As a consequence of the peso's drop, Telafonos will pay a lower dividend, in dollars, than last year's $1.53, unless it boosts the payout by at least 40% in pesos this year. But with the government imposing an austerity program, the chance of that happening is remote at best.

Telafonos may strike you as an extreme example of the risks U.S. citizens assume when they buy foreign stocks, especially in emerging countries like Mexico. It's not. In fact, it's much safer than most emerging stocks. Telafonos is a real company in a real and growing global business. And rather than being government controlled, as many big foreign companies are, Telafonos is 51% controlled by an independent group that includes Southwestern Bell of the U.S., France Telecom of France, and a big Mexican company called Grupo Carso.

Such heavy foreign ownership is good for investors. Why? Because it means the company is run by profit-oriented executives rather than by government bureaucrats.

Investors can even find a silver lining in some of the economic chaos besetting Mexico, no matter how distressing it is for Mexicans. The Mexican government used to control virtually all aspects of Mexican economic life. The chaos is a sign that the government's power is slipping, which means that in the future, Mexican securities markets will be more open and far less susceptible to government manipulation than they have been up to now.

By contrast, I wouldn't touch many Chinese stocks. As you may have read, several Chinese companies have refused to make good on the big bucks that U.S. investment houses claim they're owed for various speculative bets. Not an encouraging sign. And I'd be especially wary of Russian stocks, given the threat that the country could devolve into 40 warring Bosnias. Could Russian stocks of the 1990s become wallpaper the way czarist bonds did in the 1920s? There's a good chance of it, I think.

The moral? Companies like Telafonos are sensible investments, but owning any individual foreign stock exposes you to numerous perils. Are you smart enough to know which South Korean steel company is best to buy? Which Malaysian or Mexican industrial conglomerate to buy? Which Hong Kong property company? Which Chinese electrical generating corporation? Are you going to become knowledgeable about foreign currencies, foreign accounting standards and stock-rigging practices in various countries? Not to mention figuring out what worldwide interest-rate levels mean to the economy of each nation in which you invest? Fuhgeddaboutit.

If you want to invest in foreign companies, the most sensible thing for the average individual investor like you to do is buy mutual funds that invest in many different countries, not just one nation or region. That way, a collapse of the Mexican peso or an expropriation in Russia won't kill you. According to Money's Small Investor Index, holders have avoided panic selling of Latin American mutual funds. Staying calm while things sort out strikes me as the right way to behave.

To the bottom line. I don't know whether to buy, sell or hold Telafonos de Maxico. I do know that at its early January level of $36.75, the stock is more attractive than it was a year ago, when the price was $30 higher. But remember one thing: No matter how many U.S. investors own stock in Telafonos de Maxico S.A., it's still a Mexican company, not a U.S. company. Therefore it's subject to whatever may ail the Mexican economy at any given time. Never, never, never confuse Taco Bell with Ma Bell.

- Allan Sloan

Allan Sloan, a four-time winner of the prestigious Loeb Award for financial writing, is a business columnist at New York Newsday.