Continued from here:
My parents trusted me at far too early an age. They’d go off for weekends, and leave me alone and ‘in charge’. I took this responsibility seriously enough… Enough, that is, to conscientiously remove all evidence of debauchery1 before they returned a day or two later. Enough even to look up the Golden Pages and call the french polisher..!
Then again, at that age, debauchery mostly consisted of staying up v late, drinking absolutely anything we could get our hands on (cooking sherry, anyone..?!), seeing if stereo speakers can actually blow, and being (almost totally) unsuccessful in getting girls to ‘just drop by’. In the usual absence of girls, our mission was to persuade older friends/cousins to bring us to the disco on Saturday night. Saturday Night Fever this was not…
Picture a single-story cement block establishment, surrounded by a vast pot-holed car park, five to ten miles outside of (a small) town on a semi-deserted road. Inside was always v dark (just as well), punctuated by flashing strobe lights and a glitter ball or two. The dance floor generally took up most of the space, with girls populating the edges, and guys hiding out at the bar or circumnavigating the floor in a forlorn mating death march2. Is this ringing any bells with you yet? If not, let me try something more universal – picture a teenage ‘Road House’ and you’re just about there…
I still marvel I got past the bouncer at the tender age of 14 (ever so slightly under-age!), especially since I’d say I was only 5 foot high (on tip-toe) then, and had a ‘face like a baby’s bottom’ (just what a teenage boy wants to hear from his mother’s friends). Then again, did you take note of the type of place I’m talking about..!? Standards weren’t so high, I guess. Now, the only way to survive/thrive in this teenage (dating) wasteland was to have a set of rules3:
i) Never, ever, just pick the first girl you see.
ii) Study the place, study the girls, study the dating rituals – and figure out what makes them all tick.
iii) Rank the girls – and don’t just rank on looks, also consider height4, weight3, ‘get-offability’5, and even personality (Heaven forbid!).
iv) Start at the top, and systematically work your way down, until you’re successful6.
v) Don’t just stick to your ‘type’ – try as many others as you can, you’ll probably enjoy it and you might just learn something!
vi) When you get kicked in the teeth, pick yourself up and (always) try again – and, of course, take all the help you can get!
Well, I could continue with the fond memories, but I’m sure you know where this is leading – yup, all of the above rules apply equally well with investing! Let’s take a closer look (and, yes, I’ll try save us all from the pain of stretching the metaphor). But first, a step back:
I’ve touched upon it before (and here), and probably will return to the subject of ‘home bias’. This pernicious anomaly causes investors to blindly invest in home market stocks for a disproportionate percentage (vs. world GDP share, for example) of their portfolio. Or even their entire portfolio, God help us… This is wrong on so many levels: We don’t even need to leave the 20th century to see numerous examples of investor wealth getting wiped out domestically by war, severe political/societal change, (hyper)inflation, taxation/confiscation, and so on. Any chance of preserving wealth in these situations was invariably due to owning either tangible/moveable assets, or foreign asset holdings.
If you prefer to ignore these more extreme examples as v unlikely (as many of the aforementioned victims did, to their cost…read ‘Wealth, War & Wisdom’ by Barton Biggs), the benefits of fighting home bias are still obvious. If you’re seeking safety, growth, value, diversification, inflation protection etc. you’re most likely, of course, to find it outside of your home market…
I usually like to pick on the US as the (bad) poster child for this problem! Somewhat justified, I think. The US has some of the best finance/investment research, hedge funds and investment banks globally, but in the real world Joe the Plumber ends up with an atrociously structured portfolio. At the very best, we can probably hope he’s got 30% of his portfolio in foreign stocks (when the US is about 25% of world GDP), but v often the sad reality is that he’s got zero direct foreign exposure. Recently, a US friend of mine was excited she’d so much choice in her new 401K – 15 different mutual funds to choose from! I innocently inquired further, to learn this range consisted of 14 US focused funds…and 1 foreign stock fund!? Lord, give me strength! And this is not uncommon. US trustees, brokers and financial advisers really have a lot to answer for...
Now I think about it, though, Irish investors are far worse! Yes, like most Europeans, Irish investors (and advisers) are much more open to owning foreign stocks, and many are quite prepared to have the majority of their portfolio invested overseas. However, they still have a fondness for Irish stocks7, and when you consider Ireland’s share of world GDP (take a guess?8), the home bias is far worse as a ratio than that exhibited in the US. I have to confess, I suffer from the same failing… Excluding special situations/event driven stocks and the like, I currently have a 9.5% Irish stock allocation. Doesn’t seem unreasonable, but it’s ludicrous in terms of Irish GDP, and also the size of the Irish stock market (and the small number of companies listed).
So why on earth did I launch something like The Great Irish Share Valuation Project..?!?
To be continued…
1 Except the time I missed the empty bottle of whiskey left squarely on the top shelf of the kitchen fridge. I blamed a friend… He was eventually treated for alcoholism. I still sometimes wonder if there was a connection..? Hmm, probably not, even at that early age he appeared to live on just vodka and crisps.
2 This part may be peculiarly local, but male-female interaction was pretty much limited to a guy (after enough Dutch courage…and floor-circling) slowing down (definitely not stopping!) in front of a girl, muttering ‘dyawannadance?’, and either grabbing her or bolting depending on the reply. The girls clearly had some kind of system going too, as they could rather bizarrely manage to accept or reject a guy…before speaking to him, or sometimes before even checking him out!?
3 Any hint of sexism/political incorrectness is…accurately captured here – what did you expect?! Have you ever been in a 14 year-old boy’s head?
4 Height: Girls grow faster/earlier than boys, leading to some embarrassing (or hilarious) situations. I still remember, to my shame, the first time I tried to drive an adult-sized dodgem car. I was trying to impress a potential ‘girlfriend’. Unfortunately, my feet didn’t bloody reach the pedals…and she had to take over!
5 From the verb ‘to get off’. I was going to say that’s the same as ‘to hook up’, but apparently there’s a hell of a lot more served at the buffet these days – fathers, you definitely need to lock up your teenage daughters!!!
6 Or start from the bottom and work your way up. Oh, yes…you have a friend like that too?!
7 Let’s not even get into that lethal twist to an Irish home bias…resource stocks!
8 Well, I guessed this wrong by a bloody multiple… The rather depressing answer is that Irish GDP constitutes only about 0.23% of world GDP.