This article originally published in The Northern Daily Leader on 4 August 2012
I know that it’s not everyone’s cup of tea, but I always enjoy the Olympics. I usually restrict my television sporting diet to staples such as cricket and rugby, but during the Olympics I’m prepared to watch any and every event. Every four years it’s the only chance I get to become an armchair expert on all manner of unusual sports. For two weeks I’m a know-it-all when it comes to fencing; an authority on synchronised swimming and an expert on rhythmic gymnastics. I’m happy to hold long conversations debating the relative merits of the Chinese pen grip versus the Western handshake when it comes to table tennis; of how equipment changes have impacted the shooting competition; of the most reliable stance in Greco-Roman wrestling and how to best return serve in a Badminton match. Most of my somewhat dubious Olympic expertise is directed in the direction of my wife, who seems interested but I suspect has managed to perfect the trick of sleeping with her eyes open.
The only annoying aspect of the Olympics is the behaviour of the free-to-air broadcaster (you know who they are). They seem to believe that Australians are only interested in watching Australians. If there is an event out there without any Australian competitors, then don’t expect to see much of it on TV, if at all. Now of course we want to see our Australian athletes in competition, but that doesn’t mean we’re not interested in sports or events which don’t involve Australians.
In investing parlance, the TV broadcaster’s attitude illustrates a well-known investor behavioural trait called ‘home bias’. Home bias simply means that investors concentrate almost exclusively on the investment opportunities in their own country. For example, many Australians invest only in Australian shares, despite the fact that the Australian stock market makes up less than 3% of the total value of globally listed shares. By focusing on just the Australian market you are potentially missing out on 97% of available investment opportunities. Studies have also shown that investors are even biased within their home bias – that is, investors who live in New South Wales would be more likely to invest in NSW-based companies rather than companies headquartered in WA or Victoria.
Choosing to have no international investment exposure reduces the diversity of investment portfolios, potentially leaving you worse-off on a risk-adjusted basis. The message is that, much like the TV broadcaster limits my opportunities to impress my wife with my expert opinions on synchronised swimming and other exciting events, your home bias may be limiting your investment portfolio performance.