Patriotism is Killing Your Portfolio

Unless you’re an American, in which case you are still too patriotic, but much less patriotic than people from other countries.

The tendency to invest in your own country’s assets is known as home bias.

I’m writing about home bias because recently, when I was on vacation in Seattle (and watching the best DotA players in the world), it occurred to me that I have no idea how much of a portfolio a person in a country not called America is supposed to have in their home market versus the rest of the world. Americans routinely have foreign equity exposure of something like 20-40% of their equity portfolios. That strikes me as very reasonable from a gut-check level. On the other hand, I have no idea how much people from, for instance, England, France, Japan, or Australia have in their portfolios, I have no idea what is recommended by professional advisors, and I have no idea what is theoretically optimal.

I pondered for a few weeks after I got back, then I started looking. As far as google — about all I could find was a bunch of USA-centric portfolios that were ‘adapted’ for other countries (replacing the S&P 500 with the FTSE 100, for instance), something struck me as obviously inappropriate given the relative sizes of our economies.

A little further research provided me with almost nothing in the way of recommendations from professionals (although it was incredibly easy to find free high quality advice for Americans). I’ll disclaim now — while I’m usually pretty good at interneting, it is possible I missed some obvious sources or that the sources I was seeking did not show up because I’m in America.

However, fortunately for us mortals, what financial advisors have seriously neglected, economists have been puzzling over for years.
Continue reading “Patriotism is Killing Your Portfolio”

Jack’s Links

It’s been a month, but here are the links. Try not to panic tomorrow if things are kinda downish.

Free > Paid when paid doesn’t adapt.

A dozen things: Charlie Munger

Bason Asset dropping the best statistic of the weekend. 46 times.

See if you can spot all of the terrible logic errors in this article about social security. If you can make it through without saying “that’s not how that works” to yourself at least three times, you need to try again.

WCI with a good post on whether you should buy whole life insurance. And asset location. And bonds. Okay I’m going pretty far back on these, but great posts.

Rate cuts? QE IV? I don’t know – been seeing some smart people get confused on this lately.

Give the people what they want.

This pope is extremely confused and confusing. He makes me very uncomfortable.

Good 538 article on dating. Probably applicable to other stuff.

 

  • The simple pattern: People who display a certain trait prefer other people who display that trait; people who don’t prefer people who don’t.
  • The subtler pattern: Everyone prefers people with a certain trait, but people who have the trait themselves display a stronger preference for other people with that trait.

Somehow poisoning the horns of rhinos doesn’t feel like the easiest answer.

Rent control always seems to have the same result. v. Stockholm