September 25, 2008, 6:00 am

Most Investors Are Home Biased

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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I see that almost everyday when I meet a client dealing with a broker. I look at his stocks and most of them are Canadians. Even worst, he has every single big company based in our province. Even when I look at my trading portfolio, most stocks are Canadians. Is our market that good? Or our knowledge that limited?

I would say that the answer lies in the fact that we prefer buying company that we know, that we can see than company that we can only read about.

People who were home biased for the past 5 years must be laughing since the Canadian Market beat most stock established stock markets and definitely did a lot better than the S&P 500. Most TSX stocks did pretty well along the way and encourage Canadian investors in their choices.

The major problem with this kind of approach is the concentration level into a small market that is highly dependent on resources and financials. The past few weeks was another good example of what happens when we have all our eggs in the same basket.

We have to remember that the Canadian Stock market only represent 3% of the global economy. In addition to that, take off the resources, the financials and RIM and you don’t have much left in the TSX.


The first solution would be to sell your losers and start looking South of the border. The US market didn’t do so well since our Canadian dollar increased by 40% over the past 5 years. If we look at what is going on with our dollar this year, we can determine that it probably won’t go over parity and that the time to invest in the US market might be interesting.

Problems are definitely not over in the States but the market took a severe hit and I think it could be the right timing to move a part or your assets toward that market.

If you want to invest in other countries, I would suggest that you use indexes or mutual funds depending on your level of knowledge and involvement in your portfolio. Some people prefer to manage actively their investment. Those should trade ETFs as they show a low MER and offer a great potential of returns.

If you want to smoother the ride but still participate in the global economy, mutual funds could be a good alternative. While their MERs will be around 2%+, they offer a good diversification and take off the pressure of managing your investment on your own.

The key point is not to let everything in the Canadian market. We had some really great years but the party is now over. It’s time to move your money around and get your hand on other countries where they might be ready to start their party 😉

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I agree now a days diversifying doesn’t mean just investing in home based sectors, you need to diversify globally to take advantage of tops & bottoms through out the markets.. there are many global Mutual funds available, for me especially the ones investing in commodity are more lucrative….

I don’t like mutual funds but that’s just me. You wouldn’t feel comfortable investing in American companies like Coke and Procter and Gamble? I’m sure these products are just as prevalent in Canada as they are the U.S. They also have worldwide exposure to hedge against a fluctuating dollar

by: The Financial Blogger | September 27th, 2008 (7:53 am)

I agree with you that these are well known companies around the world. However, most people only look at companies that they can actually see building while driving to work 😉

If you are American, I would be curious to know how many non-American based companies do you have in your portfolio.

Yes I am. Non at this moment but everything I hold makes money in the U.S and elsewhere. I’ll be looking to pick up some shares of DEO once I have the money and it’s at an attractive price

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