Dear Fellow Investor
When you go fishing you look for the most comfortable spot next to the river or the sea or do you go to where the most fish are caught and start fishing there?
You of course go where the fish are.
Not what most investors do
But that’s not that most investors do.
Let me explain.
Investors usually invest mainly in the country where they live. For some reason they feel more comfortable there and think that they have some kind of investment advantage, which is of course an illusion.
Home country bias
There is even a term for it “home country bias”.
But if you think about it, it really makes no sense if you’re fishing for undervalued companies (or other investment strategy) to only look in the country where you live.
You need to cast your net as wide as possible (look at as many companies as possible) to increase your chance of finding really undervalued companies.
It does not have to go exotic
And with that I don’t mean that you have to look in exotic places like Africa or Mongolia, you should simply look in most of the developed world meaning greater Europe, Japan, Australia and North America.
Where have you been investing?
Where have you been investing of far? Only in the country where you live, and if so why?
What are you worried about?
– Are you worried that your money will get stolen if you invested in another country?
– Are you worried about accounting rules that may be slightly different?
– You worried about a different language?
– Are you worried that companies may not issue quarterly reports?
These are all its legitimate questions but you have to ask yourself if they are big enough reasons to keep you from investing in other countries.
Accounting the same everywhere
Most of the countries in the world have adopted international financial accounting standards (IFRS) which means that apart from a few small differences company financial statements are very similar.
Also small differences do not matter if you’re looking for very undervalued companies.
Small differences don’t matter
For example what difference does it make if the net profit under slightly different accounting rules is 5% to 10% higher or lower if you’re looking at a company that’s 50% cheaper than anything else you could find in your home country?
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Language not a problem
Languages are also not a problem anymore as even in countries like France most of the companies also publish annual and half-year reports in English. And interim press releases can easily be translated using Google translate (translate.google.com).
Will you really miss quarterly reporting?
Most countries in Europe and the UK do not issue quarterly reports. But that should not stop you from investing because, if you really think about it, how much can a business change over a three month period?
Not much, and if something seriously has gone wrong the company will inevitably publish a trading update.
Home country bias example
This home country bias was brought to my attention recently when a friend gave a presentation to a group of investors in Belgium.
One of the first questions he asked was how many of them invested outside of Belgium? Very few hands were raised.
Only 250 companies to choose from
To their great surprise my friend asked them if they mad because on the Brussels stock exchange there was a grand total of 250 companies from which they could choose to build a portfolio.
23,000 companies you can choose from
You may live in a country where the stock exchange has got a lot more listed companies but it wouldn’t have close to the more than 23,000 companies you can look at if you look at the North American, European, Japanese and Australian markets.
I am sure you will agree that such a huge number of possible investment opportunities will give you a much higher probability of finding really undervalued companies to invest in.
How you can do it
Luckily for you and me the rise of internet brokers have made investing worldwide a lot easier.
Your first step will be to find a broker that, for a reasonable price (this is very important) can execute your orders in all the countries you may want to invest in.
Find a company you think is worth investing in and start with a small transaction.
This is important as a small transaction will help you sort out possible problems with your broker so that larger transactions later will go smoothly.
Build your confidence
Small initial transactions will also build your confidence to do larger transactions later.
Your digging everywhere analyst