Home Country Bias: If You’re Not Convinced Yet, Look at This
|The Dow Jones Industrial Average is as American as apple pie.
For most U.S. investors, the 30 American companies that comprise “the Dow” are the natural starting point of building a portfolio of stocks.
Names like Wal-Mart (WMT)… Disney (DIS)… McDonald’s (MCD)… Caterpillar (CAT)… and Apple (AAPL).
They feel as familiar to U.S. investors as, well, apple pie feels to an Oklahoman at the county fair.
And since familiarity naturally leads to increased comfort and confidence, U.S. investors routinely over-allocate to U.S. stocks – including many of the household names in the Dow.
But as I explained in March (links in the P.S.), truly successful investors resist the urge to feel comfortable in their stock selections. Instead of seeking comfort, the best investors seek markets that show the best chance of outperforming.
And often, outperformance requires looking outside the United States.
That’s certainly been the case this year, as my Cycle 9 Alert subscribers can attest, and as you’ll see in the chart below.
Everyone on CNBC was celebrating the Dow’s crossing of 22,000 last week. But they neglected to tell you how foreign stock markets have been a far better bet.
I warned back in March that we’d likely see this happen, and I counseled against lazily falling victim to the so-called home country bias.
Stock markets have continued to march higher since then…
The Dow Jones Industrial Average is up a further 5.6%.
But foreign markets have continued to outpace U.S. stocks.
Germany gained 8%… and is now up 16.1% year to date.
Chinese stocks climbed 8.6%… now up 21.5% year to date.
Spanish stocks rose nearly 14%… putting their year-to-date gains at 26.5%.
And Mexican stocks climbed a further 15%… putting them in the #1 spot, up 30% year to date!
Here’s that chart, summarizing the year-to-date returns of the world’s Top 15 economies:
As you can see, most foreign markets have fared better than the Dow in 2017.
Chinese stocks have provided double the return.
Mexican stocks have nearly tripled it!
Who would have predicted this?!
Look, I get it… investing in foreign stock markets feels riskier than investing in the All-American names.
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