Home Bias

[Wildreamz]

What is home bias?
Home bias is the inclination for investors to invest the majority of their savings into local equities and bonds.

The phenomenon was first highlighted by a research paper made by Kenneth French and James Porterba in 1991. They concluded that most investors still hold most of their assets in local assets, despite research-backed benefits of international diversification. Home bias led to higher risk in their investment portfolios over the long-term.

This phenomenon has been observed recently, and in Singapore as well. As evident from the chart below, despite how Singapore equities only represent 0.4% in global equity indices, on average, Singaporean investors have 39% of their portfolio in Singapore’s stocks.

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source: https://endowus.com/insights/home-bias-i...gaporeans/
wiki: Equity Home Bias Puzzle (https://en.wikipedia.org/wiki/Equity_home_bias_puzzle)

If this bias is well-known and simple to mitigate today due to rise of low cost brokerage; why's "home bias" still common among local OPMIs? Or is there another angle to look at this: e.g. local tax advantage (no dividend tax, no capital gains tax), security of CDP etc.

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On a related note:

Warren Buffett famously repeated, especially in times of crisis: "never bet against America". Is that simple home bias/American exceptionalism, or is there a larger insight behind that statement? Is America special, in the global context?

[karlmarx]

The home bias is a manifestation of what most people practice: buy what you know.

It is the same for stocks, as it is for real estate. And for the most part, Singaporeans have done reasonably well fishing in the local pond. Unfortunately, growth has been shifting away from the 'Asian Tigers' to predominantly China, so the returns from the local pond has not been as high as the previous decades.

Given the prospect of modest returns, more Singaporeans shifting their attention overseas, or at least the access to overseas markets have vastly improved. But exploring the rest of the ponds out there, which is 250x the size of the local pond -- or 99.6% of the total -- is an undertaking that is probably too much to ask of the average investor. Lest we forget, we know far less about companies (and their environments) which they operate in.

It looks simple because all you need to do is login and click a few buttons. But I will say that fishing overseas is analogous to our average NS Men trying to complete an Iron Man race; the guy probably has problems passing or attending RT as it is. That said, I'm sure we have our Frodos who journeyed to Mordor, succeeded in their quest, and returned to tell the tale.

As for WB, my understanding is that he implies (whenever this topic is brought up) that the institutions of US which encourage creative destruction is the reason that there will always be great US companies, and US prosperity. Many of the life-changing technology is from US. Does that make US special, or even exceptional? I would think so.

Which is why WB is such a happy camper -- his frequent repetition of 'winning the ovarian lottery' of being born in the US (and being wired to look for value). You don't see many foreign stocks in his portfolio because there will always be good stuff to buy in the US.

[Wildreamz]

Buy what you know make sense to a certain extend (one would probably know slightly more about a local Telecom, local food and beverage chain like Breadtalk). But do we really know significantly more about, say, a property developer, IT company, semiconductor supplier, REIT (with properties overseas) listed in Singapore compared to one listed overseas? Not to mention the access to information for local companies is quite lacking, due to lack of historical fundamental stock information from online aggregators (e.g. for HK we have AAstocks, US we have Macrotrends, ycharts and much more) and quarterly online live broadcasted conference calls. 

Moreover, today, one would probably know more about the software you use everyday (e.g. Microsoft Office), search engine (Google), social media (TikTok, Instagram, YouTube), phone makers (Samsung, Apple), fast food chain (McDonalds, Starbucks), movie studio (Disney), no?