The triple bet

In financial circles it is commonly acknowledged that investors have an overwhelming ‘home country bias’. It means we tend to be heavily biased to investing exclusively in our home country (in some cases, home town), in its industries, real estate, and stocks and bonds, with a natural aversion to and suspicion of foreign markets.

Now emotionally there is a lot of sense in this. We tend to like to invest in what we can see, touch and, more importantly, ‘understand’. Here we are making a virtue out of ignorance, which is great for emotional security, but bad risk management from a cool-headed investor’s point of view.

In Australia and many other countries in Asia there is clearly significant currency risk for investors. It is called the triple bet on currency.