Familiarity

I read an investment article recently that suggested investors are taking the buy-local movement a little too much too heart, with the typical household having about 30% of its portfolio invested in shares head-quartered locally.

Many investors believe that local knowledge gives them an edge when it comes to investing, but data proves them wrong. A recent study found that investors with a local bias tend not to come out ahead, even when betting on small companies that aren't widely followed by analysts. Apparently, investors too often confuse "something familiar with something safe".

Another parallel between business and sports investing, at least for me. As I wrote not too long ago, one of the hardest things for me when I'm trading a game is to trade a game with a completely open mind. While I should base decisions solely on what is taking place in front of me, it's very hard to - for example - erase the memory of the game last week when one of the teams collapsed, or had a stunning comeback, or whatever. Trading is not a time to embrace the warm, fuzzy feelings you may have about a team or a player, however much you made from them in previous contests.

Something familiar is not to be confused with something safe when it comes to money, although arguably, it's a different matter when it comes to sex. I'm pretty sure it was Mark Twain who said "Familiarity breeds contempt - and children".