Stocks - Domestic and International
Comparing performance
On the investment cheat sheet, I mentioned two subcategories of stocks - domestic and international.
Domestic stocks are investments in the U.S. and international stocks are investments everywhere else. I know that seems a little U.S. centric to use the term domestic in that way for investors who don’t live in the U.S. but that’s just convention. If I had to offer a rationale to explain why, I would say one reason it’s done this way is because the U.S. has the largest stock market in terms of companies with the largest aggregate capitalization.
The U.S. may not be the biggest and best market forever though. If you are an investor, it’s important to get exposure to international stocks to hedge. Given the current reputation of the U.S. for doing some pretty dumb things (we call it freedom), it may seem like a good time to diversify. Surprisingly, that hasn’t been a winning strategy in the last decade:
Comparing domestic and international stocks, there is some clear correlation in behavior. The big difference is that domestic stocks have absolutely crushed international stocks in terms of performance.
One contrarian investment strategy is investing in companies you dislike personally. Usually, companies like that have some kind of power that causes you to get upset and that bad reputation is really an acknowledgement of a competitive advantage.
As an American who is sometimes (often?) confused and/or mortified by some things happening in this country, maybe that was a bullish signal all along. The competitive advantage in this case is our huge and diverse population representing many different, sometimes competing ideologies. It gets messy but maybe it’s true that chaos is a ladder. (Counterpoint to all that - maybe we just have some really good companies and it would be even better if we could all just get along and live in perfect harmony.)
Given the poor performance of international stocks relative to domestic over the last ten years, it’s hard to justify too large of an exposure. But, we can’t ignore international stocks completely because the next ten years could see the opposite effect and significant outperformance! I don’t have a crystal ball, so the next best thing is going to be some degree of diversification between the two.