How Travel Can Affect Your Investing Strategy

Some people plan holidays with palm-lined beaches, standout golf courses or world-renowned museums. When Dave Keil books a trip, he wants to see sights that could help him boost his investment portfolio.

On a 2005 trip to Las Vegas for a friend’s stag, for instance, the investor slipped into the Consumer Electronics Show to check out new tech trends. More recently, on a trip to California, he made a side trip from Los Angeles to San Diego with a dual purpose in mind: to take his young daughter to the San Diego Zoo, and, maybe more importantly, to check out a solar car maker he’d been eyeing as a possible investment.

Although he wasn’t won over by what he saw from the car maker, the lifelong investor saw value in carving out time on his trip to fit in the in-person visit. “I’m glad I went – sometimes you need to see things for yourself to be sure,” he says.

Keil, a Canadian who now calls Turks and Caicos home, is currently preparing for an upcoming trip to Italy, where he’ll stop by a motorcycle factory and may take a closer look at some Italian fashion brands. While some might view this as a chance to upgrade their ride or look, for Keil, the trip will help him decide if he should make space in his portfolio for these brands. “I’ve got to do some more homework,” he said a few weeks before leaving. “But I’ll probably check a few out.”

The risk of home bias

Travel can be a great way to gain global insights and expand your portfolio. Time spent abroad – or even in a different region of Canada or the U.S. – can open your eyes to emerging trends, industries and markets you wouldn’t have been exposed to otherwise. It can also help you overcome what’s known in the investing world as home country bias – the tendency to overload your portfolio with domestic assets.

In Canada, most investors have overallocated home-based assets; studies show that Canadian stocks represent more than half of the average portfolio. Domestic equities have advantages, there’s no withholding tax on dividends, for instance, and no foreign currency risks. But given that Canada’s publicly traded companies comprise only about 3 per cent of the world’s market capitalization, portfolios overweighted with Canadian companies don’t capture most strengths of the global economy. They also lack diversity, since more than two-thirds of Canadian equities are tied to the financial service and resource sectors.

Jim Rogers, a former Wall Street investor and co-founder of the Quantum Fund with George Soros, has made two round-the-world trips aimed at exploring global economic trends and investing opportunities. In the early 2000s, he visited Egypt and predicted turbulence that would lead to the downfall of President Hosni Mubarak, the prospect of which he wrote about in his subsequent book, Adventure Capitalist. On the same globe-spanning trip, he glimpsed signs of the rise of Asian economies, and became so convinced of the strength of the region he relocated his family to Singapore.

Inform your investment decisions

Travel can also help investors make informed decisions about assets to avoid. On a 2010 trip to England, Keil was so struck by the high exchange rate versus the U.S. dollar that he decided to stay away from U.K. investments. He was convinced the “economic headwinds were too strong.” That turned out to be true – Britain’s FTSE 100 index is up just 38 per cent since January 2010, while America’s S&P 500 has climbed by 347 per cent.

Seeing how companies operate – whether it’s an actual site visit or how consumers interact with a product in that country – can give you information you can’t glean from articles or quarterly statements. For instance, when Keil wanted to see how well a Canadian publicly traded construction company was run, he made a point to check in on one of their sites when he returned to visit family see how organized it was.

In many ways, travelling to explore the viability of a foreign economy or a new industry or asset is similar to the intelligence-gathering business analysts do before writing reports; a good retail analyst will conduct fieldwork in chain stores, for instance, to assess inventory, customer service and other factors that contribute to a company’s success.

Legendary investor Warren Buffett advises people to “invest in what you know.” In that respect, if you’re planning to invest in non-domestic assets, when possible, it makes sense to take a look at them firsthand. Once you’ve done your due diligence, you’ll be in a better position to make an informed decision.