Getting Started In Global Investing, Introducing the Island Principle

Although "Getting Started in Global Investing" is easy reading, there are many ideas in the book for the advanced investor. Below are some of the concepts Robert Kreitler develops from the book’s island perspective that advanced investors may find useful.

Although most investors think of the US market as the place to be, since 1970 (when good statistics became available), the US has never been the best performing of the 21 developed markets. An international index such as EAFE masks this. (Chapter 1)
Although most investors think that investing in foreign stocks is risky, an investor can actually reduce portfolio risk through country diversification. (Chapter 3 & 5)
Some of the risks frequently associated with investing in foreign stocks are not unique to foreign investing. They also actually apply to investing in US stocks. Political instability is a prime example of a risk that also is inherent in the US markets. (Chapter 2)
Many of the so-called risks of foreign investing, (different accounting standards, currency fluctuations, and less reliable data) can actually be viewed as benefits of foreign investing, not problems. (Chapter 2)
Most investors belief that if they can ride through short-term market volatility, over the long-term, they will achieve their investment goals. However, long-term investment risks are frequently more important than short-term risks. "Getting Started in Global Investing" identifies five types of long-term risks. (Chapter 2)
Most people think they are conservative with 15% of their portfolio invested in non-US stocks and 85% in US stocks. An aggressive portfolios would have 25% in non-US markets and 75% in the US. From an island perspective, having 50% in one country market such as the US is risky. Having 85% in one market, even the US, would be very risky. (Chapter 5)
Matching the market should not be a goal for most investors. (Chapter 4)
Using market capitalization for portfolio weighting is not meaningful for portfolio management. Most indices are using market capitalization and thus have inherent problems. (Chapter 4)
Most investors prefer to decide themselves how much to allocate to each country or region. Deciding which countries or regions to invest in is probably the most important factor in overall portfolio performance, so an island investor is more likely to let a mutual fund manager do this. (Chapter 5)
A return of 12-13 percent is a reasonable long-term objective for a global investor in stocks. (Chapter 5)
Most US investors like to have all of their holdings in US dollars. However, the currency diversification of global investing is a benefit because the eventual goal of most investing is to create future buying power. Most individuals will be buying goods and services from around the world. Having a portfolio predominately denominated in one currency such as the US dollar is too risky. It leaves the investor at risk to the whims of a single government. (Chapter 5)

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