Lauren Young of Business Week interprets investing in what you know as a strategy of investing in local companies. She writes about a study done that:
…investigated whether investors who buy stocks of local companies have superior information.
She concludes that individual investors don’t do well with this strategy.
Investing in what you know doesn’t mean buying stocks of local companies, it means buying stock only if you have studied the company or have knowledge from experience, and you understand what they do.
Where they are located has nothing to do with this strategy.
Half our portfolio is in mutual funds and I have little idea about the dozens of companies they hold – domestic and international.
The other half is in equities:
We’ve only made mistakes when we deviated from investing in what we understand. Otherwise we’re far better than average.