Global Investing 101: Why Diversification Beyond Australia is Key

Bryce: [00:01:09] Welcome to get started investing in this podcast, we cover all the basics that you need to start your investing journey. Are you joining us for the very first time? Is this the start of your investing journey? Well, before you dive into this episode with us. Our fate is designed to go from the very beginning. So we strongly recommend that you scroll up and start from episode one if you're feeling brave and just want to dive in. We won't stop you. Here at GSI, we unpack all the jargon, the confusing bits here, your investing stories with the goal of making investing less intimidating. And we want to have a good time along the way. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:45][36.2]

Alec: [00:01:46] I'm very good Bryce. I'm very excited for this three part series. We're covering everything global investing, which is what I was going to say. It's a topic close to my heart, but I'm not sure it really is. It's a it's a topic that I, I care deeply about, I guess. But you might be able to hear some crisp, clean audio coming coming out of your headphones there. And that's actually because I am back under the blanket. [00:02:16][30.3]

Bryce: [00:02:17] Back under the blanket. Yes. Unfortunately, many of us around Australia are back in lockdown. We're recording this on the 1st of July. So we are certainly with everyone who is in the unfortunate position of being in lockdown. But look, the show must go on here at Equity Mates and Ren. Yes, you're back under the blanket. It's sounding very crisp. [00:02:37][19.5]

Alec: [00:02:37] Yeah. Yeah. Honestly, I it's very warm in here. So if I pass out just just the show must go on. So I keep going without easy. [00:02:46][8.8]

Bryce: [00:02:47] Easy. So as I said, Ren, we're continuing with our three part series on a particular topic. And today's all about global. Over the next three episodes, we're going to be talking about the importance of going global with your investment, get excited about the global opportunity and not just getting stuck with the opportunities here in Australia. We're going to talk about how to actually do it, how to actually, you know, invest easily overseas and look at some of the tax implications as well. And then look at some of the examples of what going global actually looks like from a portfolio point of view. So three big episodes. It's never been easier to invest overseas. And so hopefully by the end of this three parts, we will have encouraged you to get your head out of the Australian Stock Exchange. [00:03:32][44.9]

Alec: [00:05:01] Absolutely. So let's get stuck in, shall we? Global. [00:05:06][4.5]

Alec: [00:05:07] Global. Well, so I think the key thing that I think will be a message that runs through all three of these episodes is with technology these days, it's just as easy to invest in Australia as it is overseas. The you know, the process is no different. It's just that the companies are different. And so in this episode, we're not going to focus so much on the how, but we're going to really focus on the why. We're going to we're going to get excited about the global investing opportunity because, you know, for our parents, grandparents, even our older brothers and sisters, it wasn't this easy to invest in global shares when we started investing, you know, mid twenty tens. It wasn't even this easy. Like technology has come a long way in a very short period of time. So the question is, you know, you can do it, but but why should you do it? And that's what we're going to really answer in this episode. [00:06:07][60.0]

Bryce: [00:06:08] So let's start. With let's start at the top Ren so many people listening to this, this show will probably be investing in majority Australian stocks or potentially only Australian stocks on the ASX. And there is nothing wrong with starting that way. But this is, you know, what we call home country bias and home country bias is the tendency for an investor to prefer companies from their own country. And this really leads to investors putting too much of their money into stocks from their home country. And we know, as we've spoken about, when we've done episodes on asset classes and portfolio construction, you really do want to be diversifying away from from one particular region and creating a more balanced portfolio. [00:06:53][45.7]

Bryce: [00:06:54] So let's stop there in terms of why the you know, the personal finance experts and everyone talk about diversifying away from your home country like, you know, some people might be listening and saying, sure, I invest in Australia, but I'm I'm super bullish on Australia. I think Australia's got a bright future. What is the reason why people talk about global diversification? [00:07:19][25.1]

Bryce: [00:07:20] Because if you're putting all your all of your eggs in one basket, they add Australia. You then really relying on or you're at the beck and call of how Australia, the Australian market performs and how only that market performs. So, for example, if Australia were to go into a recession and the stock market were to to go into a bear market, if all of your your money was in the Australian Stock Exchange, then you only have exposure to that bear market. Whereas if you were to have some of your money in Australia, some over in America, some over in Europe, while the Australian economy might not be going so well and subsequently the stock market here in Australia isn't going so well over in America, over in Europe, they might be having a much better time and the economies over there would be doing a lot better. And subsequently the share markets over there would be doing better as well. And so you're diversifying that risk by having money in different parts of the globe and not being so concentrated on one country. [00:08:17][56.9]

Alec: [00:08:18] Yeah, I think that's 100 per cent right. And even if you take a step back and you step beyond your stock portfolio to just your total net worth, you you know, if you're based in Australia or whatever country are based in your job in some ways is tied to the domestic economy. If you own a house, it's tied to the domestic economy. And so, you know, if Australia was to go into recession and you owned a house in Australia and you worked in Australia and all your shows were in Australia, you're very exposed to the Australian economy. Now, it's very difficult to buy a house overseas. It's even more difficult to get a job overseas but continue to live in Australia. The easiest way to globally diversify your total net wealth is in the the assets in the stocks that you own. [00:09:11][52.7]

Bryce: [00:09:12] Yeah, you can buy companies overseas from your bedroom. Yes, you can buy Amazon. So, you know, there's there's a huge pool of opportunity out there beyond just Australia. So I think the first thing we want to mention here is the home country Bryce don't be locked in to the country that you're certainly living in. [00:09:33][21.1]

Alec: [00:09:33] Well, let's let's put some numbers to it, because we do have some numbers here. So a recent survey found the average Australian investor has sixty seven percent of their money in Australian stocks, despite Australia being just two percent of the global stock market. Wow. If you're over in America now, Americans have a big tendency for home country bias fair on the average. Yeah, well, there's a there's a lot of good companies to be biased towards over there. But the average American investor has 80 percent of their money in American stocks, despite the US being 40 percent of the global stock market. The average Canadian investor has fifty nine percent of their money in Canadian stocks, despite Canada being just three percent of the global stock market. And one more, the average Japanese investor has fifty five percent of their money in Japanese stocks, despite Japan being just seven percent of the global stock market. [00:10:31][57.6]

Bryce: [00:10:32] Wow. There you go. What do you think you're you're waiting is towards Australian stocks [00:10:38][6.3]

Alec: [00:10:39] are probably a third maybe I think [00:10:43][4.7]

Alec: [00:10:44] ought to be about the same. [00:10:44][0.6]

Alec: [00:10:45] Now, it's probably important for us to pause here and just play devil's advocate, because there are those, you know, in the finance industry or perhaps even listening to the show, who would be yelling at us right now and and saying there's a reason that investors have a home country bias. And the fact of the matter is, if you live in a country, if you. Use those products and services, you know, these companies better, you know, Bryce are going to Woolworths every day, honestly, before you shop, you shop for groceries way too much. But walking walking the floor say, like touching, saying, feeling that that business has a lot more information than like a Canadian investor who may want to invest in Woolworths and is just writing annual reports and stuff written online. So there is a case to be made that it makes sense to focus your investments in your home country. But I think I think the real takeaway here is, first of all, this isn't an either or this isn't a 100 percent global or 100 percent domestic. It's about having a mix and being diversified. And, you know, Bryce can say, love Woollies and decide that that's the right investment for him. But he can also diversify outside of Australian stocks as well. But then I think the second reason why it's important to think overseas is the businesses that we, you know, see, feel and touch these days on all Australian businesses. [00:12:26][101.0]

Bryce: [00:12:27] They don't know we are sitting here while you're sitting over in one part of Sydney and I'm in the other. We're communicating via Apple computers, our clothes probably made overseas somewhere, South East Asia, Europe. You know where we've got the you've got the garment on. There's, you know, plenty of companies that we're using these days are not Australian. [00:12:50][23.1]

Alec: [00:12:51] And yet literally this this podcast is probably either being listened to via an American or a Swedish app. Our podcast host is Swedish. Yes, I'm drinking coffee and I'm pretty confident the Bane's weren't grown in Australia. You know, we listened to. Yeah, basically we live in a global economy and the products that we know the best are often not domestically made or from domestic companies anymore. [00:13:19][28.5]

Bryce: [00:13:20] Yeah, and we've got a quote here from Tobias Fox, who we have interviewed over on Get Started Investing. He's a portfolio manager now. [00:13:28][7.9]

Bryce: [00:13:28] Over on over on Equity Mates. [00:13:30][1.9]

Bryce: [00:13:30] Sorry, over on Equity Mates. He's a portfolio manager of Ausbil Ausbil Investment Management. There are small cap fund, one of our sort of favourite investors here in Australia. But he does really kind of say what you're talking about there, Ren. And I'll just lead in with the start of his quote. So he's really talking about the reason why you need to be thinking globally. And whenever we talk to Tobias, he always comes to us with stocks that are listed in Sweden, are listed in various parts of the world. But it just goes to show how important it is to think about investing globally, he says. To put it into context, it's about your opportunity set. So how many stocks do you get to pick pick from? The second part is what sort of companies there are. So if you look at Australia, 60 percent of the market is banks and materials. Only two and a half percent is it. And technology, which we know is certainly true. The more things that you get to pick from the higher chance you have of picking a gem. If you only get to pick from two or three stocks, you're not going to get the best in the world and you want the best in the world. Also, almost all businesses are global now, so it doesn't matter what you do unless you're a local cement dealer. But any other type of business, whether it's in health care or it or whatever it is, they operate globally. So it's you know, they're all in the same industry, whether they're listed in Sweden, Japan, Australia, it doesn't matter. And that's kind of to your point, Ren. So whilst, yes, I love shopping at Woolworths, I now have the opportunity to actually find the best retailer in the world, let alone here in Australia. [00:15:05][95.0]

Alec: [00:15:07] And as the retail whisperer, that that thought must get you very, very excited. And at the end of this episode, are you going to reveal what your favourite global retailer, Hajj's? [00:15:18][11.8]

Alec: [00:15:19] I mean, there's way too many to think about it. [00:15:21][2.2]

Alec: [00:15:23] So, look, that that's really home country bias. You know, we we have a tendency as investors to only invest in our home country. Traditionally, that was because it was really difficult to invest overseas. So if you wanted to invest, you really just had to invest in your home country. Now there's a global opportunity set. It's just as easy to buy an Australian stock as it is an American stock or European stock. But the home country bias still persists and some people have reasons that they're overweight their home country. But I think the important thing is to be aware of this phenomenon in investing and to to just think about. You know, are you investing in Australian companies or wherever your home country is? Are you investing in those companies because you think they're the best possible opportunities that you have to invest in? Or is it just because they're on the local seven o'clock news in the finance section and stuff like that? [00:16:25][61.5]

Bryce: [00:16:25] I mean, there's no doubt it takes more time and energy to find the best retailer in the world rather than just invest in Woolworths because it's right in front of you. But you [00:16:38][12.3]

Alec: [00:16:38] say that. But I mean, the obvious answer to that question these days is Amazon. And I reckon there's more news articles coming up on my news feeds or on Apple News or whatever about Amazon than there is about Coles churn. So. So you need [00:16:55][17.4]

Alec: [00:16:56] to have a filter for Coles news, though, don't you? [00:16:58][1.9]

Alec: [00:16:58] I know. And honestly, people aren't writing enough stories about Coles. I was a constant bugbear while I worked there. [00:17:04][5.9]

Bryce: [00:17:06] So before we move on, what we're going to discuss after this outbreak is how Australia really matches up against the rest of the world. Because if we haven't convinced you by now that you need to get your head out of Australia, the next the next half of this episode certainly will. [00:17:22][15.3]

Bryce: [00:18:39] Right, Ren, this has been something that is close to your heart. We've often will talk to, you know, when we've been writing this book, for example, or when we're discussing episode structures and talking to brands, you know, you always mention how Australia stacks up against the world and our companies here versus counterparts overseas. [00:19:00][21.0]

Bryce: [00:19:01] Yes. And I've got to I've I've got a bit of a game for you towards the end of this episode to really illustrate that point. [00:19:07][6.3]

Bryce: [00:19:07] OK, OK. Well, let's start at the top to actually have a look at how Australia does really measure up in terms of our market versus the rest of the world. So to give you an idea of how we do, there are approximately six hundred and thirty thousand stocks traded globally, which is pretty phenomenal. Ren you can you can name six hundred and twenty nine thousand of them. Yes, that's another episode [00:19:35][27.6]

Alec: [00:19:35] only by ticker cos I see, I see. [00:19:42][6.9]

Bryce: [00:19:43] However, of those six hundred and thirty thousand, only two thousand two hundred or thereabouts are listed here in Australia, meaning that less than one percent of total total stocks around the world are listed here in Australia. So an incredibly small opportunity set. [00:19:59][15.4]

Alec: [00:19:59] Yeah. Now that's in turn. Well I mean you think about it, 2200 companies is still way more companies than I could ever properly understand in my lifetime. Like if you if you told me that there were two thousand two hundred stocks and I understand that business, the management, their future prospects, their competitors, I, I would say that's too hard. Yeah. So the extent of the opportunity set can be overwhelming at times. And so that's where it really becomes a process of filtering that number down quickly. And we'll touch a little bit on that in future episodes. But but I think it really is just to illustrate the scale of the opportunity out there. And so that's in terms of company numbers. But if we think about it in terms of dollars and cents as well, the global stock market is worth about 70 trillion US dollars. Australia's stock market is a bit over one trillion. I think it's one point three trillion US dollars. So in a in a dollars and cents terms, Australia's stock market is worth about two percent of the global stock market. [00:21:12][72.9]

Bryce: [00:21:13] Just nothing. So nothing yet. It sometimes can feel big, like when you're watching Alan Koehler on the 730 News and all he's talking about is BHP and Rio Tinto, you know. Yeah, you can understand why people could get so caught up in Australia and thinking that we are the only stock market to be investing. [00:21:29][16.0]

Alec: [00:21:29] Well, you've picked you've picked two Australian companies that are global giants in the industry. So I feel like those three companies deservedly feel big to give you an idea. So Australia is two percent of the global stock market in terms of dollars and cents. North America is forty one percent. So, you know, the US, Canada, Mexico, they they are a big chunk of the world that that is just such a redundant comment that, of course, that's the case. Europe is about 20 percent. Asia is a third, about thirty three percent. And then the rest of the world is four percent. So, you know, Australia is two percent, which seems small. It is bigger than a lot of stock markets out there. Now, this is just off the top of my head. So this number could be incorrect. But I believe there's 16 global 16 stock markets around the world that have a trillion dollars or more in terms of like all the companies added up in terms of total market cap. And Australia is one of the 16. So so we're up there. But there's there's so much out there. [00:22:47][77.3]

Bryce: [00:22:47] Yeah, that's that's pretty incredible. I mean, I couldn't name the 16, but I'm just looking at that weighting and I think I'm definitely underweight Asia. I think, you know, I don't have a lot of Japanese companies probably under underweight Europe, [00:23:05][18.2]

Alec: [00:23:06] to be honest. I was going to say, yeah, yeah. Don't talk a lot about Europe. Yeah. Now that I accept that God can take you to it, that you went on in twenty eleven and you don't shut up about it. [00:23:15][9.4]

Bryce: [00:23:16] I wish I went on it can take you to in 2011. Yeah. Look. All right, well the good news is that none of those markets are off limits and that's what we'll be talking about in subsequent episodes to this. The great thing about the technology these days and with a lot of brokers now competing. For more customers and more markets being opened up, none of those those countries or regions are now too hard to to invest in. So, yeah, it's it's exciting times for us here at get started investing. [00:23:52][35.6]

Alec: [00:23:52] That's it. Now, I did I did say there would be a little bit of a game, and if you've read the notes, this won't be so much of a game as just I don't don't [00:24:02][9.3]

Alec: [00:24:02] ask don't do notes Ren. [00:24:03][0.9]

Alec: [00:24:06] But, um, you know, we we said I think we've said this on on the show before. I mean, we've pumped out a lot of shows in our time, so I'm sure we've said everything before. But for every Australian company, there's a bigger global equivalent. And so I've pulled out four industries here. And I'll I'll tell you, the the Australian giant in that space, like the biggest in Australia. And then you have a guess at who the global one is. OK, OK, so we'll start with the industry that we both worked in and is close to our hearts. Our biggest supermarket in Australia, we have Woolworths, one thousand twenty four stores, sixty four billion dollars in revenue valued at forty eight billion. Side note, this was all before the Endeavour Endeavour group split. So those numbers will be dated now because Woolworths and its liquor business had a pretty clean divorce recently. So. But yeah, one thousand twenty four supermarkets, I believe Woolworths biggest in Australia. Woollies. What do you think the world the world's biggest [00:25:19][73.8]

Bryce: [00:25:20] is or without looking at notes, it would be a missed opportunity if I didn't say Wal Mart. [00:25:25][5.3]

Bryce: [00:25:27] You're absolutely right [00:25:28][1.0]

Bryce: [00:25:29] in terms of its actual scale, although the only thing that I know in terms of comparison would be its rêve. And I know that it does huge revenue numbers north of half a billion dollars a year compared to Woollies softer, not sixty. You know, half a trillion. Sorry, half. Yeah, yeah, [00:25:51][22.3]

Alec: [00:25:53] yeah, yeah, yeah, yeah. So Walmart has eleven thousand and 500, 510 stores. So 10x what Woollies has. Wow. You're right. Half a trillion dollars in revenue. US Dollars. So about seven hundred and twenty billion dollars. Australian dollars in revenue compared to sixty four for Boyages and it's valued at about 600 billion dollars. Wow. Six hundred billion Australian dollars. Wow. So more than ten times Woolworths. So that's, that's one example of just like how much bigger some of these global companies are now. Bigger doesn't necessarily mean better. No, in fact it often can mean slower growing. And uh, you know, big companies sometimes have issues. But just to to talk about the scale. So next, one biggest tech company in Australia, it is your one of your favourite companies, Afterpay, seven point three million users and valued at thirty four billion dollars. So Afterpay an incredible Australian success story. Millions of users pushing overseas. Thirty four billion dollars in value. But how does it compare to the global tech scene, biggest technology globally, [00:27:17][84.3]

Bryce: [00:27:18] Kmart's biggest tech company globally in terms of market cap? I know that there's a race. It's always a race. We've had the race to one trillion and now it's the two trillion. I'm pretty sure Apple, Microsoft and Amazon have hit two trillion could be wrong. But it's one of those three. [00:27:36][18.2]

Alec: [00:27:37] Yeah, it's Apple. Apple is currently two point three trillion USA, which is one point eight trillion a day. But just think about the user numbers. So Apple has one point four billion users, billion with a B.. Yeah, well, that's like all the well. [00:27:54][17.8]

Bryce: [00:27:55] Yeah, that's amazing. [00:27:55][0.7]

Alec: [00:27:56] So, again, obviously, Apple is a very well known example, but it just talks to the scale of some of these companies [00:28:03][6.6]

Bryce: [00:28:04] and it's still growing. Well, yeah, slowly. [00:28:10][5.9]

Alec: [00:28:14] It's growing as services business. All right. Yes. [00:28:16][2.1]

Alec: [00:28:17] All right. What else have we got? [00:28:18][1.0]

Alec: [00:28:18] So biggest bank, Australia's biggest bank, Commonwealth Bank. Everyone knows it. Fifteen point nine million customers, which is a fair chunk of Australia when you think about it. And obviously, there might be like, you know, we if we have an account and we don't actually have a business account with Commonwealth Bank, but if we had a business account, that would be another customer. So but still, fifteen point nine million customers is a lot of customers valued at one hundred and eighty, almost 180 billion. So pretty, pretty big. The biggest company in Australia, [00:28:54][36.3]

Bryce: [00:28:55] is that right? Yeah. Well, CSL is only one third eBay at the moment, so, um. Yeah. [00:29:00][5.0]

Bryce: [00:29:01] So that's the biggest bank in Australia. Can you guess the biggest bank in the world. [00:29:06][4.5]

Bryce: [00:29:10] I know this is probably going to I'm going to come unstuck on this one. I know the biggest bank by market cap is in America, JP Morgan, but. But so I'm going to go with that, lock it in, okay. [00:29:23][13.0]

Alec: [00:29:23] Well, you may have stumped me because I have the biggest bank as the Industrial and Commercial Bank of China, which is publicly traded, 650 million customers and valued at about 4:00 when I wrote this. Three hundred and eighty billion Australian dollars. Wow. But you might have got me with JP Morgan. I actually think you do definitely help me with JP Morgan. Yeah, you do. So you know what you've beaten in the game not to done, but yeah, 650 million customers for the industrial and Commercial Bank of China. That that'll be more customers. Yeah, that [00:30:01][37.4]

Bryce: [00:30:01] would definitely be more customers because the. Yeah. [00:30:03][2.8]

Alec: [00:30:04] By far. Yeah. So again, just the scale that we're talking about here, last one, a little bit of an obscure category, biggest hospital operator in Australia. It's not a sector we've spoken a lot about, I must say. But you know what, that's that's OK. Capstick, Ramsay Ramsay Health Care, I believe is the biggest. It's valued at about 14 billion dollars. So not small at all. It's got 72 hospitals and sites of care. OK, now this is this is a this is a very tough decision. What's the what's the biggest hospital operator in the world? [00:30:42][38.3]

Bryce: [00:30:43] This isn't the million dollar question. I have no idea. I've no idea. I couldn't even name another hospital operator. [00:30:49][5.8]

Alec: [00:30:50] Oh, surely you could not. [00:30:52][1.3]

Bryce: [00:30:52] Well, Ramsay Health Care. Now, what are there [00:30:58][6.0]

Alec: [00:31:00] the Australian government, I mean, [00:31:02][2.5]

Bryce: [00:31:03] private. [00:31:03][0.0]

Alec: [00:31:07] What did primary health care turn itself into Helier heliosphere here? I think they sold off a lot of the like the hospitals and stuff like that anyway. [00:31:14][7.4]

Bryce: [00:31:15] Yeah, who's the biggest? [00:31:16][0.8]

Alec: [00:31:17] That's not the point of this episode. I believe the biggest is HCA health care. OK, at least listed in the US ticker HCA creatively over 2000 hospitals and valued at 70 billion US dollars. [00:31:34][16.4]

Bryce: [00:31:34] Wow, wow, wow. Well, there you go. So nice game there, Ren. I think really I think it really is. What it's shown is whilst there are still great opportunities here in Australia, Woolworths, Afterpay, Commonwealth, Ramsay, you know, plenty of big companies in their own right, there are certainly much, much bigger companies overseas. So we as investors have the opportunity to own some of the, you know, the best companies in the world. We're not limited to just the ASX, that small two percent of the total share market value around the world. So we can invest globally now. And it's it's I guess it's really the message is to stop thinking that Woolworths is the biggest retailer when you've got the likes of Amazon and and Wal-Mart doing their thing overseas as well. So I think [00:32:28][53.4]

Alec: [00:32:28] global now, we we haven't spoken about the how yet. And that's to leave you guys on tenterhooks for a way you can get you to tune in next week. But over the next two episodes, we're going to talk about how to go global. And the good news is there are ways to go global by investing in the Australian stock market. And that might sound confusing, but it won't after you've listen to the next two episodes or it's just as easy to actually invest directly in overseas markets. So over the next two episodes, we're going to talk about the how you do it all on so you really understand what your options are as an investor in the pretty phenomenal time that we're living in, where everything's really just a click of a button a lot. [00:33:13][45.1]

Bryce: [00:33:14] Absolutely. We're looking forward to getting stuck into the how. Just a quick reminder to everyone, though, that we would really appreciate your support if you could go out there and pre-order get started investing. It's available on book type here at the moment for pre-order. You can be one of the first to get it when it launches here in Australia. So head over to book topia, get started investing. We would love your support to get this to the number one book here in Australia. That would be absolutely amazing. But there's plenty of insights and actions that you can take to get you started investing if you haven't, or to really help you take that next step. So that would be a massive help. And also, we want to just say a massive thank you to everyone who does contact us at Contact@equitymates.com or takes the time to write and review the show. We really do appreciate that as well. You know, there's a reason that our podcast is ask you to write in review, and that is because it really helps us on the charts and to get this show as big as possible for for you guys and to help us make better content. So if you can leave us a review, ideally five stars and and give us a reason as to why that would be much appreciated. But Ren always good to chat stocks and we'll pick it up next week. [00:34:29][74.8]

Alec: [00:34:29] Sounds good. [00:34:29][0.0]

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