HEAD OF INVESTMENT OFFICE (CIO)
Score prediction: NETHERLANDS 3 – CZECH REPUBLIC 1
The Dutch football team won the group stage of the European championships. I’m proud that, in this Expert Investor series, we predicted all three wins with two out of three even with the right score.
Was that luck or skill? I’m sure it was the first. Just like every investor needs some luck now and then.
Yet, in the long term skill is required to outperform competitors and the market. And for this long term, you can’t survive by betting on just one team or one market. As all educated investors know, diversification is the only way to lower your risk without hurting your return. And as this episode might be the last in this series, I would like to emphasise the importance of international diversification of investment portfolios.
We promoted the Dutch AEX Index in the previous episodes of this EC series, but the so-called home bias might be the biggest enemy of optimal portfolios. This home bias means that investors build a portfolio with domestic stocks and bonds only.
The main reason is the familiarity they have with these companies. Home bias is a worldwide phenomenon and the bigger the country, the stronger it is. Somehow that makes some sense. This home bias is very persistent, but the good news is that it has abated each year over the last 20 years.
Trading abroad has become much cheaper, the rise of the power of very big companies gives a sense of familiarity and information from all over the world is easily available. In such a world I’m sure that the average Dutchman is more familiar with the products of a US company like Apple than those of, for example, the Dutch company DSM. Amazon, Alphabet and even Samsung or Alibaba are household names now and more and more present in the investment portfolios of Europeans too.
Of course, we hope to see some Dutch stocks in portfolios in the rest of the world as well. In the portfolios we manage for our clients, we don’t have a home bias at all: we search for the best-performing stocks in the world. I hope you’ll forgive my chauvinism in today’s score prediction.
Score prediction: NETHERLANDS 2 – CZECH REPUBLIC 1
The Czech Republic achieved a splendid result by reaching the eighth finals. This Sunday, the Netherlands will be their opponent. The team will have to be technically and tactically on their best to go to the next round.
Investing is coping with uncertainties and with football it is no different. Until the final whistle there are always opportunities. You must seize these opportunities because they are not simply given. A purchase is easily made, but making a profit is with the sale. In short, a draw will not be good enough. The Czech Republic will have to score to continue in the game.
Every fund selector starts with a quantitative screening. Looking at the country ranking of the UEFA, the Netherlands is in the top 10 countries and the Czech Republic is on the 15th place. At the bookmakers, a large majority assumes the Netherlands will win the match on Sunday.
Looking at previous played matches between these two countries, the Czech Republic and the Netherlands have played each other 11 times. Three times a draw, three times a win and five times a loss for the Czech Republic since 1994. The last two matches were won by the Netherlands.
To win this match, as mentioned before, the Czechs will have to play very technically and be tactically precise in order to beat Holland.
However, an analytical disadvantage can be a psychological advantage!