By Warren Boroson
Morris County, N.J. Daily Record

There really is a "home field advantage."

In baseball, a team is more likely to win at home - at its stadium, in front of its fans - than in another city.

In the world of investing, there's something similar. It's called the "home country bias." People in country A tend to invest far more in Country A's securities than in those of Countries B through Z.

Pension funds in Canada invest 47 percent of their stock portfolios in Canadian stocks; in the United Kingdom, 40 percent; in Japan, 40 percent; in Australia, 44 percent. (Greenwich Associates reported those figures for 2000.)

In the United States, sophisticated people who run pension funds put 25 percent to 26 percent of their stock portfolios in foreign stocks (year 2000). But individual investors put only 5 percent of their stock portfolios into foreign stocks.

So, why do ordinary investors avoid foreign stocks?

An article by Yesim Tokat in Investment Counseling & Research, published by the Vanguard Group in May, gives these explanations:

For U.S. investors, foreign stocks come with higher transaction costs and may have restricted market access. There's also less public information about them.

U.S. investors may believe that by buying the stock of multinational companies, such as Coca-Cola, they are diversified across the globe. But a good study has found that the returns of multinationals are pretty close to domestic returns, so they offer little in the way of diversification.

If you deliberately buy things made locally - cars, food, clothing - you can help drive up the value of U.S. stocks.

There's something called "regret risk." If you invest more in foreign stocks than your fellow investors do and foreign stocks do poorly compared with U.S. stocks during even a short period, you may be ready to jump out the window. Over years, holding foreign stocks will likely help to stabilize your portfolio. Most foreign countries have more economic and political risk than the United States.

There are what Tokat considers irrational explanations of why we avoid foreign stocks. Americans tend to be more optimistic about U.S. stocks than are, for example, European or Japanese investors.

Even within the United States, investors prefer the stocks of companies headquartered near them and tend to own an appalling amount of their employers' stock.

Of course, an investor may justifiably believe that he knows more about local companies than about companies far away.

Perhaps the strongest reason for home-country bias is that people everywhere, and throughout history, have feared, distrusted and looked down on the unfamiliar, the strange.

It's natural to root for the home team, to root for members of your particular tribe.

When the U.S. is in a bear market, foreign markets tend to do better. During U.S. bull markets, foreign markets underperform - but they still help keep a portfolio stable.

Tokat strongly urges U.S. investors to have a 20 percent to 30 percent exposure to foreign stocks.