Unit 2 · Level 2 · Diversification
The Nokia lesson
Around 2000, Nokia alone made up roughly 70% of the Helsinki stock exchange's value. Finns who 'invested at home' were really making one giant phone bet, often while also working for Nokia or its suppliers. By 2012 the shares had fallen over 90% from their peak. Job, local economy, and portfolio all sneezed together. That's the double trap of home bias plus concentration.
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What you get asked
What is 'home bias'?
Familiarity feels like safety but isn't analysis. Investors in most countries hold far more domestic stock than the country's slice of world markets would justify.
Why is heavy home bias EXTRA risky, beyond normal concentration?
A local slump can hit your salary, your property value, and your portfolio in the same year. Your life is already a concentrated bet on home; your investments can be the counterweight.
Your salary, house, and pension already depend on your home ___; your portfolio doesn't have to as well.
Think of your total exposure, not just the brokerage account. Investing globally is how an ordinary saver hedges the biggest position they already hold: their own country.
Match each idea to its meaning
Nokia was no scam, just a great company that lost the smartphone war. Even excellent companies can crater, which is why no single name or country should carry your future.
Japan's stock market peaked in 1989 and took about 34 years to reach that level again. What's the takeaway?
In 1989 Japan looked unstoppable, just like every country does at its peak. You can't know in advance which market stalls, so own them all and let the winners pull the wagon. 🐜
The rest of this unit
The only free lunch in investing, and the fine print nobody reads.