Why 'Buy What You Know' and Other Investment Clichés Can Harm Your Portfolio

Investors who follow the advice to 'buy what you know' may end up with excessive exposure to familiar companies like Air New Zealand, which saw sharp declines in share price after the pandemic. Dean Anderson of Kernel warns that this behavior leads to overconcentration in recognizable brands, often at the expense of better opportunities. Academic theory recommends holding international stocks in proportion to their global market cap weight—about 59 percent non-US stocks for a global portfolio—but popular advice typically suggests far less, often 25 to 30 percent or even zero. Gertjan Verdickt of the University of Auckland points out that investors overweight domestic stocks and companies they’re familiar with, missing out on diversification benefits and increasing risk. Concentrating investments in a single employer’s stock can be particularly dangerous: if the company goes bankrupt, an investor loses both their job and their savings. Verdickt also warns that treating a home as an investment is economically suboptimal. Housing is illiquid and does not generate income, yet it remains a common belief in New Zealand. Constant savings advice—saving 10 to 15 percent at every age—ignores life-cycle income patterns and the time value of money. Holding emergency savings while carrying high-interest credit card debt is economically irrational due to the interest rate spread. Ana-Marie Lockyer of Pie Funds argues that timing the market is difficult and often results in missing key gains during volatility. Pursuing quick wins or reacting to headlines undermines long-term, diversified investment strategies.