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Re: Emerging Market Stocks & Oil Prices, 1997-2015

Thanks, all, for your comments. There's always so much to learn from the experienced posters on this Forum. Just for the sake of completeness, the chart below shows rolling 5-year correlations of the Barclays Emerging Markets Index and oil prices, using the same two data sets as in the OP. It does a...
by Simplegift
Fri Mar 06, 2015 9:55 am
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks & Oil Prices, 1997-2015
Replies: 12
Views: 798

Re: Experts Predicting Interest Rates

I remember a thread or article that detailed how bond experts were asked at the beginning of each year to guess whether interest rates would go up or down by the end of the upcoming year. The chart below will give you some idea of the professional forecasts of interest rates over the last decade, v...
by Simplegift
Fri Mar 06, 2015 12:26 am
 
Forum: Investing - Theory, News & General
Topic: Experts Predicting Interest Rates
Replies: 11
Views: 1147

Re: Emerging Market Stocks & Oil Prices, 1997-2015

The fortunes of EM are now tied more closely tied to manufacturing and consumption growth than to commodity production. Exports of end goods, industrial production, and emerging middle class domestic demand are all improved by lower oil prices. I have owned Emerging Markets because of the growth po...
by Simplegift
Fri Mar 06, 2015 12:00 am
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks & Oil Prices, 1997-2015
Replies: 12
Views: 798

Emerging Market Stocks & Oil Prices, 1997-2015

Many investors in emerging market stock indexes over the past 20 years are aware of their historically high correlation with oil prices (chart below). However, somewhat surprisingly, since mid-2014 it appears this correlation has now broken down (red oval). In this post, we'll look briefly at why em...
by Simplegift
Thu Mar 05, 2015 5:25 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks & Oil Prices, 1997-2015
Replies: 12
Views: 798

Re: Does Cap-Weighting Distort U.S. Investors' Worldview?

Are ADRs included in the market cap? If so, there are a lot of foreign companies cross-listed in the US that would add to the market cap. According MSCI's index methodology (found here ), ADRs and GDRs are not considered part of the "investable universe" for any of their developed market ...
by Simplegift
Wed Mar 04, 2015 4:48 pm
 
Forum: Investing - Theory, News & General
Topic: Does Cap-Weighting Distort U.S. Investors' Worldview?
Replies: 12
Views: 1158

Re: Does Cap-Weighting Distort U.S. Investors' Worldview?

Markets and economies are two different things. Thanks. The World Bank link you provided was especially helpful, with data on the total market cap of each country's listed companies, as a percent of its total GDP (chart below). For this comparison, I picked out the U.S. plus the other countries wit...
by Simplegift
Tue Mar 03, 2015 7:23 pm
 
Forum: Investing - Theory, News & General
Topic: Does Cap-Weighting Distort U.S. Investors' Worldview?
Replies: 12
Views: 1158

Re: WHY YOU OWE YOUR FREEDOM TO JACK BOGLE

A few years ago, Vanguard published the table below, showing investors the cumulative impact of investment fees on their ending wealth. Bogleheads can estimate the cost differences over their investing lifetimes, with and without Vanguard funds, and quantify just how much of their financial freedom ...
by Simplegift
Tue Mar 03, 2015 5:18 pm
 
Forum: Investing - Theory, News & General
Topic: SIGN PETITION for Jack Bogle's Presidential Medal of Freedon
Replies: 48
Views: 3612

Re: Does Cap-Weighting Distort U.S. Investors' Worldview?

The valuations look much more muted if you bring earnings , not GDP, in the picture. Good point. Comparing CAPE 10 values between U.S. and World Ex-U.S. companies, sector-by-sector, it doesn't appear that U.S. companies' earnings are uniformly more richly-valued than others around the world — with ...
by Simplegift
Tue Mar 03, 2015 3:29 pm
 
Forum: Investing - Theory, News & General
Topic: Does Cap-Weighting Distort U.S. Investors' Worldview?
Replies: 12
Views: 1158

Re: Does Cap-Weighting Distort U.S. Investors' Worldview?

The size and liquidity of the U.S. equity market makes it a particular focus for nearly all globally-oriented investors, all around the world. But these are astounding statistics for the cap-weights of U.S. companies (data from AEI ): • As a separate country, the market capitalization of the 10 larg...
by Simplegift
Tue Mar 03, 2015 5:13 am
 
Forum: Investing - Theory, News & General
Topic: Does Cap-Weighting Distort U.S. Investors' Worldview?
Replies: 12
Views: 1158

Does Cap-Weighting Distort U.S. Investors' Worldview?

The majority of us Bogleheads reside in the U.S. and we invest almost exclusively in cap-weighted index funds, where the U.S. has about a 50% share of the global pie. No doubt the U.S. has the deepest, most diverse and attractive equity markets in the world today — but have cap-weighted stock indexe...
by Simplegift
Mon Mar 02, 2015 12:33 pm
 
Forum: Investing - Theory, News & General
Topic: Does Cap-Weighting Distort U.S. Investors' Worldview?
Replies: 12
Views: 1158

Re: Likely impact on equities of interest rate increase

Love the chart. So your opinion is that we could see several rate hikes before the party is over with the S&P 500? It's possible — but there's just too much variation in the relationship between rising interest rates and stock prices to know for sure. The chart below shows what the distribution...
by Simplegift
Sun Mar 01, 2015 12:01 pm
 
Forum: Investing - Theory, News & General
Topic: Likely impact on equities of interest rate increase
Replies: 7
Views: 745

Re: Likely impact on equities of interest rate increase

There's been a few recent studies that identified a "threshold effect," with rising stock prices correlated with rising interest rates up to about 5%-6%, then falling stock prices above 6%. From a New York Times article in June 2013: Doug Ramsey, chief investment officer at the Leuthold Gr...
by Simplegift
Sun Mar 01, 2015 10:27 am
 
Forum: Investing - Theory, News & General
Topic: Likely impact on equities of interest rate increase
Replies: 7
Views: 745

Re: Does More Indexing Mean Less Stock Trading?

Out of curiosity, I looked up a chart of trading volume for the S&P 500 over the past 25 years (below). It does appear that trading volume has decreased significantly since the 2000 tech run-up and crash, even as the market has gone on to reach new highs. I doubt the shrinking trading volume has...
by Simplegift
Sat Feb 28, 2015 7:42 pm
 
Forum: Investing - Theory, News & General
Topic: Does More Indexing Mean Less Stock Trading?
Replies: 8
Views: 726

Does More Indexing Mean Less Stock Trading?

Much has been written in the past few years about the fast-growing percentage of equity fund assets that is passively invested in index funds and ETFs (chart below). Their market share has grown to over 25% of U.S. equity funds and over 15% of global equity funds in the last 20 years. Many commentat...
by Simplegift
Sat Feb 28, 2015 5:37 pm
 
Forum: Investing - Theory, News & General
Topic: Does More Indexing Mean Less Stock Trading?
Replies: 8
Views: 726

Re: Aging Populations and Stock/Bond Market Returns

RAFI have a site with interactive tools - dedicated to demographics and markets http://www.researchaffiliates.com/Our%20Ideas/Insights/DemographicsMarkets/Pages/Home.aspx Very instructive, thanks for the link. Research Affiliates seems to be at the forefront of current research on global aging and ...
by Simplegift
Fri Feb 27, 2015 4:48 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Aging Populations and Stock/Bond Market Returns

Just for fun, we can make a simple test of the Arnott-Chaves population/return model in the OP by comparing the relative interest rates for the six major countries we've been following in this thread (chart below). Just as the model predicts, those countries with the fastest growing working-age popu...
by Simplegift
Fri Feb 27, 2015 11:17 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Aging Populations and Stock/Bond Market Returns

Another interesting chart would show the population that is beyond working age, greater than the 70 which is picked as the arbitrary cutoff to estimate retirement. I suspect that all developed economies including the US would show a dramatic increase in numbers of retired over the next decade or so...
by Simplegift
Fri Feb 27, 2015 2:36 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Aging Populations and Stock/Bond Market Returns

http://i.imgur.com/lDEHWU6.png Data Source: United Nations Population Division After an evening of reflection, what strikes me most strongly about this chart is that our entire known history of stock and bond returns — including the Dimson, Marsh and Staunton global database since 1899, the Shiller...
by Simplegift
Thu Feb 26, 2015 11:58 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Aging Populations and Stock/Bond Market Returns

So does this mean emerging markets is the place to invest? Not exclusively, no. As part of a globally-diversified equity portfolio, yes — as emerging markets are about 15% of total international market capitalization today (ex-US). There's little doubt that the emerging economies are going to be en...
by Simplegift
Thu Feb 26, 2015 5:33 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Aging Populations and Stock/Bond Market Returns

I am skeptical of tying a healthy economy to the population growth. Economy should rely on a greater productivity, not on a greater number of workers. You're of course right, Victoria , that a healthy economy depends on BOTH productivity growth and population growth (and here I'm borrowing from a p...
by Simplegift
Thu Feb 26, 2015 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: Is it actually impossible to time market crashes?

Let's face it — the majority of investors are unfortunately performance chasers, buying high and selling low (chart below). While the Boglehead mantra of low cost, passive investing appears to be generally winning the day, the principle of "staying the course" has a long way to go to wides...
by Simplegift
Thu Feb 26, 2015 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: Is it actually impossible to time market crashes?
Replies: 56
Views: 3019

Re: Aging Populations and Stock/Bond Market Returns

Thanks for the post. Lot of good work here and in the article. You're welcome! For those interested in more discussion on this subject, we've had similar Forum topics recently on the effects of aging populations on interest rates around the world here , and its effects on future global GDP growth h...
by Simplegift
Thu Feb 26, 2015 10:45 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Aging Populations and Stock/Bond Market Returns

In 2012, Rob Arnott and Denis Chaves of Research Affiliates published perhaps the largest study ever conducted on the effect on stock and bond returns from changes in the age distribution of populations worldwide. They used 60 years of historical data across more than 100 countries to see what effec...
by Simplegift
Thu Feb 26, 2015 12:57 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3269

Re: 10 Interesting facts about the S&P500

So, when you download the Shiller data that lists price, dividend, and earnings for the S&P composite back to 1871, what exactly is it really showing? From The Hidden History of the S&P 500 : • S&P originally tracked 233 stocks, but it was too hard to maintain daily or hourly quotes on ...
by Simplegift
Wed Feb 25, 2015 9:48 pm
 
Forum: Investing - Theory, News & General
Topic: 10 Interesting facts about the S&P500
Replies: 28
Views: 3561

Re: International PE10 Update

Nice charts, backpacker , thanks! Very clear and informative. There is often the temptation to slightly adjust one's equity allocation (say 5%-10%), based on much lower valuations internationally compared to historical averages, plus the corresponding higher valuations in the U.S. However, I need to...
by Simplegift
Wed Feb 25, 2015 7:38 pm
 
Forum: Investing - Theory, News & General
Topic: International PE10 Update
Replies: 28
Views: 2571

Re: Is it actually impossible to time market crashes?

Or is it still impossible because huge crashes always occur for different reasons that come out of nowhere? The economic contexts for market crashes seldom show any commonality. Most recently, think about the oil embargo in 1973, inflation and the double dip recessions of the 1980s, and the global ...
by Simplegift
Wed Feb 25, 2015 10:12 am
 
Forum: Investing - Theory, News & General
Topic: Is it actually impossible to time market crashes?
Replies: 56
Views: 3019

Re: How do you invest in Frontier Markets?

Since the original post the MSCI reclassification of Qatar/UAE from frontier to emerging has completed. The FM ETF no longer includes these countries, and as a result it has less concentration in the Middle East than it used to. The re-classification of UAE and Qatar also reduced the market cap ava...
by Simplegift
Tue Feb 24, 2015 8:21 pm
 
Forum: Investing - Theory, News & General
Topic: How do you invest in Frontier Markets?
Replies: 51
Views: 2726

Re: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

Thank you for this - are there corresponding charts for ex-US investing and the impact of the US Dollar for US investors? That would help graphically show currency risk IMO which is talked about but remains a fairly ambiguous topic at least for me... The impact of the U.S. dollar on unhedged intern...
by Simplegift
Tue Feb 24, 2015 3:58 pm
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 624

Re: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

Via PM, a Forum member asked about the U.S. dollar/U.S. stock relationship during the 1970s and 1980s (the "super dollar" era). Data for this period wasn't readily available from FRED, but a quick search turned up a relevant study by Mark Hulbert. For the 40 year period from 1974 to 2014, ...
by Simplegift
Tue Feb 24, 2015 11:04 am
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 624

Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

There's been several good Forum discussions on the effect of currency fluctuations on our unhedged international stock index funds (for example, here and here ) — but not much on their effect on our domestic U.S. stock holdings. In this post, we'll look briefly at the relationship between changes in...
by Simplegift
Mon Feb 23, 2015 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 624

Re: Worst case scenario

I don't know I'd conclude that. A 90% drop in my stocks, followed by a 150% increase in my stocks, gets me nowhere near even. It gets me to a 75% loss. So I don't think this data really proves the lesson you've identified. Your math may be correct for a single year, but the larger point here is tha...
by Simplegift
Sun Feb 22, 2015 4:34 pm
 
Forum: Investing - Theory, News & General
Topic: Worst case scenario
Replies: 16
Views: 1809

Re: Risk--Again. The common stepping stone

How often do you go into the dictionary to look up a word, and find that only one meaning is listed next to it? Practically never. Technically, almost every word has multiple meanings — and the word "risk" isn't any different, as best I can tell. The dictionary: Risky: Accompanied by or i...
by Simplegift
Sun Feb 22, 2015 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk--Again. The common stepping stone
Replies: 57
Views: 3259

Re: Risk--Again. The common stepping stone

How often do you go into the dictionary to look up a word, and find that only one meaning is listed next to it? Practically never. Technically, almost every word has multiple meanings — and the word "risk" isn't any different, as best I can tell.
by Simplegift
Sun Feb 22, 2015 1:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk--Again. The common stepping stone
Replies: 57
Views: 3259

Re: The Distribution of Individual Stock Returns, 1983-2006

Well, maybe one can look at it from a probabilistic standpoint. Can't say I remember my statistics classes very well, but I do remember that it doesn't take such large number for a sample to be representative of the whole trend. So if the US is the sample, and *IF* we have an equal distribution of ...
by Simplegift
Sun Feb 22, 2015 10:23 am
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1790

Re: The Distribution of Individual Stock Returns, 1983-2006

Upon reflection, the distribution of individual stock returns, in both the OP and the DFA study upthread, reminds me of "the law of the vital few" — otherwise known as the 80-20 rule or the Pareto Principle . It states that, for many events, roughly 80% of the effects come from 20% of the ...
by Simplegift
Sun Feb 22, 2015 8:09 am
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1790

Re: Worst case scenario

These are the worst one-year performances of stock markets around the world since 1900, including an equal-weighted All-World portfolio (from the Dimson, Marsh and Staunton global database). Note these are real (inflation-adjusted) returns. The drops are dramatic, mostly due to world wars or energy ...
by Simplegift
Sat Feb 21, 2015 8:35 pm
 
Forum: Investing - Theory, News & General
Topic: Worst case scenario
Replies: 16
Views: 1809

Re: The Distribution of Individual Stock Returns, 1983-2006

Even at 5% of a portfolio a single stock isn't making much of an impact. By the time you get a dozen or so stocks in a portfolio almost all of the idiosyncratic factors unique to that company hardly play a role. Well, is that really true? If 25% of the companies are the ones making the real returns...
by Simplegift
Sat Feb 21, 2015 8:13 pm
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1790

The Distribution of Individual Stock Returns, 1983-2006

Ever wonder what's going on "under the hood" of your total stock market index fund? Ever been curious about the distribution of winning and losing stocks over time, or the number of super-performers versus the number of duds? While doing other research, I recently ran across this interesti...
by Simplegift
Sat Feb 21, 2015 1:49 pm
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1790

Re: Correlations Between Human Population and Market Cap?

One of the more intriguing recent studies that looked at the shifting composition of nations' populations and their GDP growth and capital markets was by Rob Arnott and Denis Chaves of Research Affiliates from 2011: Demographic Changes, Financial Markets and the Economy This paper studies the effect...
by Simplegift
Sat Feb 21, 2015 2:21 am
 
Forum: Investing - Theory, News & General
Topic: Correlations Between Human Population and Market Cap?
Replies: 1
Views: 384

Re: Full Faith and Credit

What is the payout of these swaps? Standard CDS contracts include a 40% recovery assumption, I believe, but investors' eventual recovery isn't decided until the auction at default. As you can see below, there is quite a lot of variation in recovery rates from specific country default events: http:/...
by Simplegift
Fri Feb 20, 2015 10:49 pm
 
Forum: Investing - Theory, News & General
Topic: Full Faith and Credit
Replies: 37
Views: 2416

Re: Full Faith and Credit

Whenever questions about "full faith and credit" come up, just for fun, it's interesting to check the market's opinion of the chances of government bond defaults by looking at sovereign debt default swaps (found here ). These are today's prices on the open market of insurance against defau...
by Simplegift
Fri Feb 20, 2015 7:13 pm
 
Forum: Investing - Theory, News & General
Topic: Full Faith and Credit
Replies: 37
Views: 2416

Re: A case for long term government bonds

In a recent article, Mr. Shilling makes a case for long term government bonds based on his premise that we are in a deflationary mode. Apologies for recycling my recent post, but the table below summarizes asset returns during the six deflationary periods since 1900. Surprisingly, even 3-month Trea...
by Simplegift
Thu Feb 19, 2015 2:51 pm
 
Forum: Investing - Theory, News & General
Topic: A case for long term government bonds
Replies: 40
Views: 3118

Re: Mutual fund expense ratios: graphs

I'd like to know what percent of total invested assets are invested in funds with ER above 1%, 2% etc, but couldn't find an easy way to get that data. This chart of active and passive U.S. equity funds will give you a rough idea of the distribution of assets by expense ratio. If current trends hold...
by Simplegift
Thu Feb 19, 2015 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Mutual fund expense ratios: graphs
Replies: 7
Views: 818

Re: Deflation protection

Though there aren't many empirical studies of deflationary shocks in the U.S. economy, the table below summarizes asset returns during the six deflationary periods since 1900. Surprisingly, even 3-month Treasury bills and 10-year Treasury bonds proved to be decent deflation hedges — so holding 30-ye...
by Simplegift
Wed Feb 18, 2015 3:17 pm
 
Forum: Investing - Theory, News & General
Topic: Deflation protection
Replies: 23
Views: 1461

Re: Over the long-run, are there any poor-performing sectors

Image
Source: Credit Suisse Investment Returns Yearbook 2015

Looks like it's been a rough century for U.S. shipbuilders and textile manufacturers!
by Simplegift
Tue Feb 17, 2015 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: Over the long-run, are there any poor-performing sectors?
Replies: 13
Views: 956

Re: Long term bonds in VBTLX/VBMFX

There's no doubt that the duration of Vanguard's Total Bond Index has risen over the past few years as more long-term bonds are included in the Barclay's Aggregate Bond Index (chart below). The duration has gone from under 4 years in 2008 to 5.6 years today. However, for many of us who invest in thi...
by Simplegift
Mon Feb 16, 2015 2:56 pm
 
Forum: Investing - Theory, News & General
Topic: Long term bonds in VBTLX/VBMFX
Replies: 12
Views: 807

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

How do you like it? Nice chart! Honestly, siamond , I think this is about the best we are ever going to do with these simple forecast models. The way they are used by Bogle, Bernstein and others, as a tool to roughly frame investors' expectations for future returns, I believe they are helpful and h...
by Simplegift
Mon Feb 16, 2015 1:28 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1057

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Another key finding (hardly surprising) is that the speculative return is significantly superior to the fundamental return. Rather than applying a "corrective factor" to the basic DDM model — to account for the variation between the valuation of the day and a mean valuation — what are the...
by Simplegift
Mon Feb 16, 2015 12:39 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1057

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Bravo, siamond ! Your extra work in providing these side-by-side comparisons is much appreciated. Looking over the results from the various models, the following observations stood out. Kindly correct me if I've misunderstood anything. I focused particularly on the results from the 1951-2000 period,...
by Simplegift
Mon Feb 16, 2015 1:54 am
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1057

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Feel free to elaborate on what scenarios you'd like to be compared. If it's just a matter of changing a few formulas in a few cells within Excel, then the more scenarios you can produce and compare, the better, in my view. I realize you don't want to create an exhaustive treatise on the subject — b...
by Simplegift
Sun Feb 15, 2015 1:53 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1057
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