International Investing
International Investing
This is a completely unsophisticated observation that has no figures whatsoever to back it up. I just got back from a vacation to New Zealand and Australia. While there I read the business and real estate sections of the local papers, kept an eye out for the amount of new commercial construction underway and asked a lot of questions to tour guides and others I met about general economic issues. I left with the sense (as I always do when I take foreign vacations) that it's a big, growing world out there with a lot of "ex-US" profit-generating economic activity going on. Seems like it makes sense to make sure one's investment program is structured to try to capture at least some of that growth and profit rather than sticking with a completely domestic orientation.
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: International Investing
I agree, and my impression is that so do most (but not all) people on this forum.
Re: International Investing
I agree. I think some of the fear of international investing comes from the fact that most Americans have never traveled overseas. In my experience, those who have traveled (or even lived) in foreign countries are much more open minded about international investing.
The diversification benefits are beyond dispute, and I encourage all of my friends to invest globally.
Best wishes.
The diversification benefits are beyond dispute, and I encourage all of my friends to invest globally.
Best wishes.
Andy
-
- Posts: 25625
- Joined: Thu Apr 05, 2007 8:20 pm
- Location: New York
Re: International Investing
I went to Europe last summer, let's just say the US is doing better than some parts of Western Europe. That said, when I got back, I added a slightly higher allocation to International equities and have kept it there. It's always darkest before the dawn. Buy when there is blood in the streets, things sounded pretty dire when speaking with the locals. I hold a significant allocation in international ex-US investments.Wagnerjb wrote:I agree. I think some of the fear of international investing comes from the fact that most Americans have never traveled overseas. In my experience, those who have traveled (or even lived) in foreign countries are much more open minded about international investing.
The diversification benefits are beyond dispute, and I encourage all of my friends to invest globally.
Best wishes.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: International Investing
Sir John Templeton felt the same way, Saint John Bogle does not. I side with Jack Bogle and value simplicity and the pristine all U.S. Stock and Bond portfolio. I truly believe as long as you get the big things right, it won't much matter either way.friar1610 wrote:This is a completely unsophisticated observation that has no figures whatsoever to back it up. I just got back from a vacation to New Zealand and Australia. While there I read the business and real estate sections of the local papers, kept an eye out for the amount of new commercial construction underway and asked a lot of questions to tour guides and others I met about general economic issues. I left with the sense (as I always do when I take foreign vacations) that it's a big, growing world out there with a lot of "ex-US" profit-generating economic activity going on. Seems like it makes sense to make sure one's investment program is structured to try to capture at least some of that growth and profit rather than sticking with a completely domestic orientation.
Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: International Investing
I have invested Internationally for years. It just makes sense not to have all your money in your own country. I also have sought to broaden my diversification over the years in an effort to spread out my risk as much as I can. It is odd that even with a very strong US Dollar than International has outperformed the US, that isn't supposed to happen. Markets behave in ways one would never expect.
I have been to Japan once and to Europe four times. As a previous poster mentioned, travel makes one much more comfortable with investing overseas. It opens the eyes to opportunities that are out there.
I have been to Japan once and to Europe four times. As a previous poster mentioned, travel makes one much more comfortable with investing overseas. It opens the eyes to opportunities that are out there.
A fool and his money are good for business.
Re: International Investing
I wonder if you would feel the same way if you were in Japan and refused to invest internationally the prior 20 or 30 years.stemikger wrote: Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Andy
Re: International Investing
The 10 largest holdings of Vanguard Total International:
Most people in the US probably have never heard of some of these companies, or other holdings of the fund like Carrefour, Siemens, Total. But those organizations more or less dominate the rest of the world. I really don't want to miss investing in those.1 Nestle SA
2 Novartis AG
3 Royal Dutch Shell plc
4 Roche Holding AG
5 Toyota Motor Corp.
6 HSBC Holdings plc
7 BHP Billiton
8 Samsung Electronics Co. Ltd.
9 BP plc
10 Bayer AG
Last edited by Imbros on Fri Apr 10, 2015 10:50 am, edited 1 time in total.
There is no greatness where there is no simplicity, goodness and truth. -L. Tolstoy
-
- Posts: 88
- Joined: Sun Aug 31, 2014 6:13 am
- Location: Germany
Re: International Investing
And then there is the rest of us on this board who think of US stock as foreign because we were born somewhere else and that's simply what it is to us.
I'm sure we'll all do fine.
I'm sure we'll all do fine.
Re: International Investing
+1TroyMcClure wrote:And then there is the rest of us on this board who think of US stock as foreign because we were born somewhere else and that's simply what it is to us.
I'm sure we'll all do fine.
That's part of why I have a 50/50 US/International split. I already have currency risk in that I may retire not in the US, so the currency risk of Total International doesn't bother me at all.
Re: International Investing
This topic never gets old.
I'm with Jack: "I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer... If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."
I'm with Jack: "I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer... If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
Re: International Investing
So, forgive my ignorance, but does that mean Bogle think the Emerging Markets will not outperform the US in the long term? Because they will equalize?oldzey wrote:This topic never gets old.
I'm with Jack: "I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer... If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."
There is no greatness where there is no simplicity, goodness and truth. -L. Tolstoy
Re: International Investing
Now if only the beloved New Zealand and Australia didn't make up only 0.2% and 5.2% respectively, and the dreaded Japan didn't make up 16.5% (largest percentage of any country) of Vanguard's total international fund. The arguments for international tend to get cancelled out by the actual numbers, in my opinion.
For me, it's not so much that I'm totally against international investing, but that the ways to do so accessible to me at least are spread too thin for my taste. If I had a bazillion dollars, would I invest in every single country and stock out there? No, I would not. But, just me and to each their own. I also would not invest in every single US company, hence I'm more of an S&P 500 guy.
I have given thought to the Vanguard Pacific Stock Index... https://personal.vanguard.com/us/funds/ ... =INT#tab=2... Low ER and about 800 some stocks, so more my style. I have a Samsung TV and see Toyotas and Hondas everywhere, Australia has a better showing in that one and seems to be a strong economy... But, then Japan makes up over 50% of that fund and, well.... Japan, right?
I'm still early on enough and all in tax advantaged that a move later on to some international could certainly happen and be easy enough, and a move now would likely make little difference. My savings rate is more important than total diversification now. I may feel differently about that later on.
For me, it's not so much that I'm totally against international investing, but that the ways to do so accessible to me at least are spread too thin for my taste. If I had a bazillion dollars, would I invest in every single country and stock out there? No, I would not. But, just me and to each their own. I also would not invest in every single US company, hence I'm more of an S&P 500 guy.
I have given thought to the Vanguard Pacific Stock Index... https://personal.vanguard.com/us/funds/ ... =INT#tab=2... Low ER and about 800 some stocks, so more my style. I have a Samsung TV and see Toyotas and Hondas everywhere, Australia has a better showing in that one and seems to be a strong economy... But, then Japan makes up over 50% of that fund and, well.... Japan, right?
I'm still early on enough and all in tax advantaged that a move later on to some international could certainly happen and be easy enough, and a move now would likely make little difference. My savings rate is more important than total diversification now. I may feel differently about that later on.
- LiveSimple
- Posts: 2312
- Joined: Thu Jan 03, 2013 6:55 am
Re: International Investing
I am back and forth on International, whether it should be 25% or 35 % or 40% of stocks.
http://www.bloomberg.com/news/2014-12-0 ... -u-s-.html
However, these words are powerful from Jack
"And importantly -- people forget this too quickly -- we have the most established government and legal institutions."
Being from an emerging country, not sure if the emerging country stock markets are that efficient.
Bigger issue is that whether all the emerging country, company profits to go to the shareholder
No doubt some emerging countries are growing.
http://en.wikipedia.org/wiki/Harshad_Mehta
http://en.wikipedia.org/wiki/Byrraju_Ramalinga_Raju
http://en.wikipedia.org/wiki/List_of_scandals_in_India
abcnews.go.com/Blotter/us-investors-lose-billions-alleged-chinese-stock-schemes/story?id=18164787
http://www.bloomberg.com/news/2014-12-0 ... -u-s-.html
However, these words are powerful from Jack
"And importantly -- people forget this too quickly -- we have the most established government and legal institutions."
Being from an emerging country, not sure if the emerging country stock markets are that efficient.
Bigger issue is that whether all the emerging country, company profits to go to the shareholder
No doubt some emerging countries are growing.
http://en.wikipedia.org/wiki/Harshad_Mehta
http://en.wikipedia.org/wiki/Byrraju_Ramalinga_Raju
http://en.wikipedia.org/wiki/List_of_scandals_in_India
abcnews.go.com/Blotter/us-investors-lose-billions-alleged-chinese-stock-schemes/story?id=18164787
Invest when you have the money, sell when you need the money, for real life expenses...
Re: International Investing
Amen!Imbros wrote:The 10 largest holdings of Vanguard Total International:
Most people in the US probably have never heard of some of these companies, or other holdings of the fund like Carrefour, Siemens, Total. But those organizations more or less dominate the rest of the world. I really don't want to miss investing in those.1 Nestle SA
2 Novartis AG
3 Royal Dutch Shell plc
4 Roche Holding AG
5 Toyota Motor Corp.
6 HSBC Holdings plc
7 BHP Billiton
8 Samsung Electronics Co. Ltd.
9 BP plc
10 Bayer AG
Re: International Investing
I'm with Jack on the opinion of International not being necessary for U.S. investors.
I'm not saying investing Internationally is a mistake, but I think there are additional risks and expenses that just aren't necessary for a U.S. investor to take, and that a lot of the arguments for it (i.e. MPT , efficient frontier charts) are hooey.
On a side note, I'm surprised that you missed all the headlines and chatter about people worrying about a "bubble" in the Australian real estate market:
"RBA's hands tied as property prices go through the roof" http://www.smh.com.au/money/investing/r ... 429p7.html
"If you think Australian property prices are insane, try New Zealand" http://www.businessinsider.com.au/if-yo ... and-2015-4
"Property: Auckland market 'ponzi scheme' - economist" http://www.nzherald.co.nz/business/news ... d=11429522
"China's stock boom puts Australian housing in the shade" http://www.smh.com.au/business/chinas-s ... mh7cu.html
I'm not saying investing Internationally is a mistake, but I think there are additional risks and expenses that just aren't necessary for a U.S. investor to take, and that a lot of the arguments for it (i.e. MPT , efficient frontier charts) are hooey.
On a side note, I'm surprised that you missed all the headlines and chatter about people worrying about a "bubble" in the Australian real estate market:
"RBA's hands tied as property prices go through the roof" http://www.smh.com.au/money/investing/r ... 429p7.html
"If you think Australian property prices are insane, try New Zealand" http://www.businessinsider.com.au/if-yo ... and-2015-4
"Property: Auckland market 'ponzi scheme' - economist" http://www.nzherald.co.nz/business/news ... d=11429522
"China's stock boom puts Australian housing in the shade" http://www.smh.com.au/business/chinas-s ... mh7cu.html
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: International Investing
My equity holdings are all in the Vanguard Institutional Index Fund which does have a large amount of international exposure, so that really is not a valid argument. Apple, Coke, GM, etc. don't just do business in the U.S. Many of these companies actually do more business outside of the U.S. I know I have said this and I am a broken record, but John Bogle makes the best case for not needing it in Common Sense on Mutual Funds and develops an entire chapter to it.Wagnerjb wrote:I wonder if you would feel the same way if you were in Japan and refused to invest internationally the prior 20 or 30 years.stemikger wrote: Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: International Investing
I completely understand your line of thinking. Surely, you don't think that gaining moderate exposure to companies that operate primarily in foreign markets would cause one to LOSE the game, do you?stemikger wrote:My equity holdings are all in the Vanguard Institutional Index Fund which does have a large amount of international exposure, so that really is not a valid argument. Apple, Coke, GM, etc. don't just do business in the U.S. Many of these companies actually do more business outside of the U.S. I know I have said this and I am a broken record, but John Bogle makes the best case for not needing it in Common Sense on Mutual Funds and develops an entire chapter to it.Wagnerjb wrote:I wonder if you would feel the same way if you were in Japan and refused to invest internationally the prior 20 or 30 years.stemikger wrote: Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
Re: International Investing
No definitely not. I don't think it's an illegitimate choice at all, I just don't think it is necessary to win, but either way will get you there. I think that is the bigger point. By having it you will do well and by not having it you will be fine (for the long term investor). But I admit, I'm a bit of an oddball when it comes to this because it really would not kill me to add it, but I truly feel a two fund or one fund (the Vanguard Balanced Index) fund is the purest form of what St. Jack taught us. He himself loves the Vanguard Balanced Index.dc81584 wrote:I completely understand your line of thinking. Surely, you don't think that gaining moderate exposure to companies that operate primarily in foreign markets would cause one to LOSE the game, do you?stemikger wrote:My equity holdings are all in the Vanguard Institutional Index Fund which does have a large amount of international exposure, so that really is not a valid argument. Apple, Coke, GM, etc. don't just do business in the U.S. Many of these companies actually do more business outside of the U.S. I know I have said this and I am a broken record, but John Bogle makes the best case for not needing it in Common Sense on Mutual Funds and develops an entire chapter to it.Wagnerjb wrote:I wonder if you would feel the same way if you were in Japan and refused to invest internationally the prior 20 or 30 years.stemikger wrote: Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: International Investing
Actually, I did see a few articles long those lines - first time home buyers being priced out of the market, having to lower their expectations or live further away from the city. One article (forget if it was AUS or NZ) about a woman who bought a relative humble house 25 years ago in an edgy neighborhood and now it's worth big bucks as the area has gentrified. I commented to my wife that it was just like reading the Boston Globe about the Greater Boston area.JoMoney wrote:
On a side note, I'm surprised that you missed all the headlines and chatter about people worrying about a "bubble" in the Australian real estate market:
"RBA's hands tied as property prices go through the roof" http://www.smh.com.au/money/investing/r ... 429p7.html
"If you think Australian property prices are insane, try New Zealand" http://www.businessinsider.com.au/if-yo ... and-2015-4
"Property: Auckland market 'ponzi scheme' - economist" http://www.nzherald.co.nz/business/news ... d=11429522
"China's stock boom puts Australian housing in the shade" http://www.smh.com.au/business/chinas-s ... mh7cu.html
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: International Investing
What he means about the market being an equalizer is that if you are a U.S. investor investing in U.S. funds in the U.S. market, then you can purchase U.S. funds at a lower cost than international funds. Because of this, Jack believes that the lower cost of U.S. funds purchased in the U.S. market offsets any gains you may have realized by instead purchasing international funds, because international funds have a higher cost (expense ratio) than U.S. funds. So you essentially get the "home-court" cost advantage by purchasing U.S. funds in the U.S. market.Imbros wrote:So, forgive my ignorance, but does that mean Bogle think the Emerging Markets will not outperform the US in the long term? Because they will equalize?oldzey wrote:This topic never gets old.
I'm with Jack: "I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer... If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."
Jack Bogle wrote:I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer. And international and emerging markets will probably do more or less the same as the U.S. in the next 10 years. You don't know that, but if I were to put 20% in international, call half in developed markets and half in emerging markets, maybe I could add a percentage point if I did it for 20% of my portfolio. If they do 5% better, I am getting 1% of an extra return.
Well, I think, if you could just get out of your high-cost funds and into low-cost funds, you can pick up that 1 percentage point in a far easier way. So I could easily be wrong on that, but I think there are risks out there, unseen risks, currency risks, sovereign risks, and then the kind of risks that we have in international.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
Re: International Investing
Great point, and one that is always overlooked. If you look at the risk charts on Vanguard, international is riskier than domestic.oldzey wrote:What he means about the market being an equalizer is that if you are a U.S. investor investing in U.S. funds in the U.S. market, then you can purchase U.S. funds at a lower cost than international funds. Because of this, Jack believes that the lower cost of U.S. funds purchased in the U.S. market offsets any gains you may have realized by instead purchasing international funds, because international funds have a higher cost (expense ratio) than U.S. funds. So you essentially get the "home-court" cost advantage by purchasing U.S. funds in the U.S. market.Imbros wrote:So, forgive my ignorance, but does that mean Bogle think the Emerging Markets will not outperform the US in the long term? Because they will equalize?oldzey wrote:This topic never gets old.
I'm with Jack: "I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer... If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."
Jack Bogle wrote:I think, I guess, I'd say overall internationally--I don't happen to use international because I think the market is going to be an equalizer. And international and emerging markets will probably do more or less the same as the U.S. in the next 10 years. You don't know that, but if I were to put 20% in international, call half in developed markets and half in emerging markets, maybe I could add a percentage point if I did it for 20% of my portfolio. If they do 5% better, I am getting 1% of an extra return.
Well, I think, if you could just get out of your high-cost funds and into low-cost funds, you can pick up that 1 percentage point in a far easier way. So I could easily be wrong on that, but I think there are risks out there, unseen risks, currency risks, sovereign risks, and then the kind of risks that we have in international.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: International Investing
VTI ER = 0.05%oldzey wrote:What he means about the market being an equalizer is that if you are a U.S. investor investing in U.S. funds in the U.S. market, then you can purchase U.S. funds at a lower cost than international funds. Because of this, Jack believes that the lower cost of U.S. funds purchased in the U.S. market offsets any gains you may have realized by instead purchasing international funds, because international funds have a higher cost (expense ratio) than U.S. funds. So you essentially get the "home-court" cost advantage by purchasing U.S. funds in the U.S. market.
VEA ER = 0.09%
VWO ER = 0.15%
Seems to me that the point might have been true 20+ years ago, but is rather moot now. The benefits of diversification far exceed the difference in ER.
-
- Posts: 278
- Joined: Mon Feb 23, 2015 12:57 pm
Re: International Investing
I agree 67%. Currency risk should hold you back from holding market cap proportions of international equities in your stock portfolio since currency exchange risk is not compensated.
Re: International Investing
American exceptionalism ought to die now, IMHO. Every time you invest according to a philosophy that treats U.S. stocks as a fundamentally different category from others, you are essentially subscribing to American exceptionalism. It seems most BH are actually American exceptionalist, at least implicitly. By contrast, I try very hard not to be. Most of my stocks, in fact most of my net worth, is overseas, largely for this reason.friar1610 wrote:This is a completely unsophisticated observation that has no figures whatsoever to back it up. I just got back from a vacation to New Zealand and Australia. While there I read the business and real estate sections of the local papers, kept an eye out for the amount of new commercial construction underway and asked a lot of questions to tour guides and others I met about general economic issues. I left with the sense (as I always do when I take foreign vacations) that it's a big, growing world out there with a lot of "ex-US" profit-generating economic activity going on. Seems like it makes sense to make sure one's investment program is structured to try to capture at least some of that growth and profit rather than sticking with a completely domestic orientation.
Sorry for the lack of patriotism if it amounts to that!!!
- Maynard F. Speer
- Posts: 2139
- Joined: Wed Mar 18, 2015 10:31 am
Re: International Investing
Of course the risk of too much domestic bias is you might be left out of the next big phase of global growth (I believe 70% of global growth over the next 10-20 years is predicted to come from Asia) ... And of course with valuations today, the risk of too much home bias is you being on the wrong side of mean reversion
And re: currency risk, well with the Euro falling through the floor, and the Dollar riding high, you can buy European equities at a huge discount even before you take market valuations into effect
And re: currency risk, well with the Euro falling through the floor, and the Dollar riding high, you can buy European equities at a huge discount even before you take market valuations into effect
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: International Investing
I read something recently on testing of the efficiency of global markets. The US stock market comes out on top, it is widely viewed as highly efficient in at least two forms: weak and semi-strong. European markets are viewed as weak-form efficient but not semi-strong from efficient. There are some active funds that are apparently exploiting that since they do well, consistently. Some Asian markets are not only not efficient, there is evidence of insider trading.ncole1 wrote: American exceptionalism ought to die now, IMHO. Every time you invest according to a philosophy that treats U.S. stocks as a fundamentally different category from others, you are essentially subscribing to American exceptionalism.
I am not saying one should not invest internationally, but I am saying that I think most people do not really look under the covers much. I also think that due to these differences in efficiency, the US market is in fact different from some (but not all) x-US markets.
Kolea (pron. ko-lay-uh). Golden plover.
Re: International Investing
Of course when you go to sell those cheaply gotten equities, you will have to convert the gains to expensive US dollars, so there goes that advantage.Maynard F. Speer wrote: And re: currency risk, well with the Euro falling through the floor, and the Dollar riding high, you can buy European equities at a huge discount even before you take market valuations into effect
Kolea (pron. ko-lay-uh). Golden plover.
-
- Posts: 302
- Joined: Sat Jul 19, 2014 1:36 pm
Re: International Investing
TwoByFour wrote:Of course when you go to sell those cheaply gotten equities, you will have to convert the gains to expensive US dollars, so there goes that advantage.Maynard F. Speer wrote: And re: currency risk, well with the Euro falling through the floor, and the Dollar riding high, you can buy European equities at a huge discount even before you take market valuations into effect
I thought that currency conversions were already taken into account on a daily basis as the foreign equities' currencies fluctuate against the dollar? So technically even if you don't sell shares, the currency fluctuations are still built into the USD NAV daily?
Re: International Investing
I believe you are correct about that. If the exchange rate remained constant, there would be no advantage ever. The only time an advantage would happen is if the dollar is strong when you buy, and weak when you sell the item. But of course you have no way to know it will work out that way. Hence, the additional risk of currency exchange.
Kolea (pron. ko-lay-uh). Golden plover.
- Maynard F. Speer
- Posts: 2139
- Joined: Wed Mar 18, 2015 10:31 am
Re: International Investing
Well strong when you buy should be good enough ... As long as you're always buying at an advantage, your average sales can span the whole range of scenarios and still have you at an advantage ..
So we've had a strong pound (GBP) for a while, so it's been a good time to buy international equities, as when our pound goes down again, you've got another tailwind working in your favour
So we've had a strong pound (GBP) for a while, so it's been a good time to buy international equities, as when our pound goes down again, you've got another tailwind working in your favour
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: International Investing
The case for international investing is based on diversification, and the studies have not found the US returns to be dramatically different from international returns. Those international returns are what we actually earn, so if there is insider trading (or other issues) they aren't diminishing the returns enough to matter. Of course, I would love it all countries had the strong controls of the US financial markets, but if they deliver similar results then that is sufficient for me.TwoByFour wrote:I read something recently on testing of the efficiency of global markets. The US stock market comes out on top, it is widely viewed as highly efficient in at least two forms: weak and semi-strong. European markets are viewed as weak-form efficient but not semi-strong from efficient. There are some active funds that are apparently exploiting that since they do well, consistently. Some Asian markets are not only not efficient, there is evidence of insider trading.ncole1 wrote: American exceptionalism ought to die now, IMHO. Every time you invest according to a philosophy that treats U.S. stocks as a fundamentally different category from others, you are essentially subscribing to American exceptionalism.
I am not saying one should not invest internationally, but I am saying that I think most people do not really look under the covers much. I also think that due to these differences in efficiency, the US market is in fact different from some (but not all) x-US markets.
Best wishes.
Andy
-
- Posts: 82
- Joined: Mon May 19, 2014 3:45 am
Re: International Investing
Heh, a nice line. But it seems out of place here. Diversifying globally, so that one invests in 'international' (non-U.S.) equities as well as U.S. ones -- surely what we're talking about here -- is no more a bet against America than it is a bet for it. Investing solely in America, however, is a bet against the rest of the world.stemikger wrote:Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
-
- Posts: 635
- Joined: Sun Jul 27, 2014 3:32 pm
Re: International Investing
I have a pretty strong tilt towards International myself, since I lived and worked overseas for many years as a management consultant. It has actually hurt my performance, but I am sticking with it.
My former firm did some studies that suggested a substantial premium is realized by investors who place their capital in markets where transparency and governance are shareholder friendly. The US has effective accounting rules, good (though challenged too often) government oversight, a legal system that functions, fairly robust information distribution, a decent press (though sadly eroded) and other advantages.
One challenge with international equities is that they are often less transparent and can have governance issues. This ends up being something like a mutual fund with active management fees, and can be a total return problem. While growth may be better, especially for private capital, the lack of transparency in stocks and corporate governance differences/issues can be a performance drag on returns. In some counties the govt. or labor unions take bigger cuts, in others it is an accepted level of management graft, in others just simple poor management and accounting; resulting in productivity issues or inefficiencies (think Puerto Rico and their current bond issues at PREPA).
Ultimately the world is catching up as IFRS and internationalization of capital markets push for better consistency of management. The rising PE trends in specific country markets suggest that the governance premium can be matched by countries that buy into a US style or more transparent European style management model.
My former firm did some studies that suggested a substantial premium is realized by investors who place their capital in markets where transparency and governance are shareholder friendly. The US has effective accounting rules, good (though challenged too often) government oversight, a legal system that functions, fairly robust information distribution, a decent press (though sadly eroded) and other advantages.
One challenge with international equities is that they are often less transparent and can have governance issues. This ends up being something like a mutual fund with active management fees, and can be a total return problem. While growth may be better, especially for private capital, the lack of transparency in stocks and corporate governance differences/issues can be a performance drag on returns. In some counties the govt. or labor unions take bigger cuts, in others it is an accepted level of management graft, in others just simple poor management and accounting; resulting in productivity issues or inefficiencies (think Puerto Rico and their current bond issues at PREPA).
Ultimately the world is catching up as IFRS and internationalization of capital markets push for better consistency of management. The rising PE trends in specific country markets suggest that the governance premium can be matched by countries that buy into a US style or more transparent European style management model.
Re: International Investing
Not really, somewhere around half the revenues from the S&P500 come from outside the U.S., many companies in the index are domiciled outside the U.S., some of the companies are actually largely dependent on non-U.S. operations.PecuniaryPeccary wrote:Heh, a nice line. But it seems out of place here. Diversifying globally, so that one invests in 'international' (non-U.S.) equities as well as U.S. ones -- surely what we're talking about here -- is no more a bet against America than it is a bet for it. Investing solely in America, however, is a bet against the rest of the world.stemikger wrote:Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
I certainly don't see it as a bet on one country or another, but it does pose an opportunity for U.S. investors . We have the option to buy a well diversified group of stocks at lower expenses, lower tax burden, very good corporate disclosure and accounting, extremely good liquidity, and without the risks that come with trying to own international stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: International Investing
+1 Well put, JoMoney!JoMoney wrote:Not really, somewhere around half the revenues from the S&P500 come from outside the U.S., many companies in the index are domiciled outside the U.S., some of the companies are actually largely dependent on non-U.S. operations.PecuniaryPeccary wrote:Heh, a nice line. But it seems out of place here. Diversifying globally, so that one invests in 'international' (non-U.S.) equities as well as U.S. ones -- surely what we're talking about here -- is no more a bet against America than it is a bet for it. Investing solely in America, however, is a bet against the rest of the world.stemikger wrote:Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
I certainly don't see it as a bet on one country or another, but it does pose an opportunity for U.S. investors . We have the option to buy a well diversified group of stocks at lower expenses, lower tax burden, very good corporate disclosure and accounting, extremely good liquidity, and without the risks that come with trying to own international stocks.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
- nisiprius
- Advisory Board
- Posts: 52216
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: International Investing
But don't you think that the prices of stocks in Australia are mostly set by investors who are aware of the profit opportunities in Australia?friar1610 wrote:This is a completely unsophisticated observation that has no figures whatsoever to back it up. I just got back from a vacation to New Zealand and Australia. While there I read the business and real estate sections of the local papers, kept an eye out for the amount of new commercial construction underway and asked a lot of questions to tour guides and others I met about general economic issues. I left with the sense (as I always do when I take foreign vacations) that it's a big, growing world out there with a lot of "ex-US" profit-generating economic activity going on. Seems like it makes sense to make sure one's investment program is structured to try to capture at least some of that growth and profit rather than sticking with a completely domestic orientation.
The observation "I visited Australia and it's a modern country and it's booming" is much like "National Cash Register must be a great investment because everyone needs cash registers" or "I just saw the Apple iPhone and I think it's insanely great."
International stock mutual funds are one thing, but if you look at individual stocks, I think there is at least one obvious reason other than ignorance and provinciality why retail investors might avoid them:
International Stock Trading--Fidelity Investments
I'm not even showing you the fee for Japan! And I don't think they give you any free trades.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: International Investing
Interactive brokers has very reasonable foreign exchange commissions - https://www.interactivebrokers.com/en/? ... &p=stocks1
For example, their fee for Japan is 0.08% of the trade value with a minimum of 80 yen ($0.67).nisiprius wrote:I'm not even showing you the fee for Japan! And I don't think they give you any free trades.
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: International Investing
Correct. However, Warren Buffett recently noted that Berkshire will be increasing international investments.stemikger wrote:My equity holdings are all in the Vanguard Institutional Index Fund which does have a large amount of international exposure, so that really is not a valid argument. Apple, Coke, GM, etc. don't just do business in the U.S. Many of these companies actually do more business outside of the U.S. I know I have said this and I am a broken record, but John Bogle makes the best case for not needing it in Common Sense on Mutual Funds and develops an entire chapter to it.Wagnerjb wrote:I wonder if you would feel the same way if you were in Japan and refused to invest internationally the prior 20 or 30 years.stemikger wrote: Besides, after 20 years of not holding international and doing pretty good, I don't want to jinx things.
Also, Warren Buffett (the worlds greatest investor and John Bogle one of the greatest investment minds of our time) both agree that the U.S. is all you need. In the words of Mr. Buffett, you can't bet against America and win.
John C. Bogle: “Simplicity is the master key to financial success."
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: International Investing
It appears that many prefer international equities and not international bonds.
John C. Bogle: “Simplicity is the master key to financial success."
Re: International Investing
What always made sense to me was just following the market weights.
Decide on asset allocation between equities and bonds. The equities are then weighted according to their world weights. From there one tilts certain sectors/countries/sizes depending of higher expected reward/risk and biases. There is nothing wrong with heavy tilting toward US stocks. I just see it similar to tilting toward small caps, reits etc.
-Joey
Decide on asset allocation between equities and bonds. The equities are then weighted according to their world weights. From there one tilts certain sectors/countries/sizes depending of higher expected reward/risk and biases. There is nothing wrong with heavy tilting toward US stocks. I just see it similar to tilting toward small caps, reits etc.
-Joey
Re: International Investing
How about market weights of amount of stock vs. amount of bonds? There's more outstanding value of bonds than stocks right now. I think very few take this route, but in some sense if you're market cap weighting within categories, why not between asset classes too (so you can make a stance and have a different risk/return profile, yes, but still).Durzo wrote:What always made sense to me was just following the market weights.
Decide on asset allocation between equities and bonds. The equities are then weighted according to their world weights. From there one tilts certain sectors/countries/sizes depending of higher expected reward/risk and biases. There is nothing wrong with heavy tilting toward US stocks. I just see it similar to tilting toward small caps, reits etc.
-Joey
To me at least you want to own all kinds of equities. Bonds are for diversification, principal preservation, lowering volatility, and income, and for these purposes you don't even need different types of bonds. You could use 100% rolled 10-year Treasuries for bonds and achieve just that. Furthermore, the amount of interest rate risk in most conventional allocations is a lot lower than equity market risk, so any benefit of diversifying US bonds with international bonds (so as to have term risk that is not in lock step with US bond market term risk) is marginal at best when looking at the whole.abuss368 wrote:It appears that many prefer international equities and not international bonds.
- nisiprius
- Advisory Board
- Posts: 52216
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: International Investing
"Diversification" isn't the ultimate answer to everything any more than "low cost" is the ultimate answer to everything.
There's always a point of diminishing returns. There is such a thing as "lost in the noise." Logically, you can improve your car's gas mileage by filling all unused space in it with helium balloons. Physics assures us that this must be true. But actually doing it would be a pure act of faith since you will never be able to prove it by your odometer and gas-pump receipts... and one must account for the extra cost of the balloons, and the extra risk of impeded rear vision.
Stocks are stocks. No matter how much you "diversify" you will never turn a stock portfolio into a bank account that earns 10%. You will always be subject to crashes. Maybe you can reduce risk in the sense of a 51% loss instead of a 53% loss, but there's still a point of diminishing returns... just as reducing expense ratios from 0.18% to 0.10% might not be hugely important.
There's always a point of diminishing returns. There is such a thing as "lost in the noise." Logically, you can improve your car's gas mileage by filling all unused space in it with helium balloons. Physics assures us that this must be true. But actually doing it would be a pure act of faith since you will never be able to prove it by your odometer and gas-pump receipts... and one must account for the extra cost of the balloons, and the extra risk of impeded rear vision.
Stocks are stocks. No matter how much you "diversify" you will never turn a stock portfolio into a bank account that earns 10%. You will always be subject to crashes. Maybe you can reduce risk in the sense of a 51% loss instead of a 53% loss, but there's still a point of diminishing returns... just as reducing expense ratios from 0.18% to 0.10% might not be hugely important.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: International Investing
Steve Dunn's observations are relevant (i.e. the diminishing importance of international vs. domestic, and getting "lost in the noise" in relation to other things more important in managing one's financial affairs):
Originally found at: http://socialize.morningstar.com/NewSoc ... 62377.aspxOrder of importance
As a rather sluggish slice and dice type, I think that issue versus going total stock market is way down the list of what is important in managing one's financial affairs. In order of priority, I would list what is important in the following order of priority:
1. How much you earn (the value of your human capital).
2. An intelligent insurance program.
3. Your savings rate.
4. Your allocation to stocks versus bonds.
5. Have a reasonable diversification to your portfolio (anything reasonable will do).
6. Rebalancing to manage risk.
7. Tax management.
8. International versus domestic
9. Value versus growth.
10. Small versus large.
11. Slice and dice.
After number 7, it just doesn't matter much IMO, for about 99% of investors. I say that as one who has watched the numbers pop up on my Quicken computer screen over the passing years. Some things matter a whole lot more than others as to what really influences those numbers.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
- Maynard F. Speer
- Posts: 2139
- Joined: Wed Mar 18, 2015 10:31 am
Re: International Investing
Well remember we do have a broader perspective on global stock market valuations today:
I may get out of US stocks: Nobel-winner Shiller
http://www.cnbc.com/id/102434722
I may get out of US stocks: Nobel-winner Shiller
http://www.cnbc.com/id/102434722
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: International Investing
This is an excellent point, the concept of diminishing returns. Yes, International Stocks are not the magic elixir that with cure all diversification woes. Indeed, an all-U.S. investor will likely perform in a very similar manner to an investor who diversifies Internationally. What I am guarding against with International Stocks is the possibility of the U.S. being a single-country bear market as Japan was during the 1990's. The rest of the world did fairly well while Japan's markets really floundered during that period.nisiprius wrote:"Diversification" isn't the ultimate answer to everything any more than "low cost" is the ultimate answer to everything.
There's always a point of diminishing returns. There is such a thing as "lost in the noise." Logically, you can improve your car's gas mileage by filling all unused space in it with helium balloons. Physics assures us that this must be true. But actually doing it would be a pure act of faith since you will never be able to prove it by your odometer and gas-pump receipts... and one must account for the extra cost of the balloons, and the extra risk of impeded rear vision.
Stocks are stocks. No matter how much you "diversify" you will never turn a stock portfolio into a bank account that earns 10%. You will always be subject to crashes. Maybe you can reduce risk in the sense of a 51% loss instead of a 53% loss, but there's still a point of diminishing returns... just as reducing expense ratios from 0.18% to 0.10% might not be hugely important.
A fool and his money are good for business.
- Maynard F. Speer
- Posts: 2139
- Joined: Wed Mar 18, 2015 10:31 am
Re: International Investing
Well of course all the real growth in the world since the 70s has been in developing markets - and that's been reflected in how well EM stocks have fared ..
Today the US is (arguably) overvalued, while emerging markets are sitting around their low point (with a price/book of just over 1.5) .. 70% of global growth for the next 2 decades is anticipated to come from developing regions ... If you had to pick between just holding the US, and just holding Emerging Markets, wouldn't it be a no-brainer?
Today the US is (arguably) overvalued, while emerging markets are sitting around their low point (with a price/book of just over 1.5) .. 70% of global growth for the next 2 decades is anticipated to come from developing regions ... If you had to pick between just holding the US, and just holding Emerging Markets, wouldn't it be a no-brainer?
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: International Investing
You don't think that Japanese investors had similar thoughts, especially in the late 1980's or in the 1990's?JoMoney wrote: Not really, somewhere around half the revenues from the S&P500 come from outside the U.S., many companies in the index are domiciled outside the U.S., some of the companies are actually largely dependent on non-U.S. operations.
I certainly don't see it as a bet on one country or another, but it does pose an opportunity for U.S. investors . We have the option to buy a well diversified group of stocks at lower expenses, lower tax burden, very good corporate disclosure and accounting, extremely good liquidity, and without the risks that come with trying to own international stocks.
Think about companies like Toyota, Sony, Honda, Bridgestone, Canon, Mitsubishi, Hitachi, Komatsu, Nissan, etc. I bet the Japanese large companies also sell an awful lot to other countries (not necessarily just the west). But that didn't do their "my country is the best" investors any good over the past 30 years. I don't want to take that risk.
Best wishes.
Andy
Re: International Investing
The Nikkei crash was due almost entirely to an internal asset bubble (mostly real estate). The crash of the Nikkei had little affect on other equity markets. Compare that to the 2008 crash which was precipitated by the meltdown of the US financial industry. The latter of course rippled outward and caused a worldwide crash of stock markets and global economic recession (but ironically little effect on the Nikkei). People who cite Japan as the poster child for why a US investor should own a significant allocation in x-US equities is really guessing - there is no evidence at all that if the US crashes, that x-US will not, except maybe for the special case of the Nikkei which does seem to behave as a distinct asset class.nedsaid wrote: This is an excellent point, the concept of diminishing returns. Yes, International Stocks are not the magic elixir that with cure all diversification woes. Indeed, an all-U.S. investor will likely perform in a very similar manner to an investor who diversifies Internationally. What I am guarding against with International Stocks is the possibility of the U.S. being a single-country bear market as Japan was during the 1990's. The rest of the world did fairly well while Japan's markets really floundered during that period.
I am skeptical that, as nisiprius pointed out, that I will really benefit from the additional diversification of x-US equities. Yes, maybe I will get a little extra in returns for some periods (like Q1 of this year) but I just cannot see it providing the same degree of protection against market crashes as bonds do.
Investing in x-US equities is fine, but I do not buy into the diversification argument for doing that. I have a small position in x-US (less than 10%), but I also have a small position in health care. I view the two as about the same thing, trying to capture a little more upside.
Kolea (pron. ko-lay-uh). Golden plover.