TheTimeLord wrote: TheTimeLord wrote:http://www.morningstar.com/cover/videoc ... ?id=718644
Christine Benz: How about foreign equities? Given starting valuations, especially in emerging markets, do you see that they might have some return premium versus U.S. equities?
Jack Bogle: Well, that's what the marketplace is telling us. Foreign equities and, particularly, emerging markets are deemed to be cheap. They're selling at lower P/Es--that's clear. The dividend yield isn't a lot higher, but it's probably a little bit higher. But I just think the outlook is so uncertain, given this upheaval in the world economy. If they are importers, they've got a problem; if they are exporters, they've got a problem. Look at poor Australian with China not buying all those natural resources from them anymore--or buying them in tiny amounts.
So, I don't do international. And emerging markets is a little separate part of so-called "international." We're wonderful in America--we call non-U.S. funds international. Where's the U.S.? (Laughs.) They are really non-U.S. funds--non-U.S. portfolios. I probably talked about this a year ago. I say, "What are you buying?" There is such a thing as oversimplifying--this coming, of course, from the great simplifier. People say, "Buy the EAFE Index or the FTSE International Index." So, [I tell people to drill down into that index]. What are you buying? Look behind the curtain. Your largest investment is Britain. Your second-largest investment is Japan. Your third-largest investment is France.
What, Christine, I ask you, is the possibility that those three nations are going to outpace the U.S. in terms of investment return in the next 10 years? I just don't think it's possible. And those countries may be the better ones. Each one has its own set of troubles. We've got plenty of troubles over here in the U.S. But at least we know that we have the most innovative economy, the most productive economy, the most technologically advanced economy, the most diverse economy in the world. And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that.
He segues from discussing other developed markets to developing markets (Malaysia, etc.). That's his first issue. Deliberately or not, he bait-and-switches.
Also he goes against Efficient Markets Theory. The market *knows* what we all know about rival economic growth prospects. Why would knowing this allow us to choose the US as the market which will outperform? EMT says that it has already priced that into the market levels.
In other words, in EMT terms, he is data mining
. Taking a past successful strategy and mapping it into the future. Or he does not believe in Efficient Markets?
The other thing is superior economic performance does not drive stock market performance. He knows this, he must know it, but he ignores it.
The "US is best" triumphalism is kind of, amusing, especially to those of us who follow the US -- but don't live there
. What I think has happened is that his undoubted love of the US (hence funding a "Museum of the Constitution") has confused him as to his investing views.
That's a mistake. A classic of behavioural economics and psychology, in fact.
I think he knows his audience. There's a big appetite out there for being told that America is the best-- call it nationalism -- in any field. In a slightly different way, you'd find it in any country (the British version of this is a delusion about history and Empire, and the affection which we are held in other places for it; we also have delusions of grandeur and about our "special relationship" with the US (and former colonies)-- in short, we think we matter, when in fact we don't). The English also go through a period delusion about their chances in the World Cup
. Bogle is playing to his audience.
But the advantage the rest of us have is we cannot afford Home Country Bia
s. Not even in the UK where something like 60% of earnings of FTSE100 companies come from outside the UK. We *have* to pay attention to a globalized world and a global investment universe.
As a columnist in the Financial Times (Dutch, living in Paris) wrote about Britain: we Dutch know we are too small to matter, the British haven't figured that out yet