John Bogle and Japanese Stock market.

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john4546
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John Bogle and Japanese Stock market.

Post by john4546 » Fri Feb 02, 2018 7:49 pm

I was curious as to what John Bogle has said about the underperformance of the Japanese stock market (It's been down and meandering for nearly 30 years so far). For him to say that investing in the U.S. markets is sufficient for U.S. investors is bizarre. Some people think that if the U.S. stock market catches a cold and goes down, foreign markets generally catch the flu and go down farther. But Looking at Japan, U.S. and foreign stock markets can indeed have very different performances compared to each other. Does Bogle really think that what happened in Japan cannot happen in the U.S., but for different reasons perhaps?

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Re: John Bogle and Japanese Stock market.

Post by sunnywindy » Fri Feb 02, 2018 8:32 pm

Home country bias has always seemed irrational to me, Bogle championing it or not. In my opinion, it is a 90% emotionally based idea. The only real explanation I can accept is trying to eliminate foreign currency volatility; it can make a difference in the short to medium term. However, long-term, it doesn't make any difference.

Proponents of home country bias seem to come up with quasi-rational explanations when they really should just say I want to keep all my money in the US and not anywhere else and that is that...and not try to give a rational explanation for their irrational idea. I have known this close to home as my brother is 100% US invested (all S&P500) and his explanation is that he doesn't trust foreign companies because they don't use GAAP accounting principles (he's actually incorrect about this, but I chose not to argue). (Because he's my brother I still have to raz him, though. He's going on his dream ski trip to Chamonix next month and I told him when he walked around the beautiful city to ask himself if he thought the French knew how to do proper accounting!) But, I respect that it's his money and he can do what he wants with it.

The biggest argument I hear is that earnings from large US multinationals include overseas money so there isn't any reason to own foreign funds. Well, if you want to capture all US earnings, you need to own Toyota, Sony, and Nintendo, etc...as they have substantial earnings from the US. Why would you not want to own these companies? The Japanese are masters of business and have brought forth revolutionary business ideas with robotics, computer chips, and just in time warehousing (and ramen - my favorite!).

Lastly, iShares MSCI Japan ETF (EWJ) has a 6.97% 15 year annualized return (according to Morningstar), so it's not been great, but not a total disaster, either. [For comparison, S&P500 at 10.27% (IVV).]
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Re: John Bogle and Japanese Stock market.

Post by Valuethinker » Sat Feb 03, 2018 3:42 am

sunnywindy wrote:
Fri Feb 02, 2018 8:32 pm
Home country bias has always seemed irrational to me, Bogle championing it or not. In my opinion, it is a 90% emotionally based idea. The only real explanation I can accept is trying to eliminate foreign currency volatility; it can make a difference in the short to medium term. However, long-term, it doesn't make any difference.

Proponents of home country bias seem to come up with quasi-rational explanations when they really should just say I want to keep all my money in the US and not anywhere else and that is that...and not try to give a rational explanation for their irrational idea. I have known this close to home as my brother is 100% US invested (all S&P500) and his explanation is that he doesn't trust foreign companies because they don't use GAAP accounting principles (he's actually incorrect about this, but I chose not to argue). (Because he's my brother I still have to raz him, though. He's going on his dream ski trip to Chamonix next month and I told him when he walked around the beautiful city to ask himself if he thought the French knew how to do proper accounting!) But, I respect that it's his money and he can do what he wants with it.
There's arguments about IFRS v. US GAAP. I'd say IFRS gives you more latitude to play with numbers, on balance.

The anomaly is that the US refuses to join IFRS, and the rest of the world has.

US companies use non GAAP earnings measures in their communications with analysts and the Street, and that's led to some horrible cock-ups (Valeant, which technically is a Canadian company).

The point your brother is missing, of course, is that what do we know that the stock market as a whole does not know? If there's an issue with the accounting of foreign companies, then it will be reflected, on average, in their valuation vs. US companies. There are sectoral effects (the tech sector in particular, the FAANGs) but the much higher PE of the US market in general over other developed markets suggests that is the case.
The biggest argument I hear is that earnings from large US multinationals include overseas money so there isn't any reason to own foreign funds. Well, if you want to capture all US earnings, you need to own Toyota, Sony, and Nintendo, etc...as they have substantial earnings from the US. Why would you not want to own these companies? The Japanese are masters of business and have brought forth revolutionary business ideas with robotics, computer chips, and just in time warehousing (and ramen - my favorite!).
AFAIK the great innovations in computer chips are all American? Specifically Intel but also Motorola, Qualcomm, IBM.

ARM was a British company, originally the Acorn microcomputer. There's an ARM designed chip in most mobile devices in the world. Softbank now owns ARM.

The Japanese took over memory from the US. What they are good at is continuous process innovation, rather than radical leaps. But memory is now, I believe, dominated by the Koreans?

The US invented industrial robots, Unimation was the name of the company. I agree the Japanese have taken that business far, far further, which is sad.
Lastly, iShares MSCI Japan ETF (EWJ) has a 6.97% 15 year annualized return (according to Morningstar), so it's not been great, but not a total disaster, either. [For comparison, S&P500 at 10.27% (IVV).]
It depends on your time series-- sub period. Japan never seems to "break out" of the oscillations.

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Re: John Bogle and Japanese Stock market.

Post by JoMoney » Sat Feb 03, 2018 4:47 am

You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
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Re: John Bogle and Japanese Stock market.

Post by Lauretta » Sat Feb 03, 2018 5:48 am

You may find this article interesting:
https://www.economist.com/news/finance- ... l-americas
Being in Europe, I have personally significantly underweighed the US relative to MSCI World (and I have overweighed EM relative to the fraction of their market cap in AC World, so it's not been a question of home country bias for me), when I had a lump sum to invest last year, both because I was afraid of the high valuations in the US, and because of currency risk. So far it's worked for me 8-) :happy (though of course one year results don't mean anything - but since valuations in the US are the highest in the world, and the dollar is historically high, mean reversion would suggest that non US markets are probably more likely to do better over the long haul).
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Re: John Bogle and Japanese Stock market.

Post by john4546 » Sat Feb 03, 2018 7:40 am

JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
I have thought about that: Japan could be used both as an argument for and against investing in foreign markets - and both be rational arguments. Maybe the stock market really only works well in the U.S. for U.S. investors.

What I have noticed is that America has a very pro-business/stock culture, that is, the CEO's are very aware of how managing their company affects and increases their stock price, that is not really exhibited to the same extent in foreign companies and their CEO's from my impression. Foreign investors don't seem to be as heavy into stock investing as compared to American investors, which may affect tock prices as well.

Japanese companies are productive and profitable obviously, but the way they manage their companies does not seem to be really conducive to favorably affecting their share price for shareholders.The same with the Germans.

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Re: John Bogle and Japanese Stock market.

Post by sambb » Sat Feb 03, 2018 7:44 am

bogle is probably wrong sometimes. as he canr predict the future.

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Re: John Bogle and Japanese Stock market.

Post by Ron Scott » Sat Feb 03, 2018 8:15 am

I'm with Bogle (call me a Boglehead...). I see no reason to invest outside US markets as I get a nice exposure to the world economy through the international business done by US companies. Not interested in owning a bucket of companies from wherever with additional exposure to whatever.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: John Bogle and Japanese Stock market.

Post by tibbitts » Sat Feb 03, 2018 8:40 am

Ron Scott wrote:
Sat Feb 03, 2018 8:15 am
I'm with Bogle (call me a Boglehead...). I see no reason to invest outside US markets as I get a nice exposure to the world economy through the international business done by US companies. Not interested in owning a bucket of companies from wherever with additional exposure to whatever.
The question is how long you would hang onto that theory if the U.S. has a Japan-like period, starting, say, now. Certainly it may take longer than your lifetime for a single-country bet to pay off.

Regarding international business, you can also argue that you get exposure to the US through business foreign companies do here.

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Re: John Bogle and Japanese Stock market.

Post by Dandy » Sat Feb 03, 2018 9:00 am

I think Bogle and Buffet see many advantages that the US has and have been influence greatly by how the US equities have performed for most of the decades they have lived. It was pretty easy to be an economic power after WWII. Europe and a lot of Asia were in tatters. The US has managed to maintain significant economic power since.

the Japanese stock market decades long mire is pretty scary. I remember when Japanese companies and investors looked like they were taking over the world. Japanese cars, electronics, etc. were world class. They had a dedicated and hard working labor force. I remember they used "bench marking" to help their "continuous improvement" manufacturing, etc. Meanwhile the US was making Ford Pintos (I bought one :oops:) and Chevy Vegas.

The had the mother of all real estate bubbles which seemed to spark their decline. Have few natural resources which is always a challenge. Aging population - happening here and elsewhere. A non diverse culture - very traditional. Could the US find itself in the same position. Always possible. But I think our natural resources, diverse culture, capitalistic economy seem to help us deal with necessary changes and adjustments that are often and increasingly necessary in this fast changing world. As examples we seem to come out of the great recession quicker and better than most and now are approaching energy independence. Good signs about flexibility and resources. (though I wish our energy independence wasn't so focused on hydro carbons).

I wonder would Elon Musk or the Google Boys even have considered starting their ventures in Japan?

I'm well into retirement and underweight international but we all must realize that history tells us no super economic power lasts forever. So, I think those in the accumulation phase, at least, should have a decent allocation to international equities.

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Re: John Bogle and Japanese Stock market.

Post by staythecourse » Sat Feb 03, 2018 9:07 am

JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
What if Mr. Bogle was born Mr. Shingoyara of Tokyo? I am really curious if Mr. Bogle is all that impressive of an investor (not about his excellent contribution to the industry with creation of the Vanguard and the first retail index fund) or just born in the right country at the right time? Home country bias completely depends on what you call home (obvious). You call America home the last 50 years you are a genius and if you called Japan home you were a fool. Same person with the same abilities would be viewed completely different just based on the luck of where they were born and what they called home.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: John Bogle and Japanese Stock market.

Post by HongKonger » Sat Feb 03, 2018 9:12 am

tibbitts wrote:
Sat Feb 03, 2018 8:40 am

Regarding international business, you can also argue that you get exposure to the US through business foreign companies do here.
I think this often. How many of the top black goods and white goods or cars sold in the US are actually US brands? Why wouldn't you want to own them. Very odd. Same goes for food companies and pharmaceuticals. A touch of ethnocentrism perhaps.

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Re: John Bogle and Japanese Stock market.

Post by Valuethinker » Sat Feb 03, 2018 9:13 am

john4546 wrote:
Sat Feb 03, 2018 7:40 am
JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
I have thought about that: Japan could be used both as an argument for and against investing in foreign markets - and both be rational arguments. Maybe the stock market really only works well in the U.S. for U.S. investors.

What I have noticed is that America has a very pro-business/stock culture, that is, the CEO's are very aware of how managing their company affects and increases their stock price, that is not really exhibited to the same extent in foreign companies and their CEO's from my impression. Foreign investors don't seem to be as heavy into stock investing as compared to American investors, which may affect tock prices as well.

Japanese companies are productive and profitable obviously, but the way they manage their companies does not seem to be really conducive to favorably affecting their share price for shareholders.The same with the Germans.
1. pro business is not equivalent to pro stock price. In the Anglo Saxon markets, pro stock price is about the way executives are remunerated, largely, and the fear of hostile takeover (see Michael Jensen's work, he's a prof at Harvard Business School, and Karen S Wruck at Ohio State has also got some good summaries)-- Free Cash Flow Theory of the Firm.

US companies have been borrowing to retire equity. The problem is that is a good thing (in theory) BUT it's also what they did, and in particular the Financial companies, pre 2008-- precisely when they should have been shoring up their balance sheets, buying back stock at far far higher prices than prevailed 12 months later.

2.
Foreign investors don't seem to be as heavy into stock investing as compared to American investors,
And the stock market valuation as a whole does not discount this?

3.
Japanese companies are productive and profitable obviously, but the way they manage their companies does not seem to be really conducive to favorably affecting their share price for shareholders.The same with the Germans.
I agree that by Anglo Saxon standards, Japanese companies sit on large amounts of cash, securities, and cross holdings in other companies. However that has started to change.

Germans? That might have been true 25 years ago, it's far less true now. Deutsche Bank for example unwound its holdings in German industrial companies.

Again, what do we know, in setting the valuation of these stocks, that the stock market does not know?

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Re: John Bogle and Japanese Stock market.

Post by Valuethinker » Sat Feb 03, 2018 9:19 am

staythecourse wrote:
Sat Feb 03, 2018 9:07 am
JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
What if Mr. Bogle was born Mr. Shingoyara of Tokyo? I am really curious if Mr. Bogle is all that impressive of an investor (not about his excellent contribution to the industry with creation of the Vanguard and the first retail index fund) or just born in the right country at the right time? Home country bias completely depends on what you call home (obvious). You call America home the last 50 years you are a genius and if you called Japan home you were a fool. Same person with the same abilities would be viewed completely different just based on the luck of where they were born and what they called home.

Good luck.
Warren Buffett in particular readily acknowledges a key to his success was being born in the right country, at the right time in it's history, and able to pursue a career in what he was excellent at. Most people in history have never had that chance. You could have been the Afro American equivalent of Warren Buffett, but if you were born in 1890, the world would never have known-- you weren't going to attend Columbia and train with Ben Graham.

Or Buffett could have been shepherded off to some death camp in occupied Poland, etc.

But Buffett is also an extraordinary investor- -that's clear. Over the time frame he has beaten all his rivals for whom we have any kind of public track record (a related point is that most of his rivals charged fees up to 2.0% p.a. whereas his fees are near zero-- in essence you are a partner of WB & Charlie Munger in the managaement of their personal holding company).

Bogle? The same points about right nationality, skin colour, social background (ie able to attend university) apply. Also the invention of the index fund.

However Bogle did do something amazing, which was create an investment management organization which was geared to benefit the fund holders, not the owners of the business (by making them one and the same).

Had Bogle started off in Japan in 1990, he would not have gotten very far-- a 30 year bear market isn't the place to start a fund management business.

But he is also one of the most genuinely creative minds in finance, and achieved something with that creativity. The creation of an institution of huge value to its owners (i.e. its investors) and a genuine reduction in transactions costs- think the guy who invented the Sears catalogue, or the Ford Model T, and (we shall see) Jeff Bezos and Amazon.
Last edited by Valuethinker on Sat Feb 03, 2018 9:35 am, edited 1 time in total.

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Re: John Bogle and Japanese Stock market.

Post by JoMoney » Sat Feb 03, 2018 9:30 am

john4546 wrote:
Sat Feb 03, 2018 7:40 am
JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
I have thought about that: Japan could be used both as an argument for and against investing in foreign markets - and both be rational arguments. Maybe the stock market really only works well in the U.S. for U.S. investors.

What I have noticed is that America has a very pro-business/stock culture, that is, the CEO's are very aware of how managing their company affects and increases their stock price, that is not really exhibited to the same extent in foreign companies and their CEO's from my impression. Foreign investors don't seem to be as heavy into stock investing as compared to American investors, which may affect tock prices as well.

Japanese companies are productive and profitable obviously, but the way they manage their companies does not seem to be really conducive to favorably affecting their share price for shareholders.The same with the Germans.
The success of the U.S. may be a case of 100+ years of "success bias" , but I think it was more than a fluke and has a pretty good time tested system. Other countries might have it pretty well worked out now too, but I don't see the need for a U.S. investor to go looking much further than their own backyard.
https://publications.credit-suisse.com/ ... 52F61BA0B4
...No other market can rival this long-term accomplishment. But this makes it dangerous to generalize from US asset returns since they
exhibit “success bias.” ...

1900 - 2016 Inflation adjusted Equity Returns (geometric mean)
U.S. 6.4%
World ex-US 4.3%
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: John Bogle and Japanese Stock market.

Post by Valuethinker » Sat Feb 03, 2018 9:48 am

JoMoney wrote:
Sat Feb 03, 2018 9:30 am
john4546 wrote:
Sat Feb 03, 2018 7:40 am
JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
I have thought about that: Japan could be used both as an argument for and against investing in foreign markets - and both be rational arguments. Maybe the stock market really only works well in the U.S. for U.S. investors.

What I have noticed is that America has a very pro-business/stock culture, that is, the CEO's are very aware of how managing their company affects and increases their stock price, that is not really exhibited to the same extent in foreign companies and their CEO's from my impression. Foreign investors don't seem to be as heavy into stock investing as compared to American investors, which may affect tock prices as well.

Japanese companies are productive and profitable obviously, but the way they manage their companies does not seem to be really conducive to favorably affecting their share price for shareholders.The same with the Germans.
The success of the U.S. may be a case of 100+ years of "success bias" , but I think it was more than a fluke and has a pretty good time tested system. Other countries might have it pretty well worked out now too, but I don't see the need for a U.S. investor to go looking much further than their own backyard.
And the stock market does not know this? You've seen something that the world's investors, in a world of globally mobile capital, have not seen?

What about Australia? That's done better than the USA, no?
https://publications.credit-suisse.com/ ... 52F61BA0B4
...No other market can rival this long-term accomplishment. But this makes it dangerous to generalize from US asset returns since they
exhibit “success bias.” ...

1900 - 2016 Inflation adjusted Equity Returns (geometric mean)
U.S. 6.4%
World ex-US 4.3%
[/quote]

Survivor bias is the issue in the data. A lot of stock markets just went to zero (it's a moot point whether Berlin went to zero, because if you were Jewish or otherwise an enemy of the Third Reich, your investments went to zero; and if you survived, and happened to be a citizen of East Germany/ DDR then again, you were not in a position to realize the value of your investments on the Berliner Bourse).

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Re: John Bogle and Japanese Stock market.

Post by stemikger » Sat Feb 03, 2018 9:52 am

I'm still with Jack on this. Of course anything can happen in this life, but the U.S. has so many safeguards in place that Japan didn't at the time. Warren B. has always said no one has ever bet against American and won. His and Jack's experience is something that can't be dismissed when arguing why U.S. is good enough. You are not talking about Average Joes here.

I personally have never invested in international because I just never felt comfortable with putting my money there. In my case it may be irrational and eccentric, but I don't think that is the case for Warren Buffett and Jack Bogle.

His chapter in Common Sense on Mutual Funds is more convincing than any other argument I read for it.

At 53 I'll stick with my two fund all U.S. portfolio.

Not that this is a valid point, but sticking with all U.S. portfolio has been very good for me over the past 23 years.
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Re: John Bogle and Japanese Stock market.

Post by staythecourse » Sat Feb 03, 2018 10:03 am

Valuethinker wrote:
Sat Feb 03, 2018 9:19 am
staythecourse wrote:
Sat Feb 03, 2018 9:07 am
JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
What if Mr. Bogle was born Mr. Shingoyara of Tokyo? I am really curious if Mr. Bogle is all that impressive of an investor (not about his excellent contribution to the industry with creation of the Vanguard and the first retail index fund) or just born in the right country at the right time? Home country bias completely depends on what you call home (obvious). You call America home the last 50 years you are a genius and if you called Japan home you were a fool. Same person with the same abilities would be viewed completely different just based on the luck of where they were born and what they called home.

Good luck.
Warren Buffett in particular readily acknowledges a key to his success was being born in the right country, at the right time in it's history, and able to pursue a career in what he was excellent at. Most people in history have never had that chance. You could have been the Afro American equivalent of Warren Buffett, but if you were born in 1890, the world would never have known-- you weren't going to attend Columbia and train with Ben Graham.

Or Buffett could have been shepherded off to some death camp in occupied Poland, etc.

But Buffett is also an extraordinary investor- -that's clear. Over the time frame he has beaten all his rivals for whom we have any kind of public track record (a related point is that most of his rivals charged fees up to 2.0% p.a. whereas his fees are near zero-- in essence you are a partner of WB & Charlie Munger in the managaement of their personal holding company).

Bogle? The same points about right nationality, skin colour, social background (ie able to attend university) apply. Also the invention of the index fund.

However Bogle did do something amazing, which was create an investment management organization which was geared to benefit the fund holders, not the owners of the business (by making them one and the same).

Had Bogle started off in Japan in 1990, he would not have gotten very far-- a 30 year bear market isn't the place to start a fund management business.

But he is also one of the most genuinely creative minds in finance, and achieved something with that creativity. The creation of an institution of huge value to its owners (i.e. its investors) and a genuine reduction in transactions costs- think the guy who invented the Sears catalogue, or the Ford Model T, and (we shall see) Jeff Bezos and Amazon.
No doubt Mr. Bogle's excellent contributions (as I mentioned on my post), but does NOT take away that he and many are victims of home country bias and worse use other biases (confirmation) and other psychological defense mechanisms (intellectualizing and rationalizing) to justify why it is okay.

No problem with home country bias as long as you admit you are committing it and accept it. ONLY pet peave I have is NOT folks being U.S. centric only, but being U.S. centric only AND claiming being market cap believers. That doesn't fly. You can't throw stones at a size or value premium believer's house when you are committing overweighting yourself being only in U.S. equities. Those two don't jive.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: John Bogle and Japanese Stock market.

Post by Lonestarz » Sat Feb 03, 2018 10:08 am

I don’t know if Japan was a major player in the world economy (as the US is now). Easier for the smaller economies to follow a different path than the majors as they make up larger amounts of international trade.

What I always heard and was mentioned but not really explained was currency risk/home prices. As you want to retire in your home country - you don’t care if the Chinese market is booming so long as you can comfortably afford your standard of living in the US with the expectation the US market will match US inflation. (Maybe not in any one year but over time).

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Re: John Bogle and Japanese Stock market.

Post by Ron Scott » Sat Feb 03, 2018 10:16 am

tibbitts wrote:
Sat Feb 03, 2018 8:40 am
Ron Scott wrote:
Sat Feb 03, 2018 8:15 am
I'm with Bogle (call me a Boglehead...). I see no reason to invest outside US markets as I get a nice exposure to the world economy through the international business done by US companies. Not interested in owning a bucket of companies from wherever with additional exposure to whatever.
The question is how long you would hang onto that theory if the U.S. has a Japan-like period, starting, say, now. Certainly it may take longer than your lifetime for a single-country bet to pay off.

I love the rhetoric--a "single-country bet", as if holding the VG total stock index is like going all in on GM! Kidding aside, I feel well-diversified with my US holdings and I assume the US is heading into a period of dramatically lower stock market returns. But I still see the US as the best bet, considering our competitive positioning, currency risk, relative economic attractiveness, etc.
tibbitts wrote:
Sat Feb 03, 2018 8:40 am
Regarding international business, you can also argue that you get exposure to the US through business foreign companies do here.
I guess, but that's not a reason to invest in foreign internationals vs. US internationals.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: John Bogle and Japanese Stock market.

Post by alwayshedge » Sat Feb 03, 2018 11:00 am

This is something that will continue to slightly worry me. It seems investors have this certainty that US stocks will always go up because well, they have always gone up. But what if we enter some sort of prolonged bearish period like Japan? If I am correct, Japan experienced a sort of similar huge inflow of investment before their meltdown and have never recovered to this day. This is why watching the US markets just keep going up and up (not including yesterday :happy ) actually scares me quite a bit. Will the eventual hangover be decades long?

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Re: John Bogle and Japanese Stock market.

Post by staythecourse » Sat Feb 03, 2018 12:29 pm

Lonestarz wrote:
Sat Feb 03, 2018 10:08 am
What I always heard and was mentioned but not really explained was currency risk/home prices. As you want to retire in your home country - you don’t care if the Chinese market is booming so long as you can comfortably afford your standard of living in the US with the expectation the US market will match US inflation. (Maybe not in any one year but over time).
Really? What I want is to hold the currency that is the strongest in the world. If it is the dollar, peso, ruble, whatever. I would rather have x currency that is worth $1.50 then the dollar worth $1.00. Exchanging currency is very liquid and low transaction costs and easily done EVERYWHERE so who cares what currency you are holding as they can all be converted to dollars.

The problem is I have NO clue which currency will be the most dominant in 20+ years when I am old so that is why I choose to hold a bucket of ALL currencies. No different then the reason I don't know which stock will outperform and why I hold a basket of ALL stocks.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Taylor Larimore
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"How much International Stock? A Suggestion."

Post by Taylor Larimore » Sat Feb 03, 2018 12:42 pm

Bogleheads:

You may find this post helpful:

How Much International Stock? A Suggestion

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Alchemist
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Re: John Bogle and Japanese Stock market.

Post by Alchemist » Sat Feb 03, 2018 1:05 pm

Valuethinker wrote:
Sat Feb 03, 2018 9:48 am
And the stock market does not know this? You've seen something that the world's investors, in a world of globally mobile capital, have not seen?
Perhaps it does know this, and it is why the valuations for Europe and Developed Asian markets are noticeably lower than for the U.S. market...just a thought.


Survivor bias is the issue in the data. A lot of stock markets just went to zero (it's a moot point whether Berlin went to zero, because if you were Jewish or otherwise an enemy of the Third Reich, your investments went to zero; and if you survived, and happened to be a citizen of East Germany/ DDR then again, you were not in a position to realize the value of your investments on the Berliner Bourse).
Survivor is the key word. The United States is in a unique geopolitical situation that insulates it from exactly those kinds of problems. There is no other great power in the same hemisphere, the U.S. has immense resources, lives in a geopolitically stable (uniquely so!) part of the world, has positive demographics unlike Europe/Asia, and uses those advantages to become global super power that is central to the global system (world's reserve currency, security guarantor of the global commons, ect) while still retaining insulation from volatility in other parts of the world.

Put more simply, the world is vulnerable to American black swans while the U.S. is insulated against global black swans. What if tomorrow Russia invades the Baltics while cutting off natural gas to Western Europe? What if conflict erupts in the South China sea or Korean Peninsula? Or Chinese economic growth slows? How well will global economies fair in comparison to the U.S.?

If the U.S. collapses into civil war tomorrow or has another financial crisis, everyone is going down with us (economically speaking) anyway.

Back to demographics, the rest of the world is running out of young workers. America is growing more of them. Which economies do you think are a better long term bet?

https://www.economist.com/news/finance- ... -vanishing

Believing in indexing is not equivalent to believing in global market cap weighted indexing. I believe it is a mistake to equate different national economies with corporations within a single market. They are different beasts.
Last edited by Alchemist on Sun Feb 04, 2018 12:03 pm, edited 2 times in total.

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Lauretta
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Re: John Bogle and Japanese Stock market.

Post by Lauretta » Sat Feb 03, 2018 1:06 pm

staythecourse wrote:
Sat Feb 03, 2018 12:29 pm
Lonestarz wrote:
Sat Feb 03, 2018 10:08 am
What I always heard and was mentioned but not really explained was currency risk/home prices. As you want to retire in your home country - you don’t care if the Chinese market is booming so long as you can comfortably afford your standard of living in the US with the expectation the US market will match US inflation. (Maybe not in any one year but over time).
Really? What I want is to hold the currency that is the strongest in the world. If it is the dollar, peso, ruble, whatever. I would rather have x currency that is worth $1.50 then the dollar worth $1.00. Exchanging currency is very liquid and low transaction costs and easily done EVERYWHERE so who cares what currency you are holding as they can all be converted to dollars.

The problem is I have NO clue which currency will be the most dominant in 20+ years when I am old so that is why I choose to hold a bucket of ALL currencies. No different then the reason I don't know which stock will outperform and why I hold a basket of ALL stocks.

Good luck.
Good point though having foreign stocks introduces a currency risk that according to some authors is better avoided (by currency hedging - at least for a part of the foreign portfolio). The way I see it, stocks are volatile but if you accept that volatility the expected returns in the long run are positive (and high). Currencies are volatile but you are not really rewarded for that volatility.
https://www.aqr.com/library/aqr-publica ... fx-hedging
When everyone is thinking the same, no one is thinking at all

Agggm
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Re: John Bogle and Japanese Stock market.

Post by Agggm » Sat Feb 03, 2018 1:14 pm

sunnywindy wrote:
Fri Feb 02, 2018 8:32 pm
it can make a difference in the short to medium term. However, long-term, it doesn't make any difference
False. There is no reason why currencies can't diverge over long periods of time.

staythecourse
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Re: John Bogle and Japanese Stock market.

Post by staythecourse » Sat Feb 03, 2018 3:16 pm

Lauretta wrote:
Sat Feb 03, 2018 1:06 pm
staythecourse wrote:
Sat Feb 03, 2018 12:29 pm
Lonestarz wrote:
Sat Feb 03, 2018 10:08 am
What I always heard and was mentioned but not really explained was currency risk/home prices. As you want to retire in your home country - you don’t care if the Chinese market is booming so long as you can comfortably afford your standard of living in the US with the expectation the US market will match US inflation. (Maybe not in any one year but over time).
Really? What I want is to hold the currency that is the strongest in the world. If it is the dollar, peso, ruble, whatever. I would rather have x currency that is worth $1.50 then the dollar worth $1.00. Exchanging currency is very liquid and low transaction costs and easily done EVERYWHERE so who cares what currency you are holding as they can all be converted to dollars.

The problem is I have NO clue which currency will be the most dominant in 20+ years when I am old so that is why I choose to hold a bucket of ALL currencies. No different then the reason I don't know which stock will outperform and why I hold a basket of ALL stocks.

Good luck.
Good point though having foreign stocks introduces a currency risk that according to some authors is better avoided (by currency hedging - at least for a part of the foreign portfolio). The way I see it, stocks are volatile but if you accept that volatility the expected returns in the long run are positive (and high). Currencies are volatile but you are not really rewarded for that volatility.
https://www.aqr.com/library/aqr-publica ... fx-hedging
Mr. Seigel of Wharton fame and "Stocks for the Long Run" advocates doing foreign stocks for only 2 reasons.

One is looking for diversification. That one, at least for me, refers to a couple of things. One is diversification as in MPT optimization which really shouldn't be too much since return, risk, and correlation coefficients should be roughly the same between any developed large country. The other meaning of diversification is for geographical, political, and even currency. Obviously, having all your labor AND equity in the same country with the same laws and governance and currency is a bet (even though unintended) that there will not be a Japan like issue develop or a Weimer republic like episode, or a more recent hyperinflation issue (Zimbabwe) occur.

The second reason is for currency hedging. Most of stock returns U.S. vs. International differences have to do with which currency is doing better at that the time. I believe he has a chart on this in his book.

When folks say currency risk for a U.S. investor investing abroad I know that is mentioned in all the prospecti, but just can't seem to understand how concentrating on ONE currency is NOT increasing that risk when we know increasing the number of stocks decreases the risk of single company risk.
Just doesn't seem to pass the smell test of common sense. It must just be me.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

selters
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Re: John Bogle and Japanese Stock market.

Post by selters » Sat Feb 03, 2018 5:22 pm

The Japanese stock market has a 220% return since its low in 2003. Also, it has a 160% return since its lowest point in 2009. It's hasn't been great but not too bad since then. But if you measure its performance since the top of the mother of all bubbles, it's been very bad, worse than cash in the mattress.

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nedsaid
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Re: John Bogle and Japanese Stock market.

Post by nedsaid » Sat Feb 03, 2018 10:16 pm

john4546 wrote:
Fri Feb 02, 2018 7:49 pm
I was curious as to what John Bogle has said about the underperformance of the Japanese stock market (It's been down and meandering for nearly 30 years so far). For him to say that investing in the U.S. markets is sufficient for U.S. investors is bizarre. Some people think that if the U.S. stock market catches a cold and goes down, foreign markets generally catch the flu and go down farther. But Looking at Japan, U.S. and foreign stock markets can indeed have very different performances compared to each other. Does Bogle really think that what happened in Japan cannot happen in the U.S., but for different reasons perhaps?
I am a believer in International diversification. I don't believe that the fact that about half of the S&P 500's earnings come from overseas is enough. Japan is an export driven economy and a lot of their company earnings come from outside of Japan. Thus I think Bogle's argument is flawed. So far, Bogle has been right. I think home country bias is something that all investors should fight. If John Bogle lived in Luxembourg, would he recommend a 100% Luxembourg portfolio?

The crux of John Bogle's argument is that the United States enjoys some tremendous competitive advantages, one of which is the relative openness and liquidity of our markets. Our economy has enjoyed competitive advantages as well. Since WWII, we have been the world's reserve currency which helps keep our cost of capital a bit lower than our competitors. We are still seen as a safe haven.
A fool and his money are good for business.

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Re: John Bogle and Japanese Stock market.

Post by whodidntante » Sat Feb 03, 2018 11:30 pm

There are some really good companies in the world. Many of you drive Japanese cars or German cars. I'm watching a TV from a South Korean company. I'm typing this on a Taiwanese tablet. I'm listening to the audio on speakers made by an American company in Mexico. I want to own them all.

Ki_poorrichard
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Re: John Bogle and Japanese Stock market.

Post by Ki_poorrichard » Sun Feb 04, 2018 1:40 am

I learned to keep an open mind to all views from both camps and all the brilliant minds that reside there. But, my greatest teacher is experience. Regardless, time will tell whose right or wrong. I choose to believe that past data or history does not guarantee the future or outcomes especially with investing.

In my opinion, sometimes it helps to blow off the academic dust to see things as they really are. Like for example, statistical errors, confirmation bias, etc. As you all already know, we are trekking in uncharted territory like we have never seen nor done before. Cheers!
"We are never certain. We are always ignorant to some degree." - Peter L. Bernstein

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Re: John Bogle and Japanese Stock market.

Post by Call_Me_Op » Sun Feb 04, 2018 8:05 am

JoMoney wrote:
Sat Feb 03, 2018 4:47 am
You could argue that the Japanese stock market is a good example to not invest in the Japanese stock market.
Or put all of your eggs in the stock market of any single country.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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sunnywindy
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Re: John Bogle and Japanese Stock market.

Post by sunnywindy » Mon Feb 05, 2018 10:02 am

Agggm wrote:
Sat Feb 03, 2018 1:14 pm
sunnywindy wrote:
Fri Feb 02, 2018 8:32 pm
it can make a difference in the short to medium term. However, long-term, it doesn't make any difference
False. There is no reason why currencies can't diverge over long periods of time.
Not sure what you've read to form your opinion (although I am interested in reading it), but I was thinking about this article when I wrote the above sentence(s)

"Foreign exchange rates are hardly static. Their fluctuations will--in most cases--increase the volatility of a U.S. investor's foreign stock portfolio. Exchange rates also tend to be cyclical and have little impact on long-term rates of return. Thus, over a long horizon, investors should assume that they won't be compensated for assuming currency risk."
http://news.morningstar.com/articlenet/ ... ?id=831379
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Agggm
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Re: John Bogle and Japanese Stock market.

Post by Agggm » Mon Feb 05, 2018 10:36 am

sunnywindy wrote:
Mon Feb 05, 2018 10:02 am
Agggm wrote:
Sat Feb 03, 2018 1:14 pm
sunnywindy wrote:
Fri Feb 02, 2018 8:32 pm
it can make a difference in the short to medium term. However, long-term, it doesn't make any difference
False. There is no reason why currencies can't diverge over long periods of time.
Not sure what you've read to form your opinion (although I am interested in reading it), but I was thinking about this article when I wrote the above sentence(s)

"Foreign exchange rates are hardly static. Their fluctuations will--in most cases--increase the volatility of a U.S. investor's foreign stock portfolio. Exchange rates also tend to be cyclical and have little impact on long-term rates of return. Thus, over a long horizon, investors should assume that they won't be compensated for assuming currency risk."
http://news.morningstar.com/articlenet/ ... ?id=831379
Correct. Currency risk generally hasn't carried a premium. What I said is unrelated to this fact.

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