Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

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LongTermEtfHolder
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 7:16 pm

vineviz wrote:
My argument is that the outperformance of US stocks is driven by an advantage in tech megacaps. This advantage seems to be increasing, and these companies are just gaining more power, wealth, and marketshare. Perhaps more importantly: the US as a nation is a world-leader in technology, and its advantage as a nation (specifically, of US tech hotspots like Silicon Valley) also seems to be only increasing.

These are the factors that drove the US's unique outperformance of the past decade, and for this outperformance to end in our time, these factors must change substantially.

I'm not necessarily seeking a confirmation, but I am seeking what I asked for: a plausible scenario to explain how the US and US-based megacaps may lose their current global dominance.

Obviously nothing is forever, but if we can't envision such a scenario happening within our lifetime, then that should affect our investing strategy.
Last edited by LongTermEtfHolder on Wed Jul 01, 2020 11:07 am, edited 1 time in total.

stan1
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by stan1 » Tue Jun 30, 2020 7:21 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
Obviously nothing is forever, but if we can't envision such a scenario happening within our lifetime, then that should affect our investing strategy.
We have people on the forum who range from teens to pushing 100 (not aware of anyone over 100 yet), so "our lifetime" should be more specific. I think it matters more for someone who is 20 or 50 than 80. Events in world history can change rapidly as we've seen just since March. Tech companies are one factor but so is US Treasury's ability to borrow from the rest of the world. That could change very quickly too. The degree to which you believe in "American exceptionalism" probably is a factor. Some see it as an absolute, other see it as an advantage we have now but might not have in the future and don't want to make the assumption it persists for the rest of their lifetime (10 years or 80+ years).

I won't offer a plausible scenario because then we'd get into a debate about whether they are plausible (becomes political and prohibited topic).

petulant
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by petulant » Tue Jun 30, 2020 7:37 pm

Not sure, OP. I am under the impression most U.S. outperformance since 2010 can be explained by different sector exposures for the U.S. and international indices. I do not make sector bets and so would want to diversify to international. However, holding international stocks comes with foreign dividend tax withholding, currency risk, and other quirks. Overweighting home country exposure, especially as a U.S. investor, is entirely rational. Thus, I allocate 80% to U.S. and 20% to international developed (avoiding China risk discussion since mods seem oddly preoccupied with policing this area).

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Tue Jun 30, 2020 7:52 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
Obviously nothing is forever, but if we can't envision such a scenario happening within our lifetime, then that should affect our investing strategy.
LOL. Six months ago, did you envision a global pandemic upending life as we knew it and causing the deepest economic downturn since the Great Depression? No? Then what makes you think your crystal ball can predict how Amazon, Facebook, and Google will do 30 years from now?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by vineviz » Tue Jun 30, 2020 8:09 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
vineviz wrote:
My argument is that the outperformance of US stocks is driven by an advantage in tech megacaps.
This is more speculation than argument, no?

Assigning a singular cause to any historical phenomenon is fraught with peril, as is assuming that today’s dominant firms are unassailable.

Eastman Kodak, General Motors, National Semiconductor, Sprint, US Steel, Dell, Schlumberger, GE, Polaroid, AOL, AIG, Enron.

The question isn’t whether the FAANG stocks can escape the fate of these past “tech mega caps”: we know they can’t. The only true mystery is which FAANG stock becomes toothless first.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

whereskyle
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by whereskyle » Tue Jun 30, 2020 8:10 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
vineviz wrote:
My argument is that the outperformance of US stocks is driven by an advantage in tech megacaps. This advantage seems to be increasing, and these companies are just gaining more power, wealth, and marketshare. Perhaps more importantly: the US as a nation is a world-leader in technology, and its advantage as a nation (specifically, of US tech hotspots like Silicon Valley) also seems to be only increasing.

These are the factors that drove the US's unique outperformance of the past decade, and for this outperformance to end in our time, those factors must change substantially.

I'm not necessarily seeking a confirmation, but I am seeking what I asked for: a plausible scenario to explain how the US and US-based megacaps may lose their current global dominance.

Obviously nothing is forever, but if we can't envision such a scenario happening within our lifetime, then that should affect our investing strategy.
Alibaba and Tencent are tech megacaps. They are not in the US. Shopify is a tech megacap. It is not in the US. The real question I think you should be asking is not whether the US tech megacaps are good companies but how much higher can they go? Investors are already paying so much, as much as $100, for $1 of these companies' earnings. At a certain point, investors will stop paying a price that can never be recouped and the price-earnings ratio will come down. I think Amazon is a great and reliable business, but its core business, delivering products quickly, is not all that profitable. It's betting on the same pie-in-the-sky, no existing market, huge risk endeavors as Alphabet. Netflix is an entertainment company facing ever growing competition. Facebook and Google are the targets of every regulatory agency in the world.

How much higher do you think these companies can go? If the answer is not "to infinity and beyond," you should recognize that they cannot be the drivers of another 10 year bull market. Other companies will need to pick up the slack.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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LongTermEtfHolder
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 8:25 pm

vineviz wrote:
Tue Jun 30, 2020 8:09 pm
This is more speculation than argument, no?
No, the fact that US outperformance was driven by top US tech stocks is established in data. It was mentioned in the first page of comments, and I can post some graphs if you don't believe it, but it is a fact easy to prove by looking at VTSAX with those few tech stocks removed.
The question isn’t whether the FAANG stocks can escape the fate of these past “tech mega caps”: we know they can’t. The only true mystery is which FAANG stock becomes toothless first.
My dilemma is about investing in US vs ex-US, so the question isn't whether a particular FAANG stock will decline (they all eventually will) but whether anything can threaten the current US dominance in tech.

If FAANGs are replaced by some different US stock, then VTSAX will continue to outperform because the US will continue to outperform.

I'm wondering how ex-US could overtake US in technology.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Enganerd » Tue Jun 30, 2020 8:28 pm

Forester wrote:
Tue Jun 30, 2020 10:48 am
EM is still ahead of USA in the 21st Century. IMHO this is a question of (1) US Dollar strength (2) how much longer investors will pay out the nose for expensive US megacap.
+1
willthrill81 wrote:
Tue Jun 30, 2020 11:38 am
Forester wrote:
Tue Jun 30, 2020 10:48 am
EM is still ahead of USA in the 21st Century. IMHO this is a question of (1) US Dollar strength (2) how much longer investors will pay out the nose for expensive US megacap.
Similarly, SCV is still ahead of TSM since 2000 by 2.3% annualized.

There's no doubt that the strength of the USD has been a big factor underlying the outperformance of U.S. But then that begs the question: what would weaken the USD enough to turn the tide? As far as I can tell, the U.S. is still the 'cleanest dirty shirt in the hamper' and by a significant margin, at least among OECD nations.
+1

Investment history makes me want to want to over-balance towards international in light of recent US relative performance. However, the US dollar factor worries me. Central banks across the globe are adding tons of liquidity and the world reserve status of the US dollar distinguishes it as the cleanest dirty shirt. I have no idea how this trend ends or reverses. I fear what could happen to international equities denominated in currencies that lose value faster than USD if the trend continues indefinitely.

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LongTermEtfHolder
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Tue Jun 30, 2020 8:38 pm

whereskyle wrote:
Tue Jun 30, 2020 8:10 pm
Investors are already paying so much, as much as $100, for $1 of these companies' earnings. At a certain point, investors will stop paying a price that can never be recouped and the price-earnings ratio will come down.
That's a solid argument, actually. I basically asked "how would ex-US grow companies that surpass the substantial tech advantage of the US (or even just Silicon Valley)?", and you answered: "for you, as an investor, they don't have to in order to be a good buy - because the top US tech stocks (and arguably, the entire US stock market) is currently overpriced according to metrics like P/E ratio".

My only counterargument is that if the next FAANG are also US based (like all the current ones), then they will capture the value when FAANG decline. So basically, the next dominant tech megacaps will be also US-based, and we as investors can capture their value by investing in VTSAX, not VTIAX.
I think Amazon is a great and reliable business, but its core business, delivering products quickly, is not all that profitable.
I'm in technology myself, so as an aside: most of Amazon's profits come from technology-products, specifically AWS. AWS accounted for 77% of Amazon's total operating profit for the last quarter. Their retail business is high revenue but low-margin.
It's betting on the same pie-in-the-sky, no existing market, huge risk endeavors as Alphabet.
Amazon is a pretty practical company and if they have any moonshot projects at all (I'm not aware of any) they're not remotely as numerous or expensive as Alphabet's.

To me, the key question remains "what could threaten the US dominance in technology", since that dominance is the reason for its recent and future outperformance. One possible answer is perhaps other countries achieving monumental improvements in their technology industries, though the US has been able to only widen its advantage for over almost two decades now.

92irish
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 92irish » Tue Jun 30, 2020 8:43 pm

I don't know if anyone can ever answer the OP question - "Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?". It is a question than thousands of traders and financial experts try to make on a daily basis as these securities are priced. The stock market is the ultimate voting machine. Many ex-US stocks (e.g. European stocks) are much cheaper than U.S. stock on many metrics (P/E, P/B, etc) as presumably the market is pricing in lower growth vis-a-vis U.S. securities. Not sure if that's right, but at least that's what the market thinks.

I don't worry about the answer to this question (because I'm smart enough to know I don't know the answer - and not sure anyone does). If there was someone smart enough to know the answer, I am not sure I'm smart enough to determine who that person is that knows the answer. I am not going to gamble one way or the other, because if I guessed correctly would be dumb luck and if I guessed wrong it would be bad luck.

VT (or VTWAX) (Total World Index) is the easiest way to play this. Or you can just split up VTI / VXUS in some relative market weighting. I'm just going to take what returns the market are going to give me across the board.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by nisiprius » Tue Jun 30, 2020 8:51 pm

steve321 wrote:
Tue Jun 30, 2020 3:50 pm
nisiprius wrote:
Tue Jun 30, 2020 12:17 pm
P.S. The phrase "high-risk, low-reward" itself is interesting. What do you think "high risk" means? It means you can't be sure if you'll get a high reward, a low reward, no reward... or a loss.
What you write is pretty absurd. Assuming the probability distribution of outcomes is a Gaussian (which it isn't because they're fat tailed, but which Mr Fama models as a Gaussian anyways), high risk means that the standard deviation (sigma) is high; low reward means that the mean (Greek letter mu) is low. it's a perfectly rational sentence that makes logical sense.
Can't do Greek letters otherwise would have made it clearer.
1) You're right.

2) An easy way to get Greek letters if you can't remember the keyboard procedures for system, is to do a web search on the name of the letter, e.g. sigma and go to the Wikipedia article, which will always have the letter in unicode conspicuously near the top (as well as a big image, to be avoided). It will also have the whole Greek alphabet in unicode, e.g.


Αα Alpha Νν Nu
Ββ Beta Ξξ Xi
Γγ Gamma Οο Omicron
Δδ Delta Ππ Pi
Εε Epsilon Ρρ Rho
Ζζ Zeta Σσς Sigma
Ηη Eta Ττ Tau
Θθ Theta Υυ Upsilon
Ιι Iota Φφ Phi
Κκ Kappa Χχ Chi
Λλ Lambda Ψψ Psi
Μμ Mu Ωω Omega

Copy and paste as desired. Of course you can also copy them from this posting itself.

"high risk means that the standard deviation, σ, is high; low reward means that the mean, µ is low."
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.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by mbasherp » Tue Jun 30, 2020 8:58 pm

I already had one reply in this thread detailing my personal thoughts. I’ll add what I see from the ensuing replies. As I see it:

There is significant confusion between innovation/leaders and superior performing stocks. They do not go hand in hand at all.

There is not enough weight given to the fact that current expectations (not current reality) are priced in 100%. It is a change in expectations that really moves a stock. OP seems to be arguing that current expectations won’t change. They ALWAYS do.

Currency moves and taxation issues have barely been given lip service. That’s a huge oversight.

I buy some argument for US outperformance. That’s why I hold at 67/33. Still underweight market cap, but counting out everything outside of US borders doesn’t pass my smell test.

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There's no M in FAANG!

Post by gr7070 » Tue Jun 30, 2020 9:04 pm

There's no M in FAANG!

Isn't Apple (and Microsoft) a perfect example as to why US dominance, especially when dominated by a handful of companies, is almost certain to change?

Are none of the recency bias champions here unaware of Apple's long and low fall in the 90s prior to its recent meteoric rise? Apple has seen serious, long ups and downs. And I'm not just talking about stock performance

Microsoft is another good and intertwining example. Microsoft was the king of all corporations in the world, of course in the all-important tech industry. It was a dominant monopoly sure to go no where. Except, there's no where to go but down.

While Microsoft hasn't disappeared other companies have far surpassed it. So many of Microsoft's products are an afterthought now even.

There is no M in FAANG.

While these two companies have been surpassed in its histories buy other American corporations I don't think there's anything to suggest it has to be that way (US companies to surpass).

Even if there was reason for it, there is reason to believe other countries could *better* replicate our personal and corporate culture. And there are may be countries like China and others that could have a completely different set of systems and culture that lend it to far exceed what we've built here.

We're unique. Though I don't know if we're any more special than much of the world's population.
Last edited by gr7070 on Tue Jun 30, 2020 9:45 pm, edited 1 time in total.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by HippoSir » Tue Jun 30, 2020 9:11 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
This advantage seems to be increasing, and these companies are just gaining more power, wealth, and marketshare. Perhaps more importantly: the US as a nation is a world-leader in technology, and its advantage as a nation (specifically, of US tech hotspots like Silicon Valley) also seems to be only increasing.
Before the recent events, I did a lot of work overseas and having spent some significant time across Asia (representing a US based tech company), I disagree strongly with this take. In the next decade, China is going to do the same thing in tech they did in manufacturing.

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Re: There's no M in FAANG!

Post by 2pedals » Tue Jun 30, 2020 9:39 pm

I will not conjecture that continued specific conditions for exceptionalism of US FAANG stocks is more probable than more general conditions for the world equity market. I believe this to be a conjunction fallacy.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Wanderingwheelz » Tue Jun 30, 2020 9:49 pm

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
Diversification is the only free lunch in investing.

Why wouldn’t an investor want to reduce his risk while achieving the same returns over the long-haul? A decade in stock investing isn’t a long time. It just isn’t.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Northern Flicker » Tue Jun 30, 2020 10:20 pm

LongTermEtfHolder wrote:
Tue Jun 30, 2020 8:25 pm
vineviz wrote:
Tue Jun 30, 2020 8:09 pm
This is more speculation than argument, no?
No, the fact that US outperformance was driven by top US tech stocks is established in data. It was mentioned in the first page of comments, and I can post some graphs if you don't believe it, but it is a fact easy to prove by looking at VTSAX with those few tech stocks removed.
vineviz means that it is speculation to believe that whatever stocks or sectors have been driving US outperformance will continue to outperform.
Risk is not a guarantor of return.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by physixfan » Tue Jun 30, 2020 10:31 pm

02nz wrote:
Tue Jun 30, 2020 11:22 am
LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.
Somebody pointed this out already, but worth emphasizing: you need to consider the dividends as well, not just share price. An investment in international 9.5 years ago is not in the red, when dividends are considered.

Now to your broader question:

Image
This is an impressive chart, thank you!

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Re: There's no M in FAANG!

Post by petulant » Wed Jul 01, 2020 6:02 am

gr7070 wrote:
Tue Jun 30, 2020 9:04 pm
There's no M in FAANG!

Isn't Apple (and Microsoft) a perfect example as to why US dominance, especially when dominated by a handful of companies, is almost certain to change?

Are none of the recency bias champions here unaware of Apple's long and low fall in the 90s prior to its recent meteoric rise? Apple has seen serious, long ups and downs. And I'm not just talking about stock performance

Microsoft is another good and intertwining example. Microsoft was the king of all corporations in the world, of course in the all-important tech industry. It was a dominant monopoly sure to go no where. Except, there's no where to go but down.

While Microsoft hasn't disappeared other companies have far surpassed it. So many of Microsoft's products are an afterthought now even.

There is no M in FAANG.

While these two companies have been surpassed in its histories buy other American corporations I don't think there's anything to suggest it has to be that way (US companies to surpass).

Even if there was reason for it, there is reason to believe other countries could *better* replicate our personal and corporate culture. And there are may be countries like China and others that could have a completely different set of systems and culture that lend it to far exceed what we've built here.

We're unique. Though I don't know if we're any more special than much of the world's population.
Just for the sake of facts, Microsoft was the largest U.S. company by market cap as of May 31 this year, is successfully transitioning to a SaaS model for Office, is turning Windows into a premier development environment with Linux integration, and has built profitable businesses like Surface hardware, Xbox, and Azure all in the last 15 or so years. Its stock price languished for a few years, but it has performed admirably.

EDIT: To be specific, since the peak of the dotcom bubble in March 2000, Microsoft stock has more than doubled the performance of the S&P 500 on a cumulative return basis.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by andrige » Wed Jul 01, 2020 6:11 am

quadog wrote:
Tue Jun 30, 2020 10:49 am
Ex-U.S. Like getting punched in the face every day for the past decade. No thank you. I’ve allocated <3% of my NW to ex-U.S. over this time period and have no regrets.
The US experienced the exact same thing from March 2000- Febuary 2013 (almost a 13 year period of flat return). I was not a boglehead at the time, but I'm sure some people were questioning their US exposure during this period. The US has been on a complete tear since mid 2009. However, nobody can predict the future and this recent history of performance does not guarantee it will continue.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by whereskyle » Wed Jul 01, 2020 6:15 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 8:38 pm
whereskyle wrote:
Tue Jun 30, 2020 8:10 pm
Investors are already paying so much, as much as $100, for $1 of these companies' earnings. At a certain point, investors will stop paying a price that can never be recouped and the price-earnings ratio will come down.
That's a solid argument, actually. I basically asked "how would ex-US grow companies that surpass the substantial tech advantage of the US (or even just Silicon Valley)?", and you answered: "for you, as an investor, they don't have to in order to be a good buy - because the top US tech stocks (and arguably, the entire US stock market) is currently overpriced according to metrics like P/E ratio".

My only counterargument is that if the next FAANG are also US based (like all the current ones), then they will capture the value when FAANG decline. So basically, the next dominant tech megacaps will be also US-based, and we as investors can capture their value by investing in VTSAX, not VTIAX.
I think Amazon is a great and reliable business, but its core business, delivering products quickly, is not all that profitable.
I'm in technology myself, so as an aside: most of Amazon's profits come from technology-products, specifically AWS. AWS accounted for 77% of Amazon's total operating profit for the last quarter. Their retail business is high revenue but low-margin.
It's betting on the same pie-in-the-sky, no existing market, huge risk endeavors as Alphabet.
Amazon is a pretty practical company and if they have any moonshot projects at all (I'm not aware of any) they're not remotely as numerous or expensive as Alphabet's.

To me, the key question remains "what could threaten the US dominance in technology", since that dominance is the reason for its recent and future outperformance. One possible answer is perhaps other countries achieving monumental improvements in their technology industries, though the US has been able to only widen its advantage for over almost two decades now.
I share your skepticism of ex-US stocks, but that doesn't mean I can sleep by betting everything on the US. The way that I am currently invested to reflect my cautious US bullishness is: 50% VTSAX and 50% VTWAX. If you are not locked into a 100% US mindset (why would you post this thread if you didn't have at least some doubt?), maybe consider a similar approach. That way, if US does extremely well, you're not locked into an ex-us allocation that makes you nauseous, and your ex-us allocation will shrink. Even if VTSAX turns out to be a better investment, buying VTWAX to me always feels right.

As for what could threaten the US dominance in technology, I'm sure that people felt similarly about the model T Ford and GE's lightbulb. The game that I'm not willing to play is betting that Honda and Toyota won't arrive until after I'm done investing. Ford trades today for $6. GE a similar price. These are US technology companies that could never be beat. Add to this the fact that technological developments proceed today much more rapidly. One wrinkle in an idea and boom, an apparently slight variation on instagram/snapchat leads to TikTok, owned by ByteDance, a Chinese company valued at around $80bn, which makes it one of the most valuable startups in the world. Some consider it an "investment unicorn" because of the young user base. There will be more TikToks going forward, not less, if you ask me.

I think the truth is that you are focusing on the past and not the future. I believe this because you don't know what the future is, but you do know the past, and the past is what supports your view, not the future. I think it is important for you as an investor to remember that.

As always, I think deep down that Jack is right: US investors don't absolutely need to hold ex-us stocks. But Jack's head isn't the one that has to sleep on my pillow every night. Mine does.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by bogledogle87 » Wed Jul 01, 2020 6:55 am

McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?

I know that International has outperformed U.S. for periods of time, but my understanding is that the outperformance has been modest at best.

If that's the case, why bother with owning International?
I just flipped a coin 5 times and landed on heads each time. Why would I ever bother calling tails again?
VTWAX and chill

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by bogledogle87 » Wed Jul 01, 2020 7:06 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 1:45 pm
If the US suffers a significant downturn, most of these ex-US companies VTIAX holds will also lose much value.
This is no surprise with an ever globalizing economy. Investors often cite increasing correlation as a reason to forgo certain stocks, or in this case - all other countries, but I believe this idea is very shortsighted. Correlation only measures direction, not magnitude. There can exist massive disparity in outcome with little change in correlation, as we have seen over the last 10 years. The next 10 years could swing the other way, which I why I believe international diversification is still valid.

I believe that citing an increase correlation along with the recent lagging returns of ex-US is a confirmation bias trap that has convinced many investors to ditch a very worthy asset at the worst time.

If you want low or negative correlation, there are separate asset classes for that. (REIT's, Gold, LT Treasuries)
VTWAX and chill

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by bogledogle87 » Wed Jul 01, 2020 7:23 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm

My argument is that the outperformance of US stocks is driven by an advantage in tech megacaps. This advantage seems to be increasing, and these companies are just gaining more power, wealth, and marketshare. Perhaps more importantly: the US as a nation is a world-leader in technology, and its advantage as a nation (specifically, of US tech hotspots like Silicon Valley) also seems to be only increasing.

These are the factors that drove the US's unique outperformance of the past decade, and for this outperformance to end in our time, those factors must change substantially.

I'm not necessarily seeking a confirmation, but I am seeking what I asked for: a plausible scenario to explain how the US and US-based megacaps may lose their current global dominance.
The best I can come up with is that everyone already knows this about US, US Tech, and Silicon Valley companies. This information along with future expectations explains today's prices. I would argue that what you have stated tech companies may not lead to continued out-performance - it is a better explanation for what has happened, not what will. If investor's expectations are premature, we end up with high prices, impressive recent performance, and an increase chance of lower future performance.

Kenneth French frequently points out the Realized Returns = Expected + Unexpected Returns. Current and trailing P/E & P/B ratios can help us model the expected component, but the unexpected can often trounce the expected by a wide margin, as we have seen with US Tech Mega Cap. We already know that Ex-US high a higher fundamental expected 10 year return looking ahead by all available metrics.

So the only question that matters here is: What do all the investors in aggregate not know right now that will explain future unexpected returns in hindsight?

Since this question is nearly impossible to answer, there is no use in pretending I can. This leads me to VTWAX as the most fundamentally sound starting point for equity allocations.
VTWAX and chill

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by packer16 » Wed Jul 01, 2020 7:54 am

vineviz wrote:
Tue Jun 30, 2020 4:54 pm
McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?
Yes.

From 2010 to 2019, ex-US stocks underperformed US stocks by an average of 7.15% per year.

From 1965 to 1974, ex-US stocks outperformed US stocks by an average of 7.24% per year.

It's really striking just how extraordinary the past decade has been for US stocks. US stocks outperformed ex-US stocks in 8/10 (80%) of the most recent calendar years. For the five decades before that, US stocks outperformed ex-US stocks only 44% of the time.

Flipping a coin ten times and getting "heads" on eight of those flips might be noteworthy, but anyone using that streak as a justification for betting their life savings on the streak persisting would be making a very fundamental error in probabilistic thinking.
The coin flipping exercise assumes that the main difference between the US & Int'l is location and industry mix has been roughly the same. Industry mix today in the US is 10% greater than exUS so investing international is betting against technology (probably an unintentional consequence of exUS index composition).

Packer
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Re: There's no M in FAANG!

Post by asif408 » Wed Jul 01, 2020 8:03 am

petulant wrote:
Wed Jul 01, 2020 6:02 am
EDIT: To be specific, since the peak of the dotcom bubble in March 2000, Microsoft stock has more than doubled the performance of the S&P 500 on a cumulative return basis.
One notable fact not mentioned is that all of that outperformance has come in the last 2 years. It trailed from 2000 until mid-2018, and fell twice as much as the S&P during the tech bubble crash. If you invested in Microsoft for the 13 year period from 2000-2013, you had half the money the S&P made.

Wonder how many investors gave up after a decade and a half of underperformance?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Wed Jul 01, 2020 8:06 am

andrige wrote:
Wed Jul 01, 2020 6:11 am
quadog wrote:
Tue Jun 30, 2020 10:49 am
Ex-U.S. Like getting punched in the face every day for the past decade. No thank you. I’ve allocated <3% of my NW to ex-U.S. over this time period and have no regrets.
The US experienced the exact same thing from March 2000- Febuary 2013 (almost a 13 year period of flat return). I was not a boglehead at the time, but I'm sure some people were questioning their US exposure during this period. The US has been on a complete tear since mid 2009. However, nobody can predict the future and this recent history of performance does not guarantee it will continue.
You don't have to guess, just search the boards here for the 2007-2011 period and the old Diehards forum on Morningstar. It's pretty apparent a lot of things disappear in life, but performance chasing in not one of them. There was even a poll in the late 2000s (when polls were still allowed here) that showed a significant increase in international allocations. Since we are not allowed to do polls, I can guess just anecdotally it appears the opposite is happening in the last few years.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by grayfox » Wed Jul 01, 2020 8:53 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.

Ex-US returns have been simply abysmal for the past decade.

Vanguard officially recommends allocating 40% of your stock holdings to ex-US. That is, Vanguard recommends you hold VTIAX almost on par with VTSAX.

How does this recommendation make sense if ex-US investments simply fail to perform?

Perhaps there are long-standing factors that simply prevent ex-US from rewarding investors on par with US equities?

For example, perhaps investor protections in the US are better than foreign?

One cannot help but think that when the top holding of VTIAX is Alibaba [political comment removed by admin LadyGeek]

With 2 of these mega-caps among its top 3 holdings, VTIAX seems very risky, so where's the commensurate return for investors willing to shoulder this risk?

VTIAX appears to be a high-risk, low-return investment, so why does Vanguard currently recommend allocating 40% to it?

Perhaps Jack Bogle, famously reluctant to recommend ex-US investments, was more correct than present-day Vanguard's official recommendation?
You are looking at the aggregate Ex-Us. Sure, it has done terrible over many periods.

But not every country did poorly. I looked at the performance over the 24-year period from 1996-2019. I chose 1996 as the start because that's when many of the iShares country-specific funds started.

Canada, U.S., Mexico, Australia, Switzerland, Sweden, and Spain all did well during that period beating inflation, intermediate-term bond funds, long-term Treasuries and Gold.
France, Germany, and Vanguard Europe were only a little further behind. All of these countries stock markets have lower valuations today than the S&P 500.

It was on the Pacific rim where all the problems were: Japan, Malaysia, Singapore, and Vanguard Pacific did not even beat U.S. CPI-U inflation. These countries' stock markets were definitely broken during that time. It makes me believe that they had structural problems of some kind. Are they fixed now? You would have to prove that to me. Italy was also not so great either, returning less than Total Bond Market.

:idea: Some countries just can't seem to get their act together when it comes to stock market. But other countries have stock markets that function fine.
Sic transit gloria mundi. [STGM]

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by bogledogle87 » Wed Jul 01, 2020 9:25 am

packer16 wrote:
Wed Jul 01, 2020 7:54 am
vineviz wrote:
Tue Jun 30, 2020 4:54 pm
McGilicutty wrote:
Tue Jun 30, 2020 11:14 am
Has International ever outperformed U.S. to the massive extent that U.S. has outperformed International over the last 10 years?
Yes.

From 2010 to 2019, ex-US stocks underperformed US stocks by an average of 7.15% per year.

From 1965 to 1974, ex-US stocks outperformed US stocks by an average of 7.24% per year.

It's really striking just how extraordinary the past decade has been for US stocks. US stocks outperformed ex-US stocks in 8/10 (80%) of the most recent calendar years. For the five decades before that, US stocks outperformed ex-US stocks only 44% of the time.

Flipping a coin ten times and getting "heads" on eight of those flips might be noteworthy, but anyone using that streak as a justification for betting their life savings on the streak persisting would be making a very fundamental error in probabilistic thinking.
The coin flipping exercise assumes that the main difference between the US & Int'l is location and industry mix has been roughly the same. Industry mix today in the US is 10% greater than exUS so investing international is betting against technology (probably an unintentional consequence of exUS index composition).

Packer
US is only 22% Technology - does that mean VTSAX is betting 78% against technology as well? That's a bigger bet on US Ex-Technology than 70% US / 30% Ex-Us would be on geography.

If anything, this point may expose how a single sector in the largest cap country can skew the entire conversation. Would be curious to see how US ex-technology performs against the rest of the world historically.
VTWAX and chill

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Wed Jul 01, 2020 9:27 am

packer16 wrote:
Wed Jul 01, 2020 7:54 am
The coin flipping exercise assumes that the main difference between the US & Int'l is location and industry mix has been roughly the same. Industry mix today in the US is 10% greater than exUS so investing international is betting against technology
Exactly. Ex-US is firmly lagging the US in technology, so for ex-US to surpass US, one of two things must happen:

1. Technology as a sector should decline from its position as a dominant growth driver. I don't think anyone sees that happening, in fact it's the opposite is happening.
2. Ex-US has to catch up with US somehow in technology.

I think technology is a unique sector in that it takes over other sectors and makes them more efficient and profitable. For example, Amazon grabbed a lot of business from the retail sector, and Netflix did the same for media.

So I could make the argument that the US (really, tech's) outperformance of the past decade wasn't a one-off quirk, but a harbinger of a longer period of sustainable tech dominance. So we're not going to see the usual cyclical flips we see in the US/Ex-US graph that was posted here.

The main counterargument I've seen so far in the thread is that tech is already priced for a long-dominance, which is why Amazon for example has a P/E of 128.06.
(probably an unintentional consequence of exUS index composition).
Why do you consider it "unintentional"? The US right now has a very solid advantage in tech, so it seems any US vs Ex-US comparison would reflect that difference. FAANGM and all the other promising top-tech companies are all in the US, Silicon Valley is in the US, the most effective tech startup pipeline is in the US, etc.
Last edited by LongTermEtfHolder on Wed Jul 01, 2020 9:33 am, edited 2 times in total.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by cheezit » Wed Jul 01, 2020 9:28 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 8:38 pm
To me, the key question remains "what could threaten the US dominance in technology", since that dominance is the reason for its recent and future outperformance. One possible answer is perhaps other countries achieving monumental improvements in their technology industries, though the US has been able to only widen its advantage for over almost two decades now.
The EU has gotten pretty good at slapping percentage-of-global-revenue fines on US tech megacaps. Without commenting on the motivations for this, they may get even better in the future, to the point where they can force US tech megacaps to leave the EU market or break up.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Wed Jul 01, 2020 9:52 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 8:38 pm
To me, the key question remains "what could threaten the US dominance in technology", since that dominance is the reason for its recent and future outperformance.
If you're asking yourself this question, my suggestion is to read history and ask yourself "Did a majority of people have a similar view of a country or sector in the past, and how did things turn out?". You'll find your view is not unique today or in any historical context. Railroads were the largest sector in the late 1800s early 1900s. You can find many anecdotes through newspaper articles and behavior that indicate many thought "what could threaten railroads?" until the automobile and airplane came along. In the 1970s gold and oil were surging with inflation. Search for articles about gold and oil from the 1970s and you'll find the mentality for many was likely "what's going to stop the rise in oil and gold?". You only need to back to last decade and remember the performance of Brazil, Russia, India, & China (there are plenty of articles and anecdotes from that time) that suggest the mentality of many at that time is "What will stop the BRICs?"

You are asking what will the future look like, yours is a view that the world today will continue its current path of low inflation, low interest rates, technology and healthcare dominance, and growth over value. History shows that can happen on occasion (Japan did beat the US and most markets for 4 straight decades from the 1950s through the 1980s), but more likely some other sector or country will dominate the next decade, and over the next couple of decades its almost an inevitability. A humble view is "I'm not sure which sectors or countries, so let's diversify just in case". The potential negative consequences of concentrating your wealth in one sector or one country are much higher than being diversified and spreading your eggs in several baskets.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Laurizas » Wed Jul 01, 2020 10:13 am

asif408 wrote:
Wed Jul 01, 2020 8:06 am
There was even a poll in the late 2000s (when polls were still allowed here).
Why polls are not allowed anymore?

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by asif408 » Wed Jul 01, 2020 10:17 am

Laurizas wrote:
Wed Jul 01, 2020 10:13 am
asif408 wrote:
Wed Jul 01, 2020 8:06 am
There was even a poll in the late 2000s (when polls were still allowed here).
Why polls are not allowed anymore?
Here is the explanation: viewtopic.php?t=164952

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by muffins14 » Wed Jul 01, 2020 10:32 am

It seems odd to me to proclaim that US tech will forever be dominant at the same time as the best talent may be seeking work elsewhere for several reasons
a) existing legislation makes it more difficult for the best talent to get visas to work at these companies
b) existing healthcare crises make the a US more uncertain place to move to for healthcare
c) existing civil rights crises make the US a less desirable place to live for foreigners

Not that all of those are affecting all candidates, but at the margin it will have an impact

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Wed Jul 01, 2020 10:36 am

asif408 wrote:
Wed Jul 01, 2020 9:52 am
Railroads were the largest sector in the late 1800s early 1900s. You can find many anecdotes through newspaper articles and behavior that indicate many thought "what could threaten railroads?" until the automobile and airplane came along.
Notice that these are all cases of dominant technology replaced by new, superior technology.

However, now we have companies whose business is coming up with these new, superior technologies.

For example, Alphabet became dominant in many futuristic technologies like self-driving. If self-driving is the next big value, Alphabet will capture much of that value.

It's the equivalent of the dominant railroad company seamlessly attaining dominance in automobiles and airplanes too.

I'm not suggesting this dominance will never break, but it's entirely possible it will not break over the next say 3-4 decades. As you pointed out, such has already happened, for example with Japan in the last century. For my investment horizon, if the US is going to outperform for the next 3-4 decades, then I should invest heavily in the US.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Wed Jul 01, 2020 10:42 am

muffins14 wrote:
Wed Jul 01, 2020 10:32 am
It seems odd to me to proclaim that US tech will forever be dominant at the same time as the best talent may be seeking work elsewhere for several reasons
I work in technology, and can tell you the vast majority of tech workers on the planet are hoping to move to the US.

The pay and benefits that US jobs offer is much better, often massively better, than anywhere else. It's not rare to see a pay gap of x4 or more.

You mentioned healthcare, so consider that a tech worker will have a great plan from their employer (if they work for FAANG) which will easily beat most public plans anywhere else.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by apex84 » Wed Jul 01, 2020 10:45 am

If you generalize this line of thought, instead of focusing on the tech companies and the US, I don't think it's a sound basis for investing decisions. Saying that these stocks have done well and are located in one place, that this is evidence of a unique environment in that place, and that these trends are destined to continue encompasses a lot of assumptions about both the past and the future.

The known risks to US business and tech outperformance should be reflected in the current price. The same is true of the challenges that ex-US businesses face.

Index investing with broad diversification is a strategy that frees one from the need to make forecasts. The investment opportunity set is not limited to the US and neither is our portfolio. We are fully aware that, with the benefit of hindsight, our portfolio would have had a higher return in the last decade without a significant portion of ex-US stocks (increasing from about 33% to 40% during the last 10 years).

Maybe the US and tech companies will dominate in the next decade, but the past performance doesn't hold the answer to what will happen. Given geopolitical, tax, regulatory, environmental, societal, and consumer preference changes over time, how can one know what will happen?

How many people will use Facebook and Instagram for $2.99/month if the ability to collect data and monetize it is severely restricted? What will this do to their advertising model? What are the barriers to entry to compete with AWS? What will happen with warehouse, data center, and energy infrastructure over time? Will there be a push to break up monopolies? Will there be greater restrictions on the Internet due to governmental changes, both within borders and across borders?

It doesn't take a big change to really affect how these companies perform when they're priced for perfection. Owning a meaningful position in all stocks means we don't have to predict what will do better or worse.
LongTermEtfHolder wrote:
Wed Jul 01, 2020 9:27 am
Exactly. Ex-US is firmly lagging the US in technology, so for ex-US to surpass US, one of two things must happen:

1. Technology as a sector should decline from its position as a dominant growth driver. I don't think anyone sees that happening, in fact it's the opposite is happening.
2. Ex-US has to catch up with US somehow in technology.

I think technology is a unique sector in that it takes over other sectors and makes them more efficient and profitable. For example, Amazon grabbed a lot of business from the retail sector, and Netflix did the same for media.

So I could make the argument that the US (really, tech's) outperformance of the past decade wasn't a one-off quirk, but a harbinger of a longer period of sustainable tech dominance. So we're not going to see the usual cyclical flips we see in the US/Ex-US graph that was posted here.

The main counterargument I've seen so far in the thread is that tech is already priced for a long-dominance, which is why Amazon for example has a P/E of 128.06.

Why do you consider it "unintentional"? The US right now has a very solid advantage in tech, so it seems any US vs Ex-US comparison would reflect that difference. FAANGM and all the other promising top-tech companies are all in the US, Silicon Valley is in the US, the most effective tech startup pipeline is in the US, etc.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Wed Jul 01, 2020 10:53 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 7:16 pm
Obviously nothing is forever, but if we can't envision such a scenario happening within our lifetime, then that should affect our investing strategy.
OP, reflecting on this sentence again as I read your latest posts, one word comes to my mind: myopia. You work and live tech, you're so immersed in it that it's difficult to envision scenarios where companies, technologies, or trends are displaced, or the U.S. dominance of the sector diminished. That's not a knock against you, it's very human. But I think you'd do well to expand that vision, maybe by reading up on history.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Wayson » Wed Jul 01, 2020 10:57 am

I made the choice a few months ago - after 7+ years of holding VXUS and watching as it went nowhere - to divest from it and go 100% US. I had been maintaining 20% of equities as an allocation to international, but the continued underperformance convinced me that over a reasonable timeframe it didn't make sense to keep holding it. I have every confidence that in the extreme long term, international may indeed revert to performance that approximates or exceeds US-only. However, as Keynes said, "this long run is a misleading guide to current affairs. In the long run we are all dead." I cannot afford to wait, 20, 30, 40 years for an investment to cease stagnating. I require a reasonable rate of return annually in order to meet my target retirement numbers.

Holding international blindly in the expectation that, after a decade of near-zero movement, it will suddenly surge in performance and compensate holders for that missed decade.... that was a leap of faith that I wasn't willing to continue making. I understand the 'buy the haystack' perspective, but after a certain point it seems like diversification for diversification's sake. Others may disagree, but ultimately we must all act as we feel best. :beer

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Schlabba » Wed Jul 01, 2020 11:00 am

LongTermEtfHolder wrote:
Wed Jul 01, 2020 10:36 am
asif408 wrote:
Wed Jul 01, 2020 9:52 am
Railroads were the largest sector in the late 1800s early 1900s. You can find many anecdotes through newspaper articles and behavior that indicate many thought "what could threaten railroads?" until the automobile and airplane came along.
Notice that these are all cases of dominant technology replaced by new, superior technology.

However, now we have companies whose business is coming up with these new, superior technologies.

For example, Alphabet became dominant in many futuristic technologies like self-driving. If self-driving is the next big value, Alphabet will capture much of that value.

It's the equivalent of the dominant railroad company seamlessly attaining dominance in automobiles and airplanes too.

I'm not suggesting this dominance will never break, but it's entirely possible it will not break over the next say 3-4 decades. As you pointed out, such has already happened, for example with Japan in the last century. For my investment horizon, if the US is going to outperform for the next 3-4 decades, then I should invest heavily in the US.
If this is what you believe just give up on international. Case closed.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Wed Jul 01, 2020 11:05 am

Wayson wrote:
Wed Jul 01, 2020 10:57 am
I made the choice a few months ago - after 7+ years of holding VXUS and watching as it went nowhere - to divest from it and go 100% US. I had been maintaining 20% of equities as an allocation to international, but the continued underperformance convinced me that over a reasonable timeframe it didn't make sense to keep holding it. I have every confidence that in the extreme long term, international may indeed revert to performance that approximates or exceeds US-only. However, as Keynes said, "this long run is a misleading guide to current affairs. In the long run we are all dead." I cannot afford to wait, 20, 30, 40 years for an investment to cease stagnating. I require a reasonable rate of return annually in order to meet my target retirement numbers.

Holding international blindly in the expectation that, after a decade of near-zero movement, it will suddenly surge in performance and compensate holders for that missed decade.... that was a leap of faith that I wasn't willing to continue making. I understand the 'buy the haystack' perspective, but after a certain point it seems like diversification for diversification's sake. Others may disagree, but ultimately we must all act as we feel best. :beer
So in 2009, the same you would have looked back at a lost decade for U.S. stocks (negative nominal returns, actually much worse than international stocks did over the past decade - positive returns even after inflation), and said the same thing and thrown in the towel on U.S. stocks?
Last edited by 02nz on Wed Jul 01, 2020 11:10 am, edited 2 times in total.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by LongTermEtfHolder » Wed Jul 01, 2020 11:06 am

02nz wrote:
Wed Jul 01, 2020 10:53 am
You work and live tech, you're so immersed in it that it's difficult to envision scenarios where companies, technologies, or trends are displaced, or the U.S. dominance of the sector diminished.
I agree I might be susceptible to that, which is why I asked for dissenting opinions, specifically a plausible scenario for how the US tech dominance may decline.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by whereskyle » Wed Jul 01, 2020 11:08 am

LongTermEtfHolder wrote:
Wed Jul 01, 2020 10:42 am
muffins14 wrote:
Wed Jul 01, 2020 10:32 am
It seems odd to me to proclaim that US tech will forever be dominant at the same time as the best talent may be seeking work elsewhere for several reasons
I work in technology, and can tell you the vast majority of tech workers on the planet are hoping to move to the US.

The pay and benefits that US jobs offer is much better, often massively better, than anywhere else. It's not rare to see a pay gap of x4 or more.

You mentioned healthcare, so consider that a tech worker will have a great plan from their employer (if they work for FAANG) which will easily beat most public plans anywhere else.
The key that I am unsure if you are grasping (even as you recognize the merit of my point that Amazon and others are trading at ridiculous prices that their investors can almost certainly never recoup) is that the market knows everything you know about Alphabet's how-many-years-from-now self-driving car, and that is why the price is so high now. There is no possible way that Alphabet's price is based on what investors are expecting Alphabet to pass along to them in the form of earnings or dividends in the next 1, 2, 3, 4, 5, or even 10 years. The only way these valuations make any sense is if investors have priced in exactly what you are already thinking: decades of global dominance for these firms. And what you as a present-day investor in these companies would need to think in order to expect that you will earn sizable returns from a present-day investment is that the market's present-day, long-term predictions are seriously UNDERestimating the already priced-in mammoth, long-term future success of these companies. Basically, you need to expect that the market will eventually pay $200 for $1 of Amazon's earnings (even if that were to happen, your return if you purchased the stock today would be good, but it would be pennies compared to what you would have earned by buying Amazon way back in 1997). I think you are driving in the rear-view mirror and you are underestimating the fact that the price of these companies now is based on everything you believe about the future. In order for the price to go up, the market's ridiculously rosy picture for these companies would need to get even rosier, and rosier, and rosier.

My honest opinion is this: you and a whole lot of other investors are building castles in the air. In every historical event where this has happened, the latest investors to the party are the ones who get burned the most. And, as you recognize the significance of the tech megacaps in the US market, you should know that when the air no longer supports those castles, the whole U.S. market will hurt big time. It might be good to be holding some ex-us stocks when that inevitably happens.
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by 02nz » Wed Jul 01, 2020 11:09 am

LongTermEtfHolder wrote:
Wed Jul 01, 2020 11:06 am
02nz wrote:
Wed Jul 01, 2020 10:53 am
You work and live tech, you're so immersed in it that it's difficult to envision scenarios where companies, technologies, or trends are displaced, or the U.S. dominance of the sector diminished.
I agree I might be susceptible to that, which is why I asked for dissenting opinions, specifically a plausible scenario for how the US tech dominance may decline.
I can think of several right off the top of my head, every single one (and probably most scenarios people would come up with) would be off limits on this forum.

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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by Schlabba » Wed Jul 01, 2020 11:15 am

02nz wrote:
Wed Jul 01, 2020 11:09 am
LongTermEtfHolder wrote:
Wed Jul 01, 2020 11:06 am
02nz wrote:
Wed Jul 01, 2020 10:53 am
You work and live tech, you're so immersed in it that it's difficult to envision scenarios where companies, technologies, or trends are displaced, or the U.S. dominance of the sector diminished.
I agree I might be susceptible to that, which is why I asked for dissenting opinions, specifically a plausible scenario for how the US tech dominance may decline.
I can think of several right off the top of my head, every single one (and probably most scenarios people would come up with) would be off limits on this forum.
Instead of focussing on the negative things that might happen to US tech we can also focus on the positive abroad.
China has the ‘sillicon valley of hardware’ in shenzen. China already produced Alibaba and Tencent and they are soon the biggest economy in the world.
In 2050 (because OP is talking about 4 decades into the future) maybe the EU will be a United States of Europe and we’ll finally have a level playing field.

So much can change in 4 decades, just think of the world in 1980. Would you have betted on anything for 2020 back then? If so, what would your bet have been? Certainly not FAANG because they didn’t exist.

The stock market returns in 2050 might come from companies that haven’t even been founded yet. Perhaps by people who aren’t even born yet.
Secretly a dividend investor. Feel free to ask why.

aristotelian
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by aristotelian » Wed Jul 01, 2020 11:22 am

Not just US but particularly US Large Growth has outperformed. I wonder if International is basically all Value right now. At some point US Large Growth will underperform and perhaps you will see International come back as well as US Value. US Large Growth is *up* this year while both International and US Value are down. Crystal ball is cloudy.
Last edited by aristotelian on Wed Jul 01, 2020 11:27 am, edited 1 time in total.

apex84
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by apex84 » Wed Jul 01, 2020 11:23 am

Schlabba wrote:
Wed Jul 01, 2020 11:15 am
So much can change in 4 decades, just think of the world in 1980. Would you have betted on anything for 2020 back then? If so, what would your bet have been? Certainly not FAANG because they didn’t exist.
From Wikipedia article on the DJIA components. Clearly there is limited value in the present when looking 40 years into the future.
June 29, 1979
Allied Chemical Corporation
Aluminum Company of America
American Can Company
American Telephone and Telegraph Company
American Tobacco Company (B shares)
Bethlehem Steel Corporation
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Foods Corporation
General Motors Corporation
Goodyear Tire and Rubber Company
Inco Limited
International Business Machines Corporation
International Harvester Company
International Paper Company
Johns-Manville Corporation
Merck & Co., Inc.
Minnesota Mining & Manufacturing Company
Owens-Illinois, Inc.
The Procter & Gamble Company
Sears Roebuck & Company
Standard Oil Co. of California
Texaco Incorporated
Union Carbide Corporation
United States Steel Corporation
United Technologies Corporation
Westinghouse Electric Corporation
F. W. Woolworth Company

reln
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by reln » Wed Jul 01, 2020 11:23 am

LongTermEtfHolder wrote:
Tue Jun 30, 2020 10:24 am
As I write this post, Vanguard's total-market ex-US fund VTIAX/VXUS is trading below its price of 9.5 years ago.

In the same timeframe, Vanguard's total US market VTSAX/VTI nearly tripled in price, even after the recent hit of COVID-19.

Ex-US returns have been simply abysmal for the past decade.

Vanguard officially recommends allocating 40% of your stock holdings to ex-US. That is, Vanguard recommends you hold VTIAX almost on par with VTSAX.

How does this recommendation make sense if ex-US investments simply fail to perform?

Perhaps there are long-standing factors that simply prevent ex-US from rewarding investors on par with US equities?

For example, perhaps investor protections in the US are better than foreign?

One cannot help but think that when the top holding of VTIAX is Alibaba [political comment removed by admin LadyGeek]

With 2 of these mega-caps among its top 3 holdings, VTIAX seems very risky, so where's the commensurate return for investors willing to shoulder this risk?

VTIAX appears to be a high-risk, low-return investment, so why does Vanguard currently recommend allocating 40% to it?

Perhaps Jack Bogle, famously reluctant to recommend ex-US investments, was more correct than present-day Vanguard's official recommendation?
Probably yes, maybe not.

It is also possible that stocks as a whole never beat TBills again.

These are the investment risks investors should be willing to accept before investing in stocks (US and exUS).

Similar with those tilting to small, value, profitablility, quality, duration, credit, etc.

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gr7070
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Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Post by gr7070 » Wed Jul 01, 2020 11:25 am

FAANGM
Is that M for My Space?

; )

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