'Might Jack Bogle Be Wrong for a Change?' [Int'l holdings]

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'Might Jack Bogle Be Wrong for a Change?' [Int'l holdings]

Post by Index Fan » Wed Dec 10, 2014 5:30 pm

Might Vanguard Founder Jack Bogle Be Wrong for a Change?
Is the father of index investing a market xenophobe? And is Ray Dalio’s “all-weather portfolio” all wet? (Barron's)


http://online.barrons.com/articles/migh ... 1418168114
“A portfolio that was 50% U.S. stocks, 25% developed international and 25% emerging markets generated an annual return of 14% over this period with a standard deviation of 19.8. A pure U.S. portfolio generated a 12% return with a standard deviation of 17.9. You not only generated a better nominal return by adding emerging markets, but you improved your risk adjusted returns as well. Over this 40 year period the equity portfolio with a 25% slice of emerging markets more than doubles the total portfolio balance of the pure U.S.”

Roche also points out that Bogle’s decision to shun non-U.S. investing is somewhat ironic for one of the world’s most famous proponents of passive investing. “Bogle is obviously making a pretty active decision here by choosing only to invest in 50% of the world’s stock markets,” he adds.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by nisiprius » Wed Dec 10, 2014 5:38 pm

“If we look at the last 40 years since emerging markets started to become substantial components of the Global Financial Asset Portfolio it becomes clear that Bogle is wrong and not by a small margin..."
This statement is questionable on the face of it because

--the the first Emerging Markets index wasn't created until 1988 which is only 26 years ago, and according to that same source

--"In 1988, there were just 10 countries in the MSCI Emerging Markets Index, representing less than 1% of world market cap."

So how is he talking about "forty years since emerging markets started to become substantial components of the Global FInancial Asset Portfolio" when even 26 years ago they were less than 1%?

Is this some kind of fantasy football back-tested index that didn't exist at the beginning of the time period over which it is said to have outperformed?

What is the "Global Financial Asset Portfolio" and when was it first described in writing?
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Phineas J. Whoopee » Wed Dec 10, 2014 5:41 pm

Index Fan wrote:Might Vanguard Founder Jack Bogle Be Wrong for a Change?
Is the father of index investing a market xenophobe? And is Ray Dalio’s “all-weather portfolio” all wet? (Barron's)

...
It appears Barron's is complying with Betteridge's Law of Headlines.
PJW
Last edited by Phineas J. Whoopee on Wed Dec 10, 2014 5:43 pm, edited 1 time in total.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by staythecourse » Wed Dec 10, 2014 5:42 pm

Index Fan wrote:Roche also points out that Bogle’s decision to shun non-U.S. investing is somewhat ironic for one of the world’s most famous proponents of passive investing. “Bogle is obviously making a pretty active decision here by choosing only to invest in 50% of the world’s stock markets,” he adds.
Finally, someone points out the irony of this.

Now that being said I have and will always say nothing wrong with not being market weight as no one is anyways.

Also, can't use data mining to make a point especially since there were not investable ways to do this 40 yrs. ago. Now the point should be there are times it helps and times it hurts and since we can't predict when either will happen or when that is why we diversify as much as possible IN ADVANCE.

Good luck.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by cfs » Wed Dec 10, 2014 6:15 pm

No need to defend him.

No need to defend Mister Bogle, he can whip all these guys blindfolded.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Throckmorton » Wed Dec 10, 2014 6:34 pm

Vanguard Trustee's co-mingled International. Ok but my heavy lifter since 1977 turned out to be Bogle's Folly in my 401k. Mainly during working years invested steadily rain or shine.

Now Target Retirement is not 'pure' Bogle but I'm happy and I hope he doesn't disapprove too much.

:D

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by BogleRulez » Wed Dec 10, 2014 6:37 pm

Phineas J. Whoopee wrote:
Index Fan wrote:Might Vanguard Founder Jack Bogle Be Wrong for a Change?
Is the father of index investing a market xenophobe? And is Ray Dalio’s “all-weather portfolio” all wet? (Barron's)

...
It appears Barron's is complying with Betteridge's Law of Headlines.
PJW
I hadn't heard of this law, but I love it! So true! Thank you, PJW.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by DrChronzworth » Wed Dec 10, 2014 6:50 pm

......
Last edited by DrChronzworth on Wed Sep 14, 2016 8:20 pm, edited 1 time in total.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by EarlyStart » Wed Dec 10, 2014 7:16 pm

Bogle says ALL THE TIME, "I could be wrong about this."


I think his fans probably get more defensive about him being accused of being "wrong" than he does.

A huge part of the entire indexing strategy is predicated on not having to be "right" constantly- and still expect a return.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by digit8 » Wed Dec 10, 2014 7:22 pm

“A portfolio that was 50% U.S. stocks, 25% developed international and 25% emerging markets generated an annual return of 14% over this period with a standard deviation of 19.8. A pure U.S. portfolio generated a 12% return with a standard deviation of 17.9. You not only generated a better nominal return by adding emerging markets, but you improved your risk adjusted returns as well.
I don't see why these numbers would be the slightest bit convincing to the anti-international crowd.
If I'm being a good Boglehead and socking away as much as I can, is a 2% reduction/year average in returns really going to crater my retirement?
If I'm not, is a 2% increase/year average really going to save it?
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by EarlyStart » Wed Dec 10, 2014 7:46 pm

digit8 wrote:
“A portfolio that was 50% U.S. stocks, 25% developed international and 25% emerging markets generated an annual return of 14% over this period with a standard deviation of 19.8. A pure U.S. portfolio generated a 12% return with a standard deviation of 17.9. You not only generated a better nominal return by adding emerging markets, but you improved your risk adjusted returns as well.
I don't see why these numbers would be the slightest bit convincing to the anti-international crowd.
If I'm being a good Boglehead and socking away as much as I can, is a 2% reduction/year average in returns really going to crater my retirement?
If I'm not, is a 2% increase/year average really going to save it?
2% per year compounded can actually be quite a bit.

$1000 contributed per month at 8%/year is $1,468,150 after 30 years. At 10% it would be $2,171,321.

Regardless, the past is the past, and I'd say making the right behavioral decisions is still far more important.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Levett » Wed Dec 10, 2014 7:52 pm

It is fantasy football.

JB has expressed his views. Others have theirs.

Do your own thing and own the consequences, just as JB has done.

This right/wrong stuff is infantile.

Lev

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Wagnerjb » Wed Dec 10, 2014 8:00 pm

digit8 wrote:
“A portfolio that was 50% U.S. stocks, 25% developed international and 25% emerging markets generated an annual return of 14% over this period with a standard deviation of 19.8. A pure U.S. portfolio generated a 12% return with a standard deviation of 17.9. You not only generated a better nominal return by adding emerging markets, but you improved your risk adjusted returns as well.
I don't see why these numbers would be the slightest bit convincing to the anti-international crowd.
If I'm being a good Boglehead and socking away as much as I can, is a 2% reduction/year average in returns really going to crater my retirement?
If I'm not, is a 2% increase/year average really going to save it?
Are you kidding?

A typical Boglehead would walk on hot coals to reduce his ER by 0.25%. He would LOVE to earn 2% more with less risk. If they don't really care about 2%, then they won't care about high ER's either.
Andy

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by nisiprius » Wed Dec 10, 2014 8:05 pm

I asked:
What is the "Global Financial Asset Portfolio" and when was it first described in writing?
DrChronzworth says:
DrChronzworth wrote:I asked him on Twitter and this was his response: ..."It's all data from IFA." http://www.ifa.com/disclosures/index-data/ ...
I looked at that page.

I see no "Global Financial Asset Portfolio" index or anything like it. Do you?

I do see an "IFA Emerging Market Index." The construction of this index is interesting. It is described this way:
Time-Series Construction
January 1928 – December 1969: 50% IFA US Large Value Index and 50% IFA US Small Cap Index
January 1970 – December 1987: 50% IFA Int'l Value and 50% IFA Int'l Small Cap
January 1988 – December 1988: MSCI Emerging Markets Index (gross div.) minus 0.05%/mo (mutual fund exp ratio)
January 1989 – April 1994: Fama/French Emerging Markets Index minus 0.05%/mo (mutual fund exp ratio)
May 1994 – Present: DFA Emerging Markets Portfolio Symbol: DFEMX
I do not see where it has any Emerging Markets data prior to 1988. Do you?

Where do I find data supporting the assertion that 40 years ago, "emerging markets started to become substantial components of the Global Financial Asset Portfolio?" What I seem to see is that 40 years ago (i.e. 1974) emerging markets were not even included in the IFA Emerging Markets Index, let alone the (still not located) "Global Financial Asset Portfolio."

I also asked when the "Global Financial Asset Portfolio" was first described in writing. This is an important point because it is always easy to construct impressive-performing portfolios with the benefit of hindsight. If the "Global Financial Asset Portfolio" is something created by IFA, it is unlikely that it could have been defined forty years ago, because IFA was founded in 1999.
Last edited by nisiprius on Wed Dec 10, 2014 8:23 pm, edited 5 times in total.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Angst » Wed Dec 10, 2014 8:13 pm

BogleRulez wrote:
Phineas J. Whoopee wrote:
Index Fan wrote:Might Vanguard Founder Jack Bogle Be Wrong for a Change?
Is the father of index investing a market xenophobe? And is Ray Dalio’s “all-weather portfolio” all wet? (Barron's)
...
It appears Barron's is complying with Betteridge's Law of Headlines. PJW
I hadn't heard of this law, but I love it! So true! Thank you, PJW.
Me too! This is great:
Wikipedia wrote:
Betteridge's Law of Headlines is an adage that states: "Any headline which ends in a question mark can be answered by the word no." It is named after Ian Betteridge, a British technology journalist, although the general concept is much older. The observation has also been called "Davis' law" or just the "journalistic principle".

Betteridge explained the concept in a February 2009 article, regarding a TechCrunch article with the headline "Did Last.fm Just Hand Over User Listening Data To the RIAA?":
This story is a great demonstration of my maxim that any headline which ends in a question mark can be answered by the word "no." The reason why journalists use that style of headline is that they know the story is probably bullshit, and don’t actually have the sources and facts to back it up, but still want to run it.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by dharrythomas » Wed Dec 10, 2014 8:22 pm

Jack Bogle is right on the facts, it's the application where people disagree.

As I think I understand it, the biggest difference in the returns of US and International is currency fluctuation. (That's why for years the only international fund offered by Tweedy Browne was hedged) Depending on timeframe, the currency risk can cut both ways. Bogle's view appears to be the perfectly reasonable position of not wanting to take currency risk. Others want the expected additional return so add the risk to their portfolio, that seems reasonable. It all depends on the ability and need to take risk.

25% in emerging markets is pretty hefty. I understand the Japan story, I also understand that the drag that I international has had on my nest egg the last several years could last the rest of my lifetime. The phrase is "expected returns", not "guaranteed returns".

Just because I diagree with Jack's position on something, doesn't mean that he's the one who is wrong :shock: !

God Bless him!

Harry

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Epsilon Delta » Wed Dec 10, 2014 8:23 pm

DrChronzworth wrote:I asked him on Twitter and this was his response:
"It's all data from IFA." http://www.ifa.com/disclosures/index-data/
I'd imagine that the John Bogle of 1914 would have said to avoid the USA which was an emerging mkt back then....
The worlds largest economy, with the highest per capita income*, and the deepest financial markets was an emerging market? If that's supposed to be a joke I missed the emoticon. People really should read some history before making ridiculous remarks about 1914.


* Barring the odd micro nation.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by abuss368 » Wed Dec 10, 2014 8:42 pm

How will international bonds factor into this?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by ogd » Wed Dec 10, 2014 8:48 pm

Phineas J. Whoopee wrote:
Index Fan wrote:Might Vanguard Founder Jack Bogle Be Wrong for a Change?
Is the father of index investing a market xenophobe? And is Ray Dalio’s “all-weather portfolio” all wet? (Barron's)

...
It appears Barron's is complying with Betteridge's Law of Headlines.
PJW
I like!

Here's another one, for Mr Dalio himself: thank you, Captain Hindisght!

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by parsi1 » Wed Dec 10, 2014 8:58 pm

sorry for my ignorance but I don't know how to attach a graph here, but by comparing vanguard balanced index fund which is 60/40 (without international) with the life strategy moderate growth (another 60/40 with international), the vanguard balanced fund is a clear winner. That shows me that you don't need any international.
graph VSMGX and Vbinx on yahoo finance for a longest time period possible.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Watty » Wed Dec 10, 2014 10:17 pm

Over this 40 year period the equity portfolio with a 25% slice of emerging markets more than doubles the total portfolio balance of the pure U.S.”

25% of your portfolio in emerging markets? :shock:

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Ketawa » Wed Dec 10, 2014 10:26 pm

parsi1 wrote:sorry for my ignorance but I don't know how to attach a graph here, but by comparing vanguard balanced index fund which is 60/40 (without international) with the life strategy moderate growth (another 60/40 with international), the vanguard balanced fund is a clear winner. That shows me that you don't need any international.
graph VSMGX and Vbinx on yahoo finance for a longest time period possible.
All the LifeStrategy funds used to have a percentage in the Vanguard Asset Allocation Fund until about 3 years ago. This used to be Vanguard's market timing fund. It was able to shift between 100% cash, 100% bonds, 100% equities, and anything inbetween. It had a terrible track record.
Watty wrote:
Over this 40 year period the equity portfolio with a 25% slice of emerging markets more than doubles the total portfolio balance of the pure U.S.”
25% of your portfolio in emerging markets? :shock:
25% of equities for the purpose of comparing to 100% domestic. Still well above market weight.

The article is silly, although I do think Bogle is wrong about international investing.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by digit8 » Wed Dec 10, 2014 11:12 pm

Wagnerjb wrote:A typical Boglehead would walk on hot coals to reduce his ER by 0.25%. He would LOVE to earn 2% more with less risk. If they don't really care about 2%, then they won't care about high ER's either.

Apples and oranges...at any rate my point is not that the difference is inconsequential,but that successful results don't necessarily have to be maximized ones.
Quick and dirty on a cnnmoney.com calculator, I see an investor putting $10k in a tax deferred account for 40 years, adjusted for inflation, becomes around 2.27 million account at 12%, nearly $4 million at 14%. Big difference, of course. But a "mere" $2mil is still financial independence for more people then it's not. Pretending for a moment that the next 40 years matches the last, I look at those results of this article and think the vast majority of people who would lose sleep and gain ulcers if they invested internationally could probably stick to their comfort zone and still manage to both live happily and retire comfortably.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by DrChronzworth » Wed Dec 10, 2014 11:18 pm

Here's where he first defines it:

http://pragcap.com/is-the-global-financ ... g-strategy
nisiprius wrote:I asked:
What is the "Global Financial Asset Portfolio" and when was it first described in writing?
DrChronzworth says:
DrChronzworth wrote:I asked him on Twitter and this was his response: ..."It's all data from IFA." http://www.ifa.com/disclosures/index-data/ ...
I looked at that page.

I see no "Global Financial Asset Portfolio" index or anything like it. Do you?

I do see an "IFA Emerging Market Index." The construction of this index is interesting. It is described this way:
Time-Series Construction
January 1928 – December 1969: 50% IFA US Large Value Index and 50% IFA US Small Cap Index
January 1970 – December 1987: 50% IFA Int'l Value and 50% IFA Int'l Small Cap
January 1988 – December 1988: MSCI Emerging Markets Index (gross div.) minus 0.05%/mo (mutual fund exp ratio)
January 1989 – April 1994: Fama/French Emerging Markets Index minus 0.05%/mo (mutual fund exp ratio)
May 1994 – Present: DFA Emerging Markets Portfolio Symbol: DFEMX
I do not see where it has any Emerging Markets data prior to 1988. Do you?

Where do I find data supporting the assertion that 40 years ago, "emerging markets started to become substantial components of the Global Financial Asset Portfolio?" What I seem to see is that 40 years ago (i.e. 1974) emerging markets were not even included in the IFA Emerging Markets Index, let alone the (still not located) "Global Financial Asset Portfolio."

I also asked when the "Global Financial Asset Portfolio" was first described in writing. This is an important point because it is always easy to construct impressive-performing portfolios with the benefit of hindsight. If the "Global Financial Asset Portfolio" is something created by IFA, it is unlikely that it could have been defined forty years ago, because IFA was founded in 1999.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by stemikger » Thu Dec 11, 2014 3:20 am

cfs wrote:No need to defend him.

No need to defend Mister Bogle, he can whip all these guys blindfolded.
+1
I agree. Jack can do that blind folded, one hand tied behind his back and with a smile on his face.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by dkturner » Thu Dec 11, 2014 8:27 am

Watty wrote:
Over this 40 year period the equity portfolio with a 25% slice of emerging markets more than doubles the total portfolio balance of the pure U.S.”

25% of your portfolio in emerging markets? :shock:
You're correct of course in your concern. But, in an interesting aside, in comments in prior years Mr. Bogle has indicated that IF he invested in international markets he would split his international investment 50% developed markets and 50% emerging markets.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by Wagnerjb » Thu Dec 11, 2014 8:42 am

digit8 wrote:
Wagnerjb wrote:A typical Boglehead would walk on hot coals to reduce his ER by 0.25%. He would LOVE to earn 2% more with less risk. If they don't really care about 2%, then they won't care about high ER's either.

Apples and oranges...at any rate my point is not that the difference is inconsequential,but that successful results don't necessarily have to be maximized ones.
Quick and dirty on a cnnmoney.com calculator, I see an investor putting $10k in a tax deferred account for 40 years, adjusted for inflation, becomes around 2.27 million account at 12%, nearly $4 million at 14%. Big difference, of course. But a "mere" $2mil is still financial independence for more people then it's not. Pretending for a moment that the next 40 years matches the last, I look at those results of this article and think the vast majority of people who would lose sleep and gain ulcers if they invested internationally could probably stick to their comfort zone and still manage to both live happily and retire comfortably.

OK, thanks. I thought you were saying that the benefits of international investing aren't significant enough to warrant the effort.

Now I see that you really meant to say something like, "investors know that international investing provides very real and significant benefits in the form of improved diversification and potentially higher returns; however some people are not comfortable with foreign investments and for them they should only invest in the USA. Just like some people aren't comfortable with the stock market and stick to bonds, these people willingly accept the sub-par investment performance in order to feel comfortable". Right?

Best wishes.
Andy

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by Call_Me_Op » Thu Dec 11, 2014 8:46 am

For me, it's a no-brainer because I am risk averse. Spreading my equity investments across many countries eliminates the possibility that my portfolio will be devastated if the stock of a single country remains underwater for decades.
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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by nisiprius » Thu Dec 11, 2014 9:06 am

DrChronzworth wrote:Here's where he first defines it:

http://pragcap.com/is-the-global-financ ... g-strategy
So, there is a paper written in early 2014 that may not even have been published yes--it says "forthcoming"--and a statement that "The GFAP has performed extremely well in the last 30 years on both a risk adjusted and nominal basis." However, it doesn't appear that he advocates it, but... I'm not even sure I follow this... sets this up as a straw man for indexing and passive investing so that he can knock it down?
A reliance on a “pure” indexing approach like the GFAP is not necessarily a bad idea for some people, but it has obvious flaws as well. Asset allocation requires a certain degree of active forecasting and “asset picking” based on how we think the future performance of specific asset classes will translate to our risk profile and financial goals.
So, he is criticizing Jack Bogle based on his analysis of an indexing strategy never advocated by Bogle, that has "performed extremely well" over the last 30 years, but I guess not as well as active forecasting and asset picking which are "required?"

What I think I am hearing is: "I can prove I know more than Bogle because I know of a hot-off-the-press academic portfolio that backtests better than Bogle's broad recommendations. Having proved that I know more than Bogle, you should believe me when I say that not only do I know a better index, but I can do better yet with active forecasting and asset picking."

So where do emerging markets come in? 40 years ago or 26 years ago? Is Bogle wrong for not advocating a heavy allocation to emerging markets 26 years ago, in 1988 was Mr. Roche's firm advising its clients to adopt the GFAP and make a heavy commitment to emerging markets--if emerging markets really did start to become "substantial components of the Global Financial Asset Portfolio" back then--which I continue to doubt?

I was going to guess that a reporter had mis-heard "14 years" and reported it as "40 years" but in fact the sentence "If we look at the last 40 years since emerging markets started to become substantial components of the Global Financial Asset Portfolio it becomes clear that Bogle is wrong and not by a small margin" is a direct quotation from what Roche wrote and published in his own blog.
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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by swaption » Thu Dec 11, 2014 9:54 am

staythecourse wrote:
Index Fan wrote:Roche also points out that Bogle’s decision to shun non-U.S. investing is somewhat ironic for one of the world’s most famous proponents of passive investing. “Bogle is obviously making a pretty active decision here by choosing only to invest in 50% of the world’s stock markets,” he adds.
Finally, someone points out the irony of this.

Now that being said I have and will always say nothing wrong with not being market weight as no one is anyways.

Also, can't use data mining to make a point especially since there were not investable ways to do this 40 yrs. ago. Now the point should be there are times it helps and times it hurts and since we can't predict when either will happen or when that is why we diversify as much as possible IN ADVANCE.

Good luck.
Agreed with the irony here, but I think it actually goes beyond that. As many might recall, the index fund was largely inspired by Mr. Bogle's failures prior to his entering/creating the enlightened world. So not only is Bogle more than a little hypocritical here, but his very limited track record at any form of managed allocation is not exactly encouraging. Why should his perspective on international allocation be viewed in any other context?

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by Taylor Larimore » Thu Dec 11, 2014 11:01 am

Might Jack Bogle Be Wrong for a Change?
Index Fan:

These are annualized returns for the last 15 years (longest period on Morningstar's website):

5.26% -- Vanguard Total U.S. Stock Market Index Fund (VTSMX)
3.84% -- Vanguard Total International Stock Market Index Fund (VGTSX)
Mr. Bogle is seldom wrong. :sharebeer

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

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siamond
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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by siamond » Thu Dec 11, 2014 11:08 am

I cannot see that anybody is right or anybody is wrong here... The history of international returns (notably emerging) is too short to make any kind of meaningful judgment call. It is troubling though that the data from the Triumph of the Optimists seems to show that the US (and Australia) are rather special, with significantly higher historical returns. But you can interpret such data in two ways, either history will repeat itself, or a worldwide return to the mean is in the making. Or anything in-between. Go figure.

I read Mr Bogle's explanation of his international views several times, and quite frankly, I wasn't convinced (while he thoroughly convinced me on many other topics). It seemed to me that he basically comes from much deeper trust in US institutions than abroad, but even if that's true, I don't see that this necessarily makes for better (future) returns. And I found Mr Bernstein's warning that the US economy might start plateau-ing in the coming decades more credible. It's a bit like those giant managed funds inevitably plateau-ing.

Personally, I chose to hedge my bets. My equities are 50/50 between US and International. And I have a good chunk of emerging in there (and also some international value). This is a rather arbitrary decision, but hey, that's a plan, and I'll stick to it. I actually just used a nice lump sum I received yesterday to rebalance my international funds. My bonds are 100% US-centric though, here I don't see the point of going international.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by parsi1 » Thu Dec 11, 2014 11:58 am

As far as I know he has majority of his money in Vanguard Balanced index fund, right or wrong he is putting his money where his mouth is.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by abuss368 » Thu Dec 11, 2014 12:43 pm

Taylor Larimore wrote:
Might Jack Bogle Be Wrong for a Change?
Index Fan:

These are annualized returns for the last 15 years (longest period on Morningstar's website):

5.26% -- Vanguard Total U.S. Stock Market Index Fund (VTSMX)
3.84% -- Vanguard Total International Stock Market Index Fund (VGTSX)
Mr. Bogle is seldom wrong. :sharebeer

Best wishes.
Taylor
Hi Taylor,

Thank you for the performance results. My question then is why don't more Boglehead investors follow Jack Bogle's simple Balance Fund strategy or the "Two Fund Portfolio" of Total Stock and Total Bond, as he has recommended in his excellent books? International is really a disappointment.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Taylor Larimore
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A perverse human characteristic

Post by Taylor Larimore » Thu Dec 11, 2014 12:49 pm

My question then is why don't more Boglehead investors follow Jack Bogle's simple Balance Fund strategy or the "Two Fund Portfolio" of Total Stock and Total Bond?
Abuss:
"There seems to be some perverse human characteristic that likes to make easy things difficult." -- Warren Buffett
Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: A perverse human characteristic

Post by abuss368 » Thu Dec 11, 2014 12:53 pm

Taylor Larimore wrote:
My question then is why don't more Boglehead investors follow Jack Bogle's simple Balance Fund strategy or the "Two Fund Portfolio" of Total Stock and Total Bond?
Abuss:
"There seems to be some perverse human characteristic that likes to make easy things difficult." -- Warren Buffett
Best wishes
Taylor
Hi Taylor,

That is an excellent quote by Warren Buffett. My thoughts are the Two Fund Portfolio would follow Mr. Buffett's advice (i.e. S&P 500 and Treasuries) and also Jack Bogle's recommendation in his many excellent books. Bogleheads may be making it more "complex" by adding additional funds such as International stocks, TIPS, etc.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by garlandwhizzer » Thu Dec 11, 2014 1:14 pm

Some Forum members seem to suggest there is only one appropriate portfolio that works for everyone, that Portfolio X is inherently better than Portfolio Y. I do not believe this to be true. We are all different with different tolerances for risk, financial goals and needs, attitudes about investing and life in general. Some wise and rational investors like Bogle choose a US only portfolio. Some prefer the S&P500 to TSM. Some just the opposite. Some, most I believe, prefer some international diversification. Others don't. Some tilt, some don't. Some believe in overweighting REITS, PM, or commodities, and some don't.

I don't think there is one way that is right for everyone. As Taylor says, there are more than one way to get to Dublin. Find which road is right for you, use low diversified cost index funds, pick the asset allocation strategy that's in tune with you, your goals and tolerances. In time we'll all get to Dublin at our own pace through different paths. In my opinion it's not a universal right versus wrong decision on tilting, international, alternate assets, or bond/stock weightings. It's a question of what's right for you, ultimately a question of knowing yourself. The Forum is a big tent where we get to read every different point of view which I believe helps us to know ourselves better and better define the right mix for us as individuals. But let's not get too evangelical about one single approach.

Garland Whizzer

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by snowman » Thu Dec 11, 2014 1:38 pm

siamond wrote:I cannot see that anybody is right or anybody is wrong here... The history of international returns (notably emerging) is too short to make any kind of meaningful judgment call. It is troubling though that the data from the Triumph of the Optimists seems to show that the US (and Australia) are rather special, with significantly higher historical returns. But you can interpret such data in two ways, either history will repeat itself, or a worldwide return to the mean is in the making. Or anything in-between. Go figure.

I read Mr Bogle's explanation of his international views several times, and quite frankly, I wasn't convinced (while he thoroughly convinced me on many other topics). It seemed to me that he basically comes from much deeper trust in US institutions than abroad, but even if that's true, I don't see that this necessarily makes for better (future) returns. And I found Mr Bernstein's warning that the US economy might start plateau-ing in the coming decades more credible. It's a bit like those giant managed funds inevitably plateau-ing.

Personally, I chose to hedge my bets. My equities are 50/50 between US and International. And I have a good chunk of emerging in there (and also some international value). This is a rather arbitrary decision, but hey, that's a plan, and I'll stick to it. I actually just used a nice lump sum I received yesterday to rebalance my international funds. My bonds are 100% US-centric though, here I don't see the point of going international.
This is exactly how I look at it, and I could not have expressed my view nearly as well as you did. Thank you for your post.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by hudson4351 » Thu Dec 11, 2014 2:34 pm

Taylor Larimore wrote:
Might Jack Bogle Be Wrong for a Change?
Index Fan:

These are annualized returns for the last 15 years (longest period on Morningstar's website):

5.26% -- Vanguard Total U.S. Stock Market Index Fund (VTSMX)
3.84% -- Vanguard Total International Stock Market Index Fund (VGTSX)
Mr. Bogle is seldom wrong. :sharebeer

Best wishes.
Taylor
Is the conclusion here that "past performance does not predict future results, except when past performance >= 15 years?" If so, then it seems that anyone holding TISM should just get rid of it all now, right?

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by John3754 » Thu Dec 11, 2014 2:46 pm

Taylor Larimore wrote:
Might Jack Bogle Be Wrong for a Change?
Index Fan:

These are annualized returns for the last 15 years (longest period on Morningstar's website):

5.26% -- Vanguard Total U.S. Stock Market Index Fund (VTSMX)
3.84% -- Vanguard Total International Stock Market Index Fund (VGTSX)
Mr. Bogle is seldom wrong. :sharebeer

Best wishes.
Taylor
If only this told me anything at all about how these two funds will perform over the next 15 years.

One could easily interpret this to mean the precise opposite of what you presumably intend it to mean, and in fact many experts are currently doing just that.

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by TSR » Thu Dec 11, 2014 3:01 pm

nisiprius wrote:
DrChronzworth wrote:Here's where he first defines it:

http://pragcap.com/is-the-global-financ ... g-strategy
So, there is a paper written in early 2014 that may not even have been published yes--it says "forthcoming"--and a statement that "The GFAP has performed extremely well in the last 30 years on both a risk adjusted and nominal basis." However, it doesn't appear that he advocates it, but... I'm not even sure I follow this... sets this up as a straw man for indexing and passive investing so that he can knock it down?
A reliance on a “pure” indexing approach like the GFAP is not necessarily a bad idea for some people, but it has obvious flaws as well. Asset allocation requires a certain degree of active forecasting and “asset picking” based on how we think the future performance of specific asset classes will translate to our risk profile and financial goals.
So, he is criticizing Jack Bogle based on his analysis of an indexing strategy never advocated by Bogle, that has "performed extremely well" over the last 30 years, but I guess not as well as active forecasting and asset picking which are "required?"

What I think I am hearing is: "I can prove I know more than Bogle because I know of a hot-off-the-press academic portfolio that backtests better than Bogle's broad recommendations. Having proved that I know more than Bogle, you should believe me when I say that not only do I know a better index, but I can do better yet with active forecasting and asset picking."

So where do emerging markets come in? 40 years ago or 26 years ago? Is Bogle wrong for not advocating a heavy allocation to emerging markets 26 years ago, in 1988 was Mr. Roche's firm advising its clients to adopt the GFAP and make a heavy commitment to emerging markets--if emerging markets really did start to become "substantial components of the Global Financial Asset Portfolio" back then--which I continue to doubt?

I was going to guess that a reporter had mis-heard "14 years" and reported it as "40 years" but in fact the sentence "If we look at the last 40 years since emerging markets started to become substantial components of the Global Financial Asset Portfolio it becomes clear that Bogle is wrong and not by a small margin" is a direct quotation from what Roche wrote and published in his own blog.
I've said this before and I'll probably say it again, but thank you for taking the time to help cut through the fog. Everyone here has taught me so much, but your insights are so consistently intelligent and direct (though somehow still humble) that they stick out among the many other brilliant posts.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by siamond » Thu Dec 11, 2014 3:03 pm

snowman wrote:
siamond wrote:[...]
This is exactly how I look at it, and I could not have expressed my view nearly as well as you did. Thank you for your post.
Hey, thanks for the nice words! :happy

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by FrogPrince » Thu Dec 11, 2014 3:41 pm

My view is that this is a manufactured controversy to get headlines, and it is working.

Jack Bogle's views on international are not that ironic if you consider how interconnected the world economy is. Even if you have a nominally 100% US portfolio, in reality, because so many companies in that portfolio have international earnings, there is a good chunk of it that is de facto international. So this a straw man argument built on a false dichotomy.
Index Fan wrote: Roche also points out that Bogle’s decision to shun non-U.S. investing is somewhat ironic for one of the world’s most famous proponents of passive investing. “Bogle is obviously making a pretty active decision here by choosing only to invest in 50% of the world’s stock markets,” he adds.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by swaption » Thu Dec 11, 2014 5:49 pm

Ultimately, the primary points that Bogle makes and those held by many others, really come down to systematic probelms with other markets as compared to the US. Right now these views find a very receptive audience as the pendulum has swung back toward the American way as our resiliency and flexibility has produced a relative economic strenght, while many other areas struggle. History seems to be on the side of the rest of the world continually taking 2 steps forward and then a giant step back, resulting in systems that can never close the gap.

But that is precisely the point. The US was once an emerging market. Starting with the explorers, then the founding fathers, industrialists, inventors, and countless others along the way, this miraculous system has emerged. But the thought that DNA is somehow altered when entering this specific longitude and lattitude is (obviously) misguided. How does the US have some divine right to greatness and leadership? Perhaps there may not be a great track record in many other places, but are we so confident that we can dismiss the need to have at least a few chips on that part of the table. This is where I think Bogle misses. As wise as Bogle is, how could he be in any position to handicap the liklihood of how the rest of the world will transpire? The answer is he can't. He is merely applying the past to the future. The world is not static. Great nations can emerge, with political, accounting and legal systems every bit as robust as what is neeeded to support lasting properity. It may be hard to imagine, but that is precisely where outsized returns ultimately are derived, from the things that are not easily imagined today.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by Angst » Thu Dec 11, 2014 6:43 pm

FrogPrince wrote:My view is that this is a manufactured controversy to get headlines, and it is working.

Jack Bogle's views on international are not that ironic if you consider how interconnected the world economy is. Even if you have a nominally 100% US portfolio, in reality, because so many companies in that portfolio have international earnings, there is a good chunk of it that is de facto international. So this a straw man argument built on a false dichotomy.
By the same logic you could certainly have also said this about Japan years ago, but how has this "reality" worked out for them over the last couple decades? Personally, I understand and respect the importance and effectiveness of diversification, and as such, I think it would be inconsistent and reckless of me not to invest some of my equity allocation in international. I love Jack Bogle, but I respectfully disagree with him on this one. I'm not alone!

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by leonard » Thu Dec 11, 2014 6:50 pm

Why is it so hard to understand that choosing an exact Int'l percentage is a judgment call?

We are likely all "wrong" cause most likely our individual selection of Int'l stock ratio won't hit the efficient frontier - unless we are just extremely lucky over a time period.

It's one of those decisions you don't have to get exactly right - "right enough" is fine.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by patrick » Thu Dec 11, 2014 8:02 pm

Taylor Larimore wrote:These are annualized returns for the last 15 years (longest period on Morningstar's website):

5.26% -- Vanguard Total U.S. Stock Market Index Fund (VTSMX)
3.84% -- Vanguard Total International Stock Market Index Fund (VGTSX)
Mr. Bogle is seldom wrong. :sharebeer

Best wishes.
Taylor
Meanwhile, here are annualized returns for some other funds over the last 15 years:

10.63% - Fidelity New Markets Income Fund (FNMIX)
10.02% - T. Rowe Price Emerging Markets Bond Fund (PREMX)

If we are going to judge based simply on looking at the past 15 years of results, it seems like everyone was wrong except for the people advocating emerging markets bonds. Emerging markets stocks also beat US stocks over that period but are still way behind the emerging markets bonds).

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by patrick » Thu Dec 11, 2014 8:11 pm

FrogPrince wrote:My view is that this is a manufactured controversy to get headlines, and it is working.

Jack Bogle's views on international are not that ironic if you consider how interconnected the world economy is. Even if you have a nominally 100% US portfolio, in reality, because so many companies in that portfolio have international earnings, there is a good chunk of it that is de facto international. So this a straw man argument built on a false dichotomy.
A US-based company selling stuff to country X is not quite the same as a company based in country X selling stuff locally. For instance:

1) The US company is managed in the US management style while the country X company is managed in the country X management style
2) The US company is subject to US government regulations but the country X company is not
3) Although both companies are subtract to the regulations of country X, country X regulations probably do not treat domestic and foreign companies the same

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Re: 'Might Jack Bogle Be Wrong for a Change?' [Int'l holding

Post by Phineas J. Whoopee » Thu Dec 11, 2014 8:16 pm

The stock index in which a company is included is based on where its stock is listed, not where the company is domiciled or the management style of its executives.
PJW

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Re: 'Might Vanguard Founder Jack Bogle Be Wrong for a Change

Post by patrick » Thu Dec 11, 2014 9:13 pm

nisiprius wrote:
DrChronzworth wrote:Here's where he first defines it:

http://pragcap.com/is-the-global-financ ... g-strategy
So, there is a paper written in early 2014 that may not even have been published yes--it says "forthcoming"--
From my brief glance at the page, the "GFAP" seems to be the combination of all stocks and bonds (and a little bit of other stuff) worldwide at market weight. Calling it "GFAP" may be new but the idea is older -- it was discussed on this forum before 2014! -- and it is roughly the same as the "market portfolio" of CAPM which has been around for decades.
What I think I am hearing is: "I can prove I know more than Bogle because I know of a hot-off-the-press academic portfolio that backtests better than Bogle's broad recommendations.
Should complaints about backtesting really apply to broad based cap weighted indexes, rather than only to narrow stock-picking strategies? If we want to discuss past performance of US stocks would we ignore data prior to the first cap weighted stock indexes being introduced in the US? I believe that was the 233-stock predecessor to the S&P 500 introduced in 1923. Would you apply the same rule to historical bond data? I believe bond indexes are newer still.

The high risk-adjusted returns of the "GFAP" is largely due to the unusually high bond returns in the last 30 years which we already knew about. Portfolios with only US stocks and US bonds, but with a heavier bond allocation than the usual 60/40, would also have given high risk-adjusted returns if measured in the same way.
So where do emerging markets come in? 40 years ago or 26 years ago? Is Bogle wrong for not advocating a heavy allocation to emerging markets 26 years ago, in 1988 was Mr. Roche's firm advising its clients to adopt the GFAP and make a heavy commitment to emerging markets--if emerging markets really did start to become "substantial components of the Global Financial Asset Portfolio" back then--which I continue to doubt?
The idea of the market portfolio certainly existed before 1988 though I doubt Roche was advocating it then. I also doubt emerging markets were a huge portion of the market portfolio in 1988 but I don't really know. One source with some emerging markets data pre-1988 is the Credit Suisse Yearbook at https://publications.credit-suisse.com/ ... B5D14A7818 which shows South Africa is the best performing market since 1900 with an annualized real return of 7.4%. On the other hand Russia and China would have given you -100%.

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