International Investing

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nedsaid
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Re: International Investing

Post by nedsaid » Sun Apr 12, 2015 11:25 am

Maynard, you raise an excellent point. I am a believer in Emerging Markets. The trouble is that this is a very volatile asset class and can have periods of disappointing results which is why they are sometimes nick-named "Submerging Markets." But I agree with you that Emerging Markets are a "buy" right now.

I am not an "either/or" investor. Sometimes when faced with a decision, the best answer is "Yes!" Do you want U.S. or Emerging Markets? Yes! Do I want apple pie or blueberry pie? Yes! I think an Emerging Markets only stock portfolio would be too volatile for most investors so I pick both.
A fool and his money are good for business.

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nedsaid
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Re: International Investing

Post by nedsaid » Sun Apr 12, 2015 11:29 am

TwoByFour wrote:
nedsaid wrote: This is an excellent point, the concept of diminishing returns. Yes, International Stocks are not the magic elixir that with cure all diversification woes. Indeed, an all-U.S. investor will likely perform in a very similar manner to an investor who diversifies Internationally. What I am guarding against with International Stocks is the possibility of the U.S. being a single-country bear market as Japan was during the 1990's. The rest of the world did fairly well while Japan's markets really floundered during that period.
The Nikkei crash was due almost entirely to an internal asset bubble (mostly real estate). The crash of the Nikkei had little affect on other equity markets. Compare that to the 2008 crash which was precipitated by the meltdown of the US financial industry. The latter of course rippled outward and caused a worldwide crash of stock markets and global economic recession (but ironically little effect on the Nikkei). People who cite Japan as the poster child for why a US investor should own a significant allocation in x-US equities is really guessing - there is no evidence at all that if the US crashes, that x-US will not, except maybe for the special case of the Nikkei which does seem to behave as a distinct asset class.

I am skeptical that, as nisiprius pointed out, that I will really benefit from the additional diversification of x-US equities. Yes, maybe I will get a little extra in returns for some periods (like Q1 of this year) but I just cannot see it providing the same degree of protection against market crashes as bonds do.

Investing in x-US equities is fine, but I do not buy into the diversification argument for doing that. I have a small position in x-US (less than 10%), but I also have a small position in health care. I view the two as about the same thing, trying to capture a little more upside.
You seem to be making the "it can't happen here" argument. I don't believe that the U.S. is or will be another Japan but I don't discount the possibility that the U.S. could experience a single-country bear market. Markets have a way of doing the one thing that you think they won't do. For me, I don't want all my money invested in my own country, even my own.
A fool and his money are good for business.

Twins Fan
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Re: International Investing

Post by Twins Fan » Sun Apr 12, 2015 11:38 am

Maynard F. Speer wrote:Well of course all the real growth in the world since the 70s has been in developing markets - and that's been reflected in how well EM stocks have fared ..

Today the US is (arguably) overvalued, while emerging markets are sitting around their low point (with a price/book of just over 1.5) .. 70% of global growth for the next 2 decades is anticipated to come from developing regions ... If you had to pick between just holding the US, and just holding Emerging Markets, wouldn't it be a no-brainer?
Not really, as I don't know of anyone advocating a 100% emerging market stock portion of their portfolio. Is that what you're suggesting?

kolea
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Re: International Investing

Post by kolea » Sun Apr 12, 2015 11:49 am

nedsaid wrote: You seem to be making the "it can't happen here" argument.
I am making the argument that the likelihood of a US-only bear market is small enough that I choose not to worry about it. But we all make our own choices what we want to worry about. I certainly have other views that seem to go against the trend.
Kolea (pron. ko-lay-uh). Golden plover.

lack_ey
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Re: International Investing

Post by lack_ey » Sun Apr 12, 2015 12:02 pm

To me it's about more than just bear markets and crashes. There's probably some decent probability of overperformance or underperformance on the order of 1-3% annualized for many years. This can make a big difference over decades. Over 1900-2014, the Credit Suisse yearbook has the US returning 6.5% and the other countries tracked averaging 4.4%, for example. If for the next 25 years the US returns 2% real and ex-US 4%, then okay. If it's 4% real for the US and 2% elsewhere, then that's okay too.

I'd rather take some currency and other market risks on top of paying 5-10 bp more to have more horses in the race, so to speak.

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Garco
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Re: International Investing

Post by Garco » Sun Apr 12, 2015 12:04 pm

If you do an M* X-Ray on VTSNX (total international), you'll see that ~40% of its holdings are in Asia. Same for RERGX (AF Europacific) (I own both of these funds). The latter is a bit more into EM within Asia. But I like them both as investments in world economic development. My own "total international" is about 30% of my equity holdings.

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Maynard F. Speer
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Re: International Investing

Post by Maynard F. Speer » Sun Apr 12, 2015 12:38 pm

Well US valuations have - as Japan's did in the mid-80s - detached from the rest of the world somewhat and bounded off into the unknown, even as forward EPS has stagnated and declined ..

Now I don't think they're quite at Japanese levels of overvaluation yet, but the real worry should perhaps be stagnation and poor long-term returns (while regions like India and China boom, and the global economy shifts eastward) ..

The idea a US slow-down or crash would have contagion across the whole globe is perhaps becoming a dated one ... During the 90s Tech crash, while most developed markets were brought down, the cheapest regions in the world still produced positive returns .. Right now those cheap regions are places like South Korea, Singapore, Russia ..

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gkaplan
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Re: International Investing

Post by gkaplan » Sun Apr 12, 2015 2:15 pm

Wagnerjb wrote:
JoMoney wrote: Not really, somewhere around half the revenues from the S&P500 come from outside the U.S., many companies in the index are domiciled outside the U.S., some of the companies are actually largely dependent on non-U.S. operations.
I certainly don't see it as a bet on one country or another, but it does pose an opportunity for U.S. investors . We have the option to buy a well diversified group of stocks at lower expenses, lower tax burden, very good corporate disclosure and accounting, extremely good liquidity, and without the risks that come with trying to own international stocks.
You don't think that Japanese investors had similar thoughts, especially in the late 1980's or in the 1990's?

Think about companies like Toyota, Sony, Honda, Bridgestone, Canon, Mitsubishi, Hitachi, Komatsu, Nissan, etc. I bet the Japanese large companies also sell an awful lot to other countries (not necessarily just the west). But that didn't do their "my country is the best" investors any good over the past 30 years. I don't want to take that risk.

Best wishes.
Yet those who rationalize about their not investing in international continually ignore this reality.
Gordon

nobsinvestor
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Re: International Investing

Post by nobsinvestor » Sun Apr 12, 2015 3:10 pm

I think the best argument for foreign equity investing is the risk of massive underperformance over a long timeline if one is US-only.

What if multiple variables change soon, and from 2017-2037 international stocks return 18% average annually and US stocks only return 5%?

What if something catastrophic happens to the US dollar and Euros/Pounds are worth $5-6 USD? Why is the strength of the USD taken for granted as ever-lasting?

I don't buy the "currency risk" argument one bit. It's currency [and underperformance risk] diversification to me.

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Runalong
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Re: International Investing

Post by Runalong » Mon Apr 13, 2015 11:08 pm

FWIW:
YTD 2015:
VTI =2.6% (US TSM)
VEU = 7.9% (Int'l ex-US)

kolea
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Re: International Investing

Post by kolea » Tue Apr 14, 2015 12:27 am

Runalong wrote:FWIW:
YTD 2015:
VTI =2.6% (US TSM)
VEU = 7.9% (Int'l ex-US)
YTD 2015:
VGHCX = 9.6% (health care)
IJK = 7.7% (iShares mid cap growth)

My point here is that there are many funds that have out-performed VTI in Q1 of 2015. So what? You can always find something that has done better or worse in any time period. It means nothing all in all, unless you are investing for one quarter only, of course. If you like international, stick with it; if you like domestic, stick with that. There is no universal right or wrong. Just create a plan and stick with it.
Kolea (pron. ko-lay-uh). Golden plover.

Alchemist
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Re: International Investing

Post by Alchemist » Tue Apr 14, 2015 1:50 am

I personally do not own any international funds, though I will probably add some eventually once my portfolio reaches a certain size. But no more than 20% and more likely around 10%.
gkaplan wrote:
Wagnerjb wrote:
JoMoney wrote: Not really, somewhere around half the revenues from the S&P500 come from outside the U.S., many companies in the index are domiciled outside the U.S., some of the companies are actually largely dependent on non-U.S. operations.
I certainly don't see it as a bet on one country or another, but it does pose an opportunity for U.S. investors . We have the option to buy a well diversified group of stocks at lower expenses, lower tax burden, very good corporate disclosure and accounting, extremely good liquidity, and without the risks that come with trying to own international stocks.
You don't think that Japanese investors had similar thoughts, especially in the late 1980's or in the 1990's?

Think about companies like Toyota, Sony, Honda, Bridgestone, Canon, Mitsubishi, Hitachi, Komatsu, Nissan, etc. I bet the Japanese large companies also sell an awful lot to other countries (not necessarily just the west). But that didn't do their "my country is the best" investors any good over the past 30 years. I don't want to take that risk.

Best wishes.
Yet those who rationalize about their not investing in international continually ignore this reality.
Japan and the United States, structurally, are very VERY different. What Japan has been experiencing is something many countries will quickly be feeling as well. Negative demographic trends, a contracting population that leads ultimately to economic stagnation. If you don't have enough workers to grow an economy.....well it doesn't grow. All of Europe (except Sweden), Japan, South Korea, China, and every one of the 10 biggest economies in the world other than the U.S. and India are facing a small workforce in 2030 than they have now. This doesn't mean those places will be bad to live in. Japan has remained a great country to live (I just moved back to the U.S. after three years in Japan), but its economic growth potential compared to the United States is severely handicapped by demographic trends. Add to that its lack of natural resources and it is clear to see why it has not continued to grow they way it was in the middle of the 20th century.

Could the U.S. hit an unforeseen issue in the future that cripples it? Sure of course know one knows the future, and that is why I will probably eventually add some level of international exposure. But if I KNOW the rest of the OECD nations WILL hit a demographic brick wall in the next decade or two, why would I want to overweight them or even equal weight them to the U.S.? Add to that currency risk and added cost and it just isn't an attractive proposition to me.
nobsinvestor wrote:I think the best argument for foreign equity investing is the risk of massive underperformance over a long timeline if one is US-only.

What if multiple variables change soon, and from 2017-2037 international stocks return 18% average annually and US stocks only return 5%?

What if something catastrophic happens to the US dollar and Euros/Pounds are worth $5-6 USD? Why is the strength of the USD taken for granted as ever-lasting?

I don't buy the "currency risk" argument one bit. It's currency [and underperformance risk] diversification to me.
For the first part, see above. In regards to the Dollar, it is the reserve currency of the entire global market. Could that change? Yes, but not quickly and not overnight. There isn't even a good candidate on the horizon to replace it and it would require a severe economic catastrophe in the U.S. to trigger a shift. Possible? Yes of course, but not likely and again no alternative available anyway.

jay22
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Re: International Investing

Post by jay22 » Tue Apr 14, 2015 2:00 pm

I just go with 30% because of the Vanguard study which says 20-40% is the sweet spot. Will it pay off in the future? Who knows?

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gasdoc
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Re: International Investing

Post by gasdoc » Tue Apr 14, 2015 2:01 pm

I personally like the Vanguard site recommendations- about 30% of their stock allocation being international. This seems to be somewhere in the middle- between the normal global reach of an all US portfolio (20+ %) and the actual international equity market capitalization (just under 50%).

swaption
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Re: International Investing

Post by swaption » Tue Apr 14, 2015 2:26 pm

friar1610 wrote:This is a completely unsophisticated observation that has no figures whatsoever to back it up. I just got back from a vacation to New Zealand and Australia. While there I read the business and real estate sections of the local papers, kept an eye out for the amount of new commercial construction underway and asked a lot of questions to tour guides and others I met about general economic issues. I left with the sense (as I always do when I take foreign vacations) that it's a big, growing world out there with a lot of "ex-US" profit-generating economic activity going on. Seems like it makes sense to make sure one's investment program is structured to try to capture at least some of that growth and profit rather than sticking with a completely domestic orientation.
I will add observations from my recent trip to Paris. The impact of the strong dollar is a very important consideration. Take your pick of luxury goods retailers. Perhaps consider the now ubiquitous Louis Vuitton ladies bag. Let's say they were selling all they could last year in NYC for $1,200. Now that the currency has plummeted, do you think they have lowered the price? No way. Perhaps there is some added dollar denominated cost of selling bags here, but that additional margin goes right to the bottom line. Or perhaps you might choose to go to Paris to make your purchase. The amount you will save might be able to pay for your plane ticket. I expect lots of folks will be doing that. Are there any direct flights from Silicon Valley (just thinking about who has the money and where it might be spent)?

There are some obvious reasons why the Euro has weakened. But at the same time there are those sectors and businesses that are relatively healthy. The currency dynamic is like steroids. Maybe this is the inflection point for Europe. In my approach I will continue to have some chips on that part of the table.

Tier1Capital
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Re: International Investing

Post by Tier1Capital » Tue Apr 14, 2015 10:47 pm

Puerto Rico is part of the United States.

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