frustrating to keep investing in international/EM

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rm
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frustrating to keep investing in international/EM

Post by rm » Sat Jan 02, 2016 1:39 pm

It seems international and EM have widely under-performed US for past 5 years. Except for 2012, the data comparing VWO vs VTI shows a large gap .

Have we ever had such a wide divergence historically. Or what is a typical timeframe for reversion to mean.

I have continued to re-balance into EM, EAFE but its getting frustrating to wait for reversion to mean. Not sure what other people on the board are doing.

Thanks

Twins Fan
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Re: frustrating to keep investing in international/EM

Post by Twins Fan » Sat Jan 02, 2016 1:44 pm

What outperformed in the first half of the 2000's? :happy

Some say international and EM are "due" and have higher expected returns going forward.

Nathan Drake
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Re: frustrating to keep investing in international/EM

Post by Nathan Drake » Sat Jan 02, 2016 1:47 pm

But there are folks that say intl/EM are highly correlated with US markets. May be true, but the magnitude can diverge greatly. As we've seen, the US was quicker to react with easing measures, and did not have the political conflict that the EU has which resulted in better fiscal actions on behalf of the US as a whole. Now the EU has their own QE, their currency has depreciated which should make their businesses more attractively priced for consumers, and the collapse in oil should give the region a bit of an economic windfall.

It's frustrating, but long term investors should stay the course. International/EM stocks are priced very attractively, and for such a wide geographical area you would expect them to recover.

I continue to push forth with my international investments knowing that it's a long-term investment. I would imagine you'd have similar frustrations for US stocks between 2000 - 2007 where large caps seemingly went nowhere, while international performed better.

I like having the diversity of both US and Intl, knowing full well that one will outperform the other at any given moment, and that over time the returns will probably be similar (over the course of decades). If one region has a dead decade, then the other may have more positive returns resulting in progress being made with your portfolio. Seeing no gains for a long time (10 yrs) because you invested in one country has to be fairly depressing.

That's another reason why I don't simply invest in US equities like Bogle/Buffett suggest. Valuations for countries can become exuberant simply because they have more momentum or deemed as "safe" compared to the rest of the world.

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Re: frustrating to keep investing in international/EM

Post by goodenyou » Sat Jan 02, 2016 2:07 pm

Jack Bogle is not a big fan of international. I am beginning to agree with him more and more. I reduced my allocation earlier in 2015 to 20% of my equities portion. I will stay there for now.
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J295
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Re: frustrating to keep investing in international/EM

Post by J295 » Sat Jan 02, 2016 2:08 pm

Fear, greed, frustration ..... all pretty normal in investing, and all good reasons to have an IPS that requires something more than these emotions to change.

For what it's worth, our IPS calls for a certain percentage of our equities to be international and we continue to follow it (1/3 of the equity portion -- and with 50% in equities that of course is 1/6 total portfolio in international equities).
Last edited by J295 on Sat Jan 02, 2016 2:12 pm, edited 1 time in total.

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Re: frustrating to keep investing in international/EM

Post by MnD » Sat Jan 02, 2016 2:10 pm

Or you can just take a total world approach and let the chips fall where they may.
What if 50 years from now the rest of the world is 90% of the stock market?
Are you going to keep rebalancing away from "rest-of-world" to US for 5 decades to some arbitrary US/international split that over time becomes wildly different than the what the actual global market cap is?

Same question if 50 years from now US is 90% of the global market. Are you just going to keep selling US and buying international year after year, decade after decade to hold a "fixed" US/non-US allocation?

I just decided stocks are stocks, to approximate a global market cap approach on equities and rebalance to maintain equity/fixed income split.
There is no "natural" US/non-US equity split that the markets will mean revert to.

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Re: frustrating to keep investing in international/EM

Post by iceport » Sat Jan 02, 2016 2:15 pm

rm wrote:I have continued to re-balance into EM, EAFE but its getting frustrating to wait for reversion to mean. Not sure what other people on the board are doing.
Exactly that!

And fighting, successfully, the inclination to boost the allocations to EM and EAFE due to lower relative valuations and higher expected returns.

Five years is nothing. Watching paint dry is not exciting. Go for a hike while it dries.
"Discipline matters more than allocation.” ─William Bernstein

Nathan Drake
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Re: frustrating to keep investing in international/EM

Post by Nathan Drake » Sat Jan 02, 2016 2:20 pm

Total international is around 33% below its 2007 peak right now in USD.

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Maynard F. Speer
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Re: frustrating to keep investing in international/EM

Post by Maynard F. Speer » Sat Jan 02, 2016 2:34 pm

Europe's actually returned around 10% this year in Euros (at least when I looked - it may have changed since then)

It's mainly the strength of the dollar making your international returns appear lower ... You could use currency hedged international exposure, but I don't bother with this myself

Just remember: all your inclinations to reduce international exposure or stop rebalancing are the very behavioural patterns that ensure private investors keep losing to the market, and smart investors keep outperforming ... If the pain of rebalancing into falling asset classes bothers you, just rebalance when international is uptrending (relative to the dollar) again ... You could use the price plotted against the SMA 200 ... Catching falling knives isn't much fun, but probably won't make much difference in the long run
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Re: frustrating to keep investing in international/EM

Post by RyeWhiskey » Sat Jan 02, 2016 2:35 pm

MnD wrote:Or you can just take a total world approach and let the chips fall where they may.
What if 50 years from now the rest of the world is 90% of the stock market?
Are you going to keep rebalancing away from "rest-of-world" to US for 5 decades to some arbitrary US/international split that over time becomes wildly different than the what the actual global market cap is?

Same question if 50 years from now US is 90% of the global market. Are you just going to keep selling US and buying international year after year, decade after decade to hold a "fixed" US/non-US allocation?

I just decided stocks are stocks, to approximate a global market cap approach on equities and rebalance to maintain equity/fixed income split.
There is no "natural" US/non-US equity split that the markets will mean revert to.
:sharebeer And here I was thinking I was the only Total World Index fan around.

MnD is precisely correct. The US vs. International debate in general, and brought up in detail in this thread, is, ironically, highly un-Boglehead. Claiming that one ought have X% domestic vs. international is, to a large degree, speculative. There is simply no way one can know what country or group of countries will outperform 30+ years into the future. A total world market index is the most Boglehead investment vehicle created and I encourage those who struggle with this discussion (and some who change their allocation as a result!) to consider it as a sole equity holding.
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).

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Re: frustrating to keep investing in international/EM

Post by cfs » Sat Jan 02, 2016 2:37 pm

The Top Three Why.

Why Bonds?
Why TIPs?
Why Internationals?

Those are the Top Three Why in the forum. This is normal when the markets are not performing to investors' expectations. At one point they will outperform the rest. Invest slowly and for the long run.

Wishing you a productive 2016 (with or without bonds, Tips, Internationals).
~ Member of the Active Retired Force since 2014 ~

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Re: frustrating to keep investing in international/EM

Post by stemikger » Sat Jan 02, 2016 2:45 pm

rm wrote:It seems international and EM have widely under-performed US for past 5 years. Except for 2012, the data comparing VWO vs VTI shows a large gap .

Have we ever had such a wide divergence historically. Or what is a typical timeframe for reversion to mean.

I have continued to re-balance into EM, EAFE but its getting frustrating to wait for reversion to mean. Not sure what other people on the board are doing.

Thanks
John Bogle does not think international is necessary. After reading his reasons in Common Sense on Mutual Funds, it convinced me that I was on the right track. I suggest you read that chapter in his book and come to your own conclusions after that.

I'll start you off with this article.

http://www.bloomberg.com/news/2014-12-0 ... -u-s-.html

Good Luck.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: frustrating to keep investing in international/EM

Post by rob » Sat Jan 02, 2016 2:51 pm

So why so many people that espouse market weights for US and then flip their opinions on non-US? It's an inconsistent point of view; Either you know better than the market or you don't :D

I'm probably wrong... but I am still about 50 US/50 non-US on the equity weighting and overweight on EM. It's not been pretty and maybe it will never reverse... I don't know but I do know if I changed my allocation it would reverse in staggering form :D .
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

TheMokaPot
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Re: frustrating to keep investing in international/EM

Post by TheMokaPot » Sat Jan 02, 2016 2:55 pm

Stay the course!

Perhaps I should pick up Common Sense on Mutual Funds to understand Jack Bogle's point of view. (I'm surprised I haven't yet...) But I'm sticking with 20% international in my portfolio based on Vanguard's Research.

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Re: frustrating to keep investing in international/EM

Post by JonnyDVM » Sat Jan 02, 2016 3:06 pm

The more people hate on international the more I'm glad I have a 40% international allocation. I'm investing for the next 20 years, not the last five. At some point in the future international is going to rocket while US moves sideways or down and the international haters will shrivel. Looking forward to it. Yah it's stung lately but that's a good thing in terms of buying. Stay the course!
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: frustrating to keep investing in international/EM

Post by ryman554 » Sat Jan 02, 2016 3:13 pm

goodenyou wrote:Jack Bogle is not a big fan of international. I am beginning to agree with him more and more. I reduced my allocation earlier in 2015 to 20% of my equities portion. I will stay there for now.
Let me ask you a leading question: what will convince you to re-up your international allocation? When they do better?

If so, you have just effectively "sold low" and will "buy high", congratulations. How is this different than rotating out of stocks toward "safer" bonds in 2009?

Stay the course.....

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Re: frustrating to keep investing in international/EM

Post by abuss368 » Sat Jan 02, 2016 3:24 pm

TheMokaPot wrote:Stay the course!

Perhaps I should pick up Common Sense on Mutual Funds to understand Jack Bogle's point of view. (I'm surprised I haven't yet...) But I'm sticking with 20% international in my portfolio based on Vanguard's Research.
Hi TheMokaPot,

Vanguard research increased the international equity allocation from 20% of equity to 30% many years ago. Recently, the research was updated to support an allocation from 30% of equity to 40% of equity.

Best.
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Re: frustrating to keep investing in international/EM

Post by abuss368 » Sat Jan 02, 2016 3:25 pm

If I simply listened to Jack Bogle over that years and placed everything in two funds: Total Stock and Total Bond, we would have a lot more money!

Hopefully this "diversification" benefit pays off over the long term.
Last edited by abuss368 on Sat Jan 02, 2016 7:18 pm, edited 1 time in total.
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Re: frustrating to keep investing in international/EM

Post by dodecahedron » Sat Jan 02, 2016 3:28 pm

cfs wrote:The Top Three Why.

Why Bonds?
Why TIPs?
Why Internationals?

Those are the Top Three Why in the forum. This is normal when the markets are not performing to investors' expectations. At one point they will outperform the rest. Invest slowly and for the long run.

Wishing you a productive 2016 (with or without bonds, Tips, Internationals).


Good analogies. I feel like Internationals play somewhat a similar role to TIPS in my investment philosophy, both currently out of favor but a good inflation hedge. If the US dollar depreciates in the future against other currencies, that could lead to future inflation with dollar-denominated domestic prices rising in the US as the price of imported goods rises. Some international holdings constitute something of a currency hedge.

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Performance 2015: Global Stock Markets

Post by cfs » Sat Jan 02, 2016 3:42 pm

Good information here:

Just found this while searching for best performing global markets in 2015:

Muchos Charts !!! http://www.yardeni.com/pub/peacockglstkytd.pdf
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Re: frustrating to keep investing in international/EM

Post by goodenyou » Sat Jan 02, 2016 3:43 pm

ryman554 wrote:
goodenyou wrote:Jack Bogle is not a big fan of international. I am beginning to agree with him more and more. I reduced my allocation earlier in 2015 to 20% of my equities portion. I will stay there for now.
Let me ask you a leading question: what will convince you to re-up your international allocation? When they do better?

If so, you have just effectively "sold low" and will "buy high", congratulations. How is this different than rotating out of stocks toward "safer" bonds in 2009?

Stay the course.....
Nothing will convince me to re-up my international allocation. I am comfortable with 20%. I sold and put the proceeds in a higher performing (bond) asset. I don't need the growth.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Re: frustrating to keep investing in international/EM

Post by sambb » Sat Jan 02, 2016 3:49 pm

I love reading the dismissal of international. This indicates to me, that on monday I should increase my allocation to EM and Intl. Looking it to outperform. I have traveled the world and there is little doubt in my mind that other countries are better at manufacturing a variety of things and growing their economies.

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Re: frustrating to keep investing in international/EM

Post by goodenyou » Sat Jan 02, 2016 3:49 pm

goodenyou wrote:
ryman554 wrote:
goodenyou wrote:Jack Bogle is not a big fan of international. I am beginning to agree with him more and more. I reduced my allocation earlier in 2015 to 20% of my equities portion. I will stay there for now.
Let me ask you a leading question: what will convince you to re-up your international allocation? When they do better?

If so, you have just effectively "sold low" and will "buy high", congratulations. How is this different than rotating out of stocks toward "safer" bonds in 2009?

Stay the course.....
Nothing will convince me to re-up my international allocation. I am comfortable with 20%. I sold and put the proceeds in a higher performing (bond) asset. 10-year returns at 3.59% don't excite me, and at my age and net worth, I don't need the potential growth.
Last edited by goodenyou on Sat Jan 02, 2016 3:56 pm, edited 2 times in total.
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Re: frustrating to keep investing in international/EM

Post by goodenyou » Sat Jan 02, 2016 3:50 pm

goodenyou wrote:
goodenyou wrote:
ryman554 wrote:
goodenyou wrote:Jack Bogle is not a big fan of international. I am beginning to agree with him more and more. I reduced my allocation earlier in 2015 to 20% of my equities portion. I will stay there for now.
Let me ask you a leading question: what will convince you to re-up your international allocation? When they do better?

If so, you have just effectively "sold low" and will "buy high", congratulations. How is this different than rotating out of stocks toward "safer" bonds in 2009?

Stay the course.....
deleted.
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Re: frustrating to keep investing in international/EM

Post by Avo » Sat Jan 02, 2016 4:07 pm

MnD wrote:Or you can just take a total world approach and let the chips fall where they may.
This seems to me to be the place to start. Then ask, why tilt towards the US? Possible answers include:
1) Avoiding extra volatility due to currency risk
2) Avoiding political risk in countries with less stable and/or fair markets than the US
3) ??
Well I can't think of any other reasons at the moment. Neither of these seems to me to be good enough for more than a modest tilt towards the US. Personally, I'm currently upping my international exposure to 40% of equities (from 30%).

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Re: frustrating to keep investing in international/EM

Post by nisiprius » Sat Jan 02, 2016 4:09 pm

rm wrote:It seems international and EM have widely under-performed US for past 5 years. Except for 2012, the data comparing VWO vs VTI shows a large gap .

Have we ever had such a wide divergence historically. Or what is a typical timeframe for reversion to mean.

I have continued to re-balance into EM, EAFE but its getting frustrating to wait for reversion to mean. Not sure what other people on the board are doing.

Thanks
Five years is a "typical" timeframe for mean reversion, but mean reversion is never guaranteed, not reliable, and not all that powerful.

In general, if you look at past statistics for virtually all of the popular "tilts" and "factors" and "diversifiers," the people who advocate for them, if they are honest, will point out that it is a long-term strategy and five years isn't anybody's definition of long term.

One of the reasons why I personally ignore these strategies is that I know perfectly well I would not have the patience for them.

I can't quickly find a easy source comparing developed and emerging markets since 1988, but we can get a pretty good impression if we look at the Vanguard European, Pacific, and Emerging Markets index funds, which tracked the corresponding MSCI indexes and their successors.

During the first ten years of the Emerging Markets index fund, VEIEX, overall it was almost perfectly flat--a $10,000 investment grew to $10,007.07. During that period of time, it hugely underperformed European U.S. stocks. It outperformed Pacific stocks, but by considerably less, and European stocks constituted much more than half of developed markets.

Therefore, I feel certain that 1993-2003 was a period of sustained underperformance of emerging markets stocks.

There was then a period of about five years during which emerging market stocks boomed gloriously. That was the period of time in which investing in them became popular.

And now there have been five years of underperformance.

So the pattern has been ten years of lag, five years of outperformance, and five years of underperformance.

Sources
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Re: frustrating to keep investing in international/EM

Post by asset_chaos » Sat Jan 02, 2016 4:10 pm

This is what is meant by the old adage that investing is simple but not easy.

If you look at different geographic sectors of the stock market and lament having too much of whatever did relatively poorly instead of more of whatever did relatively better, do you apply the same logic to industry sectors of the stock market or to any of the infinite ways that one could mentally divide the stock market into sectors? Oil stocks were worse than tech stocks lately (I don't actually know this; I'm guessing for an illustration). Do you get out of the poorer performing sectors or continue to hold a widely diversified portfolio?

One of the things that investing in a highly diversified stock portfolio through total market type index funds means is that you will always be invested in the most poorly performing market sectors over whatever time frame you care to consider and regardless of how you choose to define market sector. On the bright side, you will also always be invested in the best performing market sectors. With total market type index investing, both of those outcomes are guaranteed.

It's frustrating to try to overthink this investing matter. That's where another good old adage comes in: stay the course.

And a happiest of New Year's to us all.
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Re: frustrating to keep investing in international/EM

Post by ryman554 » Sat Jan 02, 2016 4:15 pm

goodenyou wrote: Nothing will convince me to re-up my international allocation. I am comfortable with 20%. I sold and put the proceeds in a higher performing (bond) asset. 10-year returns at 3.59% don't excite me, and at my age and net worth, I don't need the potential growth.
Re: never increasing I-allocation: That I respect. I wish you hadn't waited until it was close to it's 52 week low, but that's fine.

But please re-read what you wrote in less-specific terms, perhaps not for you, but for others:

I sold my "worse-performing asset A" for a "better performing asset B", based on historical returns. This is exactly the type of behaviour we should avoid at all costs. Always buying the "best/better performer"while getting rid of your "worse/worst performer" means you always buy high (they are the best performers, right?) and sell low (they are the worst).

Yes, in your case, you are changing asset classes for perhaps other reasons, but the main subtext is that you are trading a worse for a better performing fund. It's the absolute worst thing you can promote.

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Re: frustrating to keep investing in international/EM

Post by linenfort » Sat Jan 02, 2016 4:19 pm

Avo wrote:...
Then ask, why tilt towards the US? Possible answers include:
...
3) ??
Well I can't think of any other reasons at the moment.
3) Many US companies are already multinational. Through companies like Pepsi and McDonald's, an all-US investor still has international exposure.
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Re: frustrating to keep investing in international/EM

Post by goodenyou » Sat Jan 02, 2016 4:25 pm

ryman554 wrote:
goodenyou wrote: Nothing will convince me to re-up my international allocation. I am comfortable with 20%. I sold and put the proceeds in a higher performing (bond) asset. 10-year returns at 3.59% don't excite me, and at my age and net worth, I don't need the potential growth.
Re: never increasing I-allocation: That I respect. I wish you hadn't waited until it was close to it's 52 week low, but that's fine.

But please re-read what you wrote in less-specific terms, perhaps not for you, but for others:

I sold my "worse-performing asset A" for a "better performing asset B", based on historical returns. This is exactly the type of behaviour we should avoid at all costs. Always buying the "best/better performer"while getting rid of your "worse/worst performer" means you always buy high (they are the best performers, right?) and sell low (they are the worst).

Yes, in your case, you are changing asset classes for perhaps other reasons, but the main subtext is that you are trading a worse for a better performing fund. It's the absolute worst thing you can promote.

I sold it at the beginning of 2015, not the end. It was not at it's 52-week low at that time. It was luck. I changed my asset allocation per my age and IPS and I reduced international. Thanks for your input.
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Re: frustrating to keep investing in international/EM

Post by jjface » Sat Jan 02, 2016 4:50 pm

The dollar will not be this strong forever. When the tide turns so may international stocks

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Re: frustrating to keep investing in international/EM

Post by linenfort » Sat Jan 02, 2016 4:59 pm

linenfort wrote:
Avo wrote:...
Then ask, why tilt towards the US? Possible answers include:
...
3) ??
Well I can't think of any other reasons at the moment.
3) Many US companies are already multinational. Through companies like Pepsi and McDonald's, an all-US investor still has international exposure.
Then again, there's cb474's post over here.
Search for "complete misunderstanding."
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Re: frustrating to keep investing in international/EM

Post by nedsaid » Sat Jan 02, 2016 5:01 pm

rm wrote:It seems international and EM have widely under-performed US for past 5 years. Except for 2012, the data comparing VWO vs VTI shows a large gap .

Have we ever had such a wide divergence historically. Or what is a typical timeframe for reversion to mean.

I have continued to re-balance into EM, EAFE but its getting frustrating to wait for reversion to mean. Not sure what other people on the board are doing.

Thanks
Why would this be frustrating? It is just how markets work. The 1990's favored US over International. The 2000's favored International over US. The 2010's are a US Large Growth decade so far and US is doing better than International. This is a normal market cycle.

A lot of this is currency driven. A strong US Dollar are headwinds for International Stocks. That is because foreign earnings are less when converted back into dollars. A Euro of earnings will buy fewer dollars. Emerging Markets are affected because in large part they are a play on energy and commodities. As you know oil and commodities haven't done so well since 2008. You are seeing a currency cycle and a commodity cycle.
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Re: frustrating to keep investing in international/EM

Post by stemikger » Sat Jan 02, 2016 5:04 pm

abuss368 wrote:If I simply listened to Jack Bogle over that years an placed everything in two funds: Total Stock and Total Bond, we would have a lot more money!

Hopefully this "diversification" benefit pays off over the long term.
That's what I did and I'm glad I did and one day it will be in one fund...

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Re: frustrating to keep investing in international/EM

Post by cfs » Sat Jan 02, 2016 5:17 pm

Is the best time to buy "when there's blood in the Emerging Market Streets"?

Mark Mobius
“We go into markets when others are fleeing, and while some of our fund performance has struggled at certain points in time, we believe that with our contrarian approach, our shareholders will be rewarded in the long term.”
Charles Cade
“The track record isn’t as good as it used to be. Emerging markets is more of a mainstream play now. Adding value is a lot tougher, and it’s much harder to maintain performance.”
http://www.livemint.com/Money/3sBQRRlDO ... et-st.html

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Avo
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Re: frustrating to keep investing in international/EM

Post by Avo » Sat Jan 02, 2016 5:20 pm

I've never understood the "US companies are already multinational" argument. What if, in the future, some non-US company is just way better than any US company at some particular task (say, making soft drinks), and comes to dominate the worldwide market (including the US)? Wouldn't you want to own shares of that company?

We're used to US companies leading the way in many industries, but there's no guarantee that this will persist indefinitely.

The market has determined the relative value of US companies. The reasons to bet against this judgment of the market are not very persuasive, IMO.

Random Walker
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Re: frustrating to keep investing in international/EM

Post by Random Walker » Sat Jan 02, 2016 5:43 pm

I'm a huge believer in chemical equilibrium, Econ 101 perfect competition, and efficient markets. Many people say a good starting point for an efficient portfolio is the world market cap weighting, which is roughly 50% US /50% International (and 25% international in emerging markets). Most of us by that measure are underweight foreign. Although I'm a huge believer in market efficiency, valuations do matter lots. International and EM priced much less expensively now than US, and thus have higher expected returns. So, perhaps it's a good time to increase one's international weighting. I only make this recommendation because it reflects a move towards world market cap weight. I don't really consider this market timing if it is a permanent change: it's more of an opportunistic reallocation towards portfolio efficiency. Of course the market prices risk, and the lower P/E's, higher expected returns of foreign equities reflect more perceived risk. I'm increasing my own international allocation from 40% to 50%.

Dave

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nisiprius
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Re: frustrating to keep investing in international/EM

Post by nisiprius » Sat Jan 02, 2016 5:50 pm

Avo wrote:I've never understood the "US companies are already multinational" argument. What if, in the future, some non-US company is just way better than any US company at some particular task (say, making soft drinks), and comes to dominate the worldwide market (including the US)? Wouldn't you want to own shares of that company?

We're used to US companies leading the way in many industries, but there's no guarantee that this will persist indefinitely.

The market has determined the relative value of US companies. The reasons to bet against this judgment of the market are not very persuasive, IMO.
Emerging markets are just not all that important, one way or the other.

Image

The market values the stock of all U.S. companies is at about $20 trillion.
The market values the stock of all companies in all emerging markets nations at about $2.3 trillion.

Image

If you take Vanguard Total World Stock Market Index Fund and you throw out emerging markets, you're only throwing out about 6% of the fund. Perhaps "betting against" emerging markets is illogical, but it doesn't seem as if it could be hugely consequential.

To put it another way, if we compare Vanguard Total International, VGTSX, which includes emerging markets, to Fidelity Spartan International Index, which does not... then, during 2000-2008, when emerging markets were booming, VGTSX did better--but not fantastically better.

During the period 2011-2015 that the original poster is lamenting about, when emerging markets has lagged, FSIIX did better than VGTSX--but not fantastically better.

It probably makes sense to invest in emerging markets at their cap weight, but in the past, it didn't make a whole lot of difference whether you did or not.

Source

Image
Last edited by nisiprius on Sat Jan 02, 2016 6:01 pm, edited 3 times in total.
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Re: frustrating to keep investing in international/EM

Post by timboktoo » Sat Jan 02, 2016 5:55 pm

I was barely able to keep myself from buying gold while it was peaking. If I remember correctly, even Mr. Bogle had questioned whether or not he should purchase it during that time. I don't care one lick about gold, but it was the asset of the day and the longer a trend goes, the more difficult it is to resist being swept away by it.

I imagine that everyone here already knows that past performance isn't indicative of future returns. But the words don't have much weight to them when we're battling through the emotions we face as investors. Knowing something intellectually and having it resound like a gong in your heart are two totally different things. Our main work as investors is almost entirely a matter of facing down our selves.

Stay the course. There's a good reason that Mr. Bogle says these words so often. There's wisdom in those words, support from financial academia, and years of experience. Face the man in the mirror, so to speak, and ask him what would work best over the long term. Then write an IPS, execute it and stay so engaged in life that you have no interest in market movements, so humble in character that you fully realize how unknown the future truly is.

- Tim

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Re: frustrating to keep investing in international/EM

Post by tainted-meat » Sat Jan 02, 2016 6:03 pm

Buying a well-diversified fund that is under-performing is when you make you're money. With a strong US dollar you get a lot of international stock for your :moneybag

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Re: frustrating to keep investing in international/EM

Post by Random Walker » Sat Jan 02, 2016 6:17 pm

"Stay the course" is very sound advice. BUT!!! There are a handful of occasions in ones investing lifetime where the course should or may change. We've had a huge bull market over the last 6 years and we've all become 6 years older. It's a good time for an individual to reflect on his personal circumstances relative to his portfolio and consider whether a rational change in asset allocation (a new course) is prudent. Even Bogle's "age in bonds" implies changing asset allocation over time. I personally think age in bonds is excellent starting point, but seems prudent to me to compare investing goals with current portfolio and future expected returns to make informed decisions. I'm becoming a big fan of Monte Carlo analyses.

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Re: frustrating to keep investing in international/EM

Post by Dirghatamas » Sat Jan 02, 2016 6:20 pm

I am new here but have done the "world cap" thing for as long as I have invested so wanted to chime in. I agree with many posters about the irony of arguing for market cap weighting but then being active in neglecting the entire world, in favor of just one home country.

I am 45 now and started investing in my early twenties. So, when I started the timeframe was ~50 years. How can you possibly know the future that far out? Even now, I am investing for a ~30-40 year horizon. Again, how can I possibly guess at which country or company or continent will excel that far out?

The only reason I had for not investing strictly this way (rather than approximating with two funds) was that a combined fund called "world stocks" didn't exist then. It looks like one exists now but its ER is still significantly higher than approximating it using two funds. So it doesn't make sense to use that fund yet and I continue to hold two funds (US total market and Total International Markets).

In my field of engineering, I travel and interact with folks and companies from all across the world. It becomes very unclear what the term "country" means when thinking of these companies which are almost all becoming multi-national world companies, competing with and collaborating with each other. Frequently, with mergers and acquisitions, companies with headquarters in one continent are getting bought and sold from another..

Consider this
1) If you are using a computer or a phone, it is likely that you are using communication chips. Broadcom (an "American" company) makes a lot of these. Avago a company derived from US roots but now headquartered in Singapore, bought Broadcom last year, using funding from various sources across the world. I think the combined company was renamed "Broadcom" due to better brand recognition. Broadcom is still listed in S&P 500..so now do you own a US company or an Asian company or a world company? My position is why would I care?

2) If you drink beer, many Americans think of Budweiser as the strereotypical American beer. The company is actually listed in Belgium but recently a Brazilian private equity firm (3G capital), which ironically is based in New York, merged the two biggest beer companies. The conglomerate will be listed in London Stock exchange. So, do you now own an American company or a Belgium one or a Brazilian one or a British one. I have no idea and don't care.

3) If you like cars, you have probably heard of Jaguar and Land Rover and Volvo. Jaguar and Land Rover were storied British cars while Volvo was as Swedish as it gets. Ford bought all 3 in the (early eighties or nineties I believe). So did they suddenly become American companies? Then during the financial crisis of 2008-2009, Ford was running low on money and sold these. Now Jaguar and Land Rover are owned by Tata Motors (a very large and old Indian Conglomerate). Land Rover's biggest sales are now in China. So now do you own a Chinese company or a British company or an Indian company?

Why waste our time worrying about nationalities? The world is flat, highly interconnected and will become increasingly so over time. Just buy every damn thing!

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Re: frustrating to keep investing in international/EM

Post by selftalk » Sat Jan 02, 2016 6:31 pm

On this website I hear about diversifying globally all year long except now that the year is up it seems that a lot of the global stock holders are having second thoughts and this is definitely emotions rising to the surface and entering into the previous well thought out investment decisions by buying more of the international funds. What happened to patience and the long term and rebalancing ? It was fine when the international funds were down a little but more causing some pre panic feelings. Common sense and past price charts tell you that international will have its day in the sun but you must wait it out. I have bought 2 years ago very little international when I first set up my allocation and had a change of heart when John Bogel was not in favor of it as his reasoning made sense to me in his books and interviews and thus I never added to it again. I felt that I would learn from his experiences and decisions as he must be the top or one of the top experts in this field. So does slice and dice even a little bit beat owning 1-3 funds ? Nisiprius hit the nail on the head at 4:09 pm in this thread. Past history indicates both yes and no. Stay the course long term has proven to reward you.
Last edited by selftalk on Sat Jan 02, 2016 7:26 pm, edited 1 time in total.

saurabh
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Re: frustrating to keep investing in international/EM

Post by saurabh » Sat Jan 02, 2016 6:43 pm

I think that dismissing emerging markets as an investment because they have a low percentage of global market cap (BTW that is free-float adjusted market cap, so understates EM market cap since many companies have greater insider ownership) is just manufacturing a "logical" reason to justify a pre-conceived notion. Contribution to global GDP and growth are better ways to understand their economic significance. I have no problems with US investors deciding to be 100% US investors. I think there is a lot to what Bogle says about American exceptionalism and how US investors don't need to pursue international investments. However once an investor has made a decision to allocate to international I think it makes no sense to eliminate emerging markets in favor of just investment in developed Europe and Japan. Europe does not have a dynamic economy and faces a demographic deficit. Emerging markets have young and growing populations and stronger GDP growth. Emerging markets are also significantly cheaper than Europe or Japan and if there is one thing that is a near unshakable law in investing is that the starting valuation of your investment has a huge impact on forward returns. FWIW I am considering at some point rolling over most of my developed international allocation to EM during the coming year. The main issue with EM is the structure of the index funds where one has outsized exposure to China and meaningful exposure to countries that don't share typical EM growth characteristics like Brazil and Russia. I think China is at a reasonable valuation now and I am optimistic about their navigating a transition to a less top-down economy, but not sure I want to bet 40% of my EM investment on that. One alternative is to use an actively managed EM fund that underweights China or use an index but also make country specific EM investments to bring up weights of other countries (I like India).

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Re: frustrating to keep investing in international/EM

Post by ZenInvestor » Sat Jan 02, 2016 7:06 pm

One of the reasons I invest in Vanguard Total World fund. No regret that i "missed out" or "got suckered."

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Re: frustrating to keep investing in international/EM

Post by sambb » Sat Jan 02, 2016 7:13 pm

selftalk wrote:On this website I hear about diversifying globally all year long except now that the year is up it seems that a lot of the global stock holders are having second thoughts and this is definitely emotions rising to the surface and entering into the previous well thought out investment decisions by buying more of the international funds. What happened to patience and the long term and rebalancing ? It was fine when the international funds were down a little but more causing some pre panic feelings. Common sense and past price charts tell you that international will have its day in the sun but you must wait it out. I have bought 2 years ago very little international when I first set up my allocation and had a change of heart when John Bogel was not in favor of it as his reasoning made sense to me in his books and interviews and thus I never added to it again. I felt that I would learn from his experiences and decisions as he must be the top or one of the top experts in this field. So does slice and dice even a little bit beat owning 1-3 funds ? Past history indicates both yes and no. Stay the course long term has proven to reward you.
+1
To really see how people change minds, look back at the threads from 2008-9 during the crash.
Bogleheads are not all bogleheads all the time

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Re: frustrating to keep investing in international/EM

Post by abuss368 » Sat Jan 02, 2016 7:19 pm

cfs wrote:The Top Three Why.

Why Bonds?
Why TIPs?
Why Internationals?

Those are the Top Three Why in the forum. This is normal when the markets are not performing to investors' expectations. At one point they will outperform the rest. Invest slowly and for the long run.

Wishing you a productive 2016 (with or without bonds, Tips, Internationals).


Hi cfs,

We sold out of the Vanguard TIPS fund many years ago and consolidated with Total Bond Index. We are thankful for the simplicity and plan to stay the course.

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: frustrating to keep investing in international/EM

Post by abuss368 » Sat Jan 02, 2016 7:20 pm

stemikger wrote:
abuss368 wrote:If I simply listened to Jack Bogle over that years an placed everything in two funds: Total Stock and Total Bond, we would have a lot more money!

Hopefully this "diversification" benefit pays off over the long term.
That's what I did and I'm glad I did and one day it will be in one fund...

The Vanguard Balanced Index.
As Jack Bogle would say "keep investing simple"!
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

selftalk
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Re: frustrating to keep investing in international/EM

Post by selftalk » Sat Jan 02, 2016 7:36 pm

"Peeking" can sure be a killer to your financial health.

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Re: frustrating to keep investing in international/EM

Post by Toons » Sat Jan 02, 2016 7:37 pm

Healthcare sector soared in the early to mid nineties.
For years was mediocre.
The last 5 years..up up and away.
Investing requires long term patience.
Stick to your asset allocation and stay the course on a fixed path. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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