World stocks officially reach bear market territory

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Dirghatamas
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World stocks officially reach bear market territory

Post by Dirghatamas »

As a passive global investor, the market index I track is the world cap weighted stock index. With the recent doom and gloom posts on US markets in freefall, I was curious if the world markets are still in correction or now officially in bear territory. According to Vanguard database, we are now officially in bear territory (which may be short given Janet Yellen's testimony to Congress today).

Vanguard World Stock Index reached a high of 26.25 on 5/21/2015. On 2/09/2016 it reached 21.03 to (barely) hit the magic 20% loss from previous highs to qualify as a "bear" market. While individual countries like Brazil, China and Russia and individual sectors like Energy have been hit hard, it is sobering that the total index has hit bear territory.

Actionable: Nothing. Contributions went in January same as usual and will go in February same as usual. Just my morbid curiosity, more than anything else!
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grabiner
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Re: World stocks officially reach bear market territory

Post by grabiner »

Dirghatamas wrote:Vanguard World Stock Index reached a high of 26.25 on 5/21/2015. On 2/09/2016 it reached 21.03 to (barely) hit the magic 20% loss from previous highs to qualify as a "bear" market.
80% of 26.25 is 21.00; the decline is actually 19.89%. And even with rounding, the actual loss is not 20% because of dividends; M* says that $10,000 invested on 5/21/15 would be $8182.13 now.
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Phineas J. Whoopee
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Re: World stocks officially reach bear market territory

Post by Phineas J. Whoopee »

Is that normalized to some currency or other? Which one? The strong US Dollar has fallen a bit recently, increasing the USD value of assets denominated in other currencies, hasn't it? What if prices are normalized to a different currency? In which currency are they the highest, and in which the lowest, and at what moment's exchange rates (there is no midnight, and there is no Sunday, in currency markets), in relation to their previous 52-week highs?

Are we limited to ISO currencies? XDR, IMF Special Drawing Rights, is on the list, of course, but many countries resent not being a member of the basket. Does that make a difference? Are we free to use others, that aren't on the ISO list?

All of this is to say I don't know that there's any simple and unambiguous way to measure the movement of world stocks; and especially not in an official manner.

No doubt your numbers are correct, at least as David-adjusted. I'm not disputing them, and they're probably significant. It is, however, awfully easy for we US persons to become provincial in our views.

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Re: World stocks officially reach bear market territory

Post by CFM300 »

Phineas J. Whoopee wrote:...I don't know that there's any simple and unambiguous way to measure the movement of world stocks; and especially not in an official manner.
Couldn't someone create a cap-weighted measure of the movement of world stocks, where the initial (pre-cap weight) increase or decrease of each market is based on the local currency?
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

grabiner wrote:
Dirghatamas wrote:Vanguard World Stock Index reached a high of 26.25 on 5/21/2015. On 2/09/2016 it reached 21.03 to (barely) hit the magic 20% loss from previous highs to qualify as a "bear" market.
80% of 26.25 is 21.00; the decline is actually 19.89%. And even with rounding, the actual loss is not 20% because of dividends; M* says that $10,000 invested on 5/21/15 would be $8182.13 now.
You got me :D When I divided in excel, it rounded it to 20% so didn't notice the rounding (my excel cell simply showed 80% as the division ratio and 20% as the loss). You are correct that if one rounds to more significant digits, it is not yet a bear.

However, I don't think the definition of a bear market has dividends reinvested. My understanding is that the terms "correction" and "bear" simply refer to price movements. Think of a stock market that lets say stays very slowly declining (lets say 0.001% per year) for 10 years and then drops 25% in a month. Lets say, it paid 3% dividends per year. Your definition would say not a bear and not even a correction. Intuitively, most people would classify a 25% drop in a month as bear territory.

My understanding is that a stock or an index is in bear territory if its PRICE drops below 80% of previous highs.
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Re: World stocks officially reach bear market territory

Post by Phineas J. Whoopee »

Dirghatamas wrote:...
My understanding is that a stock or an index is in bear territory if its PRICE drops below 80% of previous highs.
Such are the wonders of ambiguous definitions. Twenty percent is an arbitrary measure anyway. There's nothing intrinsically-right about it.

Total return is the only reasonable measure, unless one has an economic agenda to pursue. Otherwise, a stock that didn't pay out 5% dividends and fell 19% in lockstep with the market wouldn't be, if I may stretch definitions beyond the breaking point, in a bear, but one that did pay them and beyond that fell 19% in lockstep with the market would be.

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Last edited by Phineas J. Whoopee on Wed Feb 10, 2016 11:33 pm, edited 1 time in total.
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Dirghatamas
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

Phineas J. Whoopee wrote:Is that normalized to some currency or other? Which one?
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The purpose was not to cause any unintended alarm. As a US investor, I always follow this index because it is literally what my assets do: 100% stocks global cap weighted by free float. While I don't actually invest in this Vanguard mutual fund (because of high ER), I use it to track my portfolio and also to figure out how much money to contribute each month to each portion (US stocks vs. international stocks). My actual portfolio is made using the US total stock market index and Total International Stock Index. The reason is much lower costs. I have been doing the same investment strategy for 23 years so nothing new here, just that looking it up for contributions became simpler since Vanguard introduced this fund. Before VG introduced the world stock, I used to have to look at index providers like MSCI to find out what % of world is US. I recognize that I am a distinct minority in using this strategy. Most US investors are heavily overweight in US stocks and even if they invest globally, they invest by a constant % (20%,30% etc) rather than freely floating world cap. What can I say, my strategy made more sense to me when I started, so that's how I always invest.

Anyway, long story, that's the practical reason I follow this index. The index is quoted in US dollars as all 3 are US based funds. Of course a large part of international stocks doing badly in the last year has been the upward movement of the US dollar. I don't see why would one ignore that. It is reality. Currency movements can cause dramatic movements in stock returns. The fact is that my total portfolio really is down by 20% from last year, so I can't ignore currency. Its the yin and yang of currency movements. I am sure a Brazilian or Russian investor, invested in the same world stock index would say bear what bear? its an awesome bull market :wink:
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Re: World stocks officially reach bear market territory

Post by heyyou »

When you know you have no control, why even bother to check the numbers? We just get what we get. I'm glad that the Japanese crash did not occur here, but I'm not checking to see if their recovery is still stalled. Those numbers just don't matter in my life.
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Re: World stocks officially reach bear market territory

Post by Phineas J. Whoopee »

^^ And I don't mean to disagree with you in your using your own method for yourself, Dirghatamas, but merely to point out that the same thing can look different from different perspectives, including numerically.

I probably wouldn't have responded if you wrote something to the effect of, from your point of view, inside the US, managing your own USD-based portfolio, choosing to ignore dividends, it looked that way to you, and you prefer to take no action.

I was responding to your word official. Who's the official? And what is their meterstick? The platinum one in Paris? Why not a yard? Why not, as David says, and as I numerically supported, use total return?

Are you the official?

Give people a cana and they'll take a stadion!

:wink: right back atcha.

PJW
Last edited by Phineas J. Whoopee on Wed Feb 10, 2016 11:37 pm, edited 1 time in total.
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Dirghatamas
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

heyyou wrote:When you know you have no control, why even bother to check the numbers? We just get what we get.
Again, it looks like my intent was misunderstood. I actually HAVE to look at this index because it is literally the way I know what % to contribute in my retirement accounts each month to figure out world cap weighted ratios for US and International. I am not an emotional investor and don't change my investment strategy based on the returns. I just thought it was interesting in a morbid curiosity kind of way, that others too might find interesting. None of this stuff makes me anxious. If I have been happily investing in an under performing asset (international stocks at full cap weight) for 23 years through 2 big bear markets, I certainly am not about to change anything.

I am sorry if my thread brought anxiety to any readers. If there is a way, I would be happy to remove this thread.
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Re: World stocks officially reach bear market territory

Post by Phineas J. Whoopee »

Dirghatamas wrote:...
I am sorry if my thread brought anxiety to any readers. If there is a way, I would be happy to remove this thread.
It would, I believe, be better not to characterize disagreement and embellishment as anxiety and alarm.
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Re: World stocks officially reach bear market territory

Post by biscuits222 »

In terms of price Total World stock is up about 6% from its inception in June 2008 debut, but with dividends included it's up about 22%:
price chart:
https://www.google.com/finance?q=NYSEARCA%3AVT

dividends included chart:
http://quotes.morningstar.com/chart/fun ... ture=en-US

So a 20% drop from here wouldn't even put it in a total-return correction from the 2008 inception. In some markets dividends are the only real return you'll get in the long run, since sometimes prices stay within narrow bands for decades while dividends can increase. Maybe prices are taken more seriously in the US market because dividend payout ratios are lower there, with share buybacks being the more popular way to return profits in USA for various reasons (tax optimisation, plus executives get options when share prices go above a certain point). Total International is often criticised by some for having the same price as the year 2000, ignoring dividend return, as if income from assets doesn't exist.
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Re: World stocks officially reach bear market territory

Post by Bustoff »

Dirghatamas wrote: ... I have been doing the same investment strategy for 23 years...
As of 12/31/2015, Vanguard Total World Stock has 52.9% allocated to United States stocks. Just curious how much the U.S. allocation has drifted over the years.
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Re: World stocks officially reach bear market territory

Post by ge1 »

Chill out people. I think it's a very relevant observation that the global stock market is in a bear market and the way things are going the US market will join that club soon enough.
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

Bustoff wrote:
Dirghatamas wrote: ... I have been doing the same investment strategy for 23 years...
As of 12/31/2015, Vanguard Total World Stock has 52.9% allocated to United States stocks. Just curious how much the U.S. allocation has drifted over the years.
Bustoff, the data and sources I have used over the years have changed. If you want just a picture illustrating how this % US has evolved, here is a decent one
http://wjwealth.com/wp-content/uploads/ ... ared-1.jpg

Currently, beyond using the simple Vanguard database, there is very good data at the World Bank site that I use occasionally. If you simply want to see how each country has done over time, here is a good link at the World Bank
http://data.worldbank.org/indicator/CM. ... play=graph

I plotted the world in the above link and you can simply change it to whatever country you want and see it as a table or graph. As you can see, the world bank uses US $ to calculate the market cap of every country (regardless of what the local currency might be). I use the same math, which is why in my OP I also listed everything in US $. I don't see what is controversial about it: you have to use some kind of measuring stick to find market cap and US $ is as good as a measuring stick as any.

If you want REALLY long time history, the best source I have always found is the Credit Suisse yearbook as it has a wealth of info. Here is a recent one which gives how much per country capitalization has changed in 100 years
https://publications.credit-suisse.com/ ... B5D14A7818

go to page 37 for the country summary.
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Re: World stocks officially reach bear market territory

Post by Artsdoctor »

It's about time. You know these cycles are going to occur, you just don't know when.

If you're feeling nervous and anxious, write down your thoughts when it's happening. Once the market stabilizes and you return to being bullish when everyone is being bullish, read about what your thoughts were when going through a bear market cycle.
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

biscuits222 wrote: So a 20% drop from here wouldn't even put it in a total-return correction from the 2008 inception.
Sorry but we shouldn't be mixing advocacy and data. The date of inception of that particular fund is irrelevant as I simply use it as placeholder for the index. The way to passively hold a global stock index has existed for a long time before that particular fund (I have done it successfully for 23 years), so 2008 is just a date.

If your argument is that one should invest with a total returns mentality, I obviously agree and do that personally. If the argument is one should be a long term buy and hold investor, I agree obviously and have not sold any shares in 23 years and have invested every dividend...so you are not going to find a stronger cheerleader for passive, global, buy and hold investor. This OP wasn't about advocacy.

However, my purpose in OP is to just pass along some information that I found interesting. The standard way to think about something being cheap or expensive is how much are you paying for it today? If house prices are 20% above last year or 20% below last year, one would find that interesting. It is just a relevant piece of information not some advocacy that you should sell your house or buy a house. Similarly, the fact is that today you can buy a certain % of the total world stock market at 20% cheaper price in US $ than you could middle of last year. That to me is the definition of a bear market as it is in many publications. I think people should be interested in knowing that this down turn is not in any given country or sector or industry but the world as a whole. I find that piece of info interesting and so might some others. It is in no way meant to argue that we should panic and sell anything.

The statements: "stock market is 20% cheaper than lat year"; "stock markets have entered bear territory"; "stock markets have fallen by 20% from last year" are all the same factual statements. None of them imply what you should do with the information. I still find such information interesting.
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Re: World stocks officially reach bear market territory

Post by Dirghatamas »

OK people if you don't trust my data and are arguing with me about the definition of bear market, go to Bloomberg business and look at the headline for today, yourself:

"Global stocks slide into bear market"
http://www.bloomberg.com/news/articles/ ... k-below-28

From that article
"declines that sent Europe’s benchmark to its lowest point since 2013 combined to send the MSCI All-Country World Index down 20 percent from a record reached in May, the common definition of a bear market."


That's all I was reporting, having done my own calculations and noticing first that this 20% number had been reached, in starting this thread. I guess Bloomberg agrees with that definition of bear market. YMMV :beer
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Re: World stocks officially reach bear market territory

Post by Snowjob »

ge1 wrote:Chill out people. I think it's a very relevant observation that the global stock market is in a bear market and the way things are going the US market will join that club soon enough.
Most US stocks are basically there already.

FWIW, I added some of the VT (world stock ETF) today, will add more if we have another big down draft from here.
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Re: World stocks officially reach bear market territory

Post by inbox788 »

Dirghatamas wrote:Actionable: Nothing.
From a BH perspective, is anything the market does truly actionable?
Snowjob wrote:FWIW, I added some of the VT (world stock ETF) today, will add more if we have another big down draft from here.
Where are you getting the cash? Is it just sitting around? Are you simply re-balancing from bonds or changing your AA?
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Re: World stocks officially reach bear market territory

Post by Bustoff »

inbox788 wrote:
Dirghatamas wrote:Actionable: Nothing.
From a BH perspective, is anything the market does truly actionable?
Yes! Of course it's actionable. There's plenty of money to be made in volatile markets. Why should Wall Street be the exclusive beneficiaries of all the volatility.
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Re: World stocks officially reach bear market territory

Post by Bustoff »

Dirghatamas wrote:
Bustoff wrote:
Dirghatamas wrote: ... I have been doing the same investment strategy for 23 years...
As of 12/31/2015, Vanguard Total World Stock has 52.9% allocated to United States stocks. Just curious how much the U.S. allocation has drifted over the years.
Bustoff, the data and sources I have used over the years have changed. If you want just a picture illustrating how this % US has evolved, here is a decent one ...
Dirghatamas,

Thank you for the informative reply and links...awesome!

Best,

Bustoff
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Re: World stocks officially reach bear market territory

Post by IPer »

OP, good post, thanks!

I guess I should start feeling bearish, though it is hard to feel anything with all the craziness I
read every day!
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Re: World stocks officially reach bear market territory

Post by Toons »

Great News For Long Term Investors :sharebeer
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Re: World stocks officially reach bear market territory

Post by nisiprius »

I think a lesson here is not to expect too much difference from total global stock market investing and U.S.-only stock market investing. The U.S. stock market is about half of the total combined global stock markets, and the correlation between the U.S. stock market and the rest of the world has been about 0.66 (1975-present).

So since total global is about half U.S. you might expect to split the difference between 0.66 and 1 and and see an 0.84 correlation between a total global portfolio and a U.S.-only portfolio.

Portfolio Visualizer is showing about an 0.96 correlation (!) between VTWSX and VGTSX since inception of VTWSX. Not surprising since that rather short time period included a rather large synchronized crash between the U.S. and the rest of the world, but still... 0.96!

It is also showing an 0.89 correlation, 1972-2015, for a 50/50 U.S.-international allocation versus a 100%-U.S. allocation.
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Re: World stocks officially reach bear market territory

Post by inbox788 »

Bustoff wrote:
inbox788 wrote:
Dirghatamas wrote:Actionable: Nothing.
From a BH perspective, is anything the market does truly actionable?
Yes! Of course it's actionable. There's plenty of money to be made in volatile markets. Why should Wall Street be the exclusive beneficiaries of all the volatility.
The only thing that comes close to BH actionable is the PE10 discussion. Tilting is not really actionable AFAIK.

Can you give any other examples of a BH actionable market action?

Everything I've seen here tells me the market action is simply ignored.
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Re: World stocks officially reach bear market territory

Post by Snowjob »

Snowjob wrote:FWIW, I added some of the VT (world stock ETF) today, will add more if we have another big down draft from here.
Where are you getting the cash? Is it just sitting around? Are you simply re-balancing from bonds or changing your AA?[/quote]

Nope, borrowed a little on margin. Will offset the cost by selling some other borrowed securities that have been appreciating.
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Re: World stocks officially reach bear market territory

Post by czeckers »

It's a good time to check whether any of your funds have hit their rebalancing bands -- may be a good opportunity to "buy low". :sharebeer

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