Home Country Bias...makes sense?

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willthrill81
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Re: Home Country Bias...makes sense?

Postby willthrill81 » Sun May 14, 2017 10:19 am

reriodan wrote:
willthrill81 wrote:According to Credit Suisse, from 1900-2016, 117 years, the U.S. market had an annual real return of 6.4%, while the rest of the world's equities had a real return of 4.3%. Still think I'm cherry picking?


Yes, as a matter of fact. Granted, you doubled your original number of data points. I could show you plenty of time frames where US underperformed other markets. With your investing rationale, you would have been devastated had you been born japanese.


That's simply false. "Cherry picking, suppressing evidence, or the fallacy of incomplete evidence is the act of pointing to individual cases or data that seem to confirm a particular position, while ignoring a significant portion of related cases or data that may contradict that position." I'm looking at all of the data that we have access to. If you have longer data than back to 1900, please share.

Someone will probably jump in and say that I'm ignoring the countries that outperformed the U.S. from 1900-2016 (i.e. Australia and South Africa). But in comparison to total market cap, they are tiny slivers of the market, whereas the U.S. is 53% of the global market. Just as we saw in 2008-2009, if the U.S. market suffers, so does the rest of the world's equities.

reriodan wrote:
willthrill81 wrote:And actually, many mutual fund managers think that they have now found a way to "beat the market" based on "solid arguments" (i.e. investing in companies with social media 'buzz' or those with high customer satisfaction ratings). These are not based in historical returns at all.

I've heard the "arguments over historical data" bit too often. That sword has two edges.

Once again, Bogle and Buffet aren't impressed with international either.


Bogle and Buffet come from a different era, and I think a lot of their motivation for US only is due to their deep-seated patriotism. I think they are wrong on this one. In fact, you can use Bogle's own logic to see the contradiction. They are speculating, though speculating at this scale probably won't be too devastating.

BTW, by "wrong" I don't mean I expect US+international to outperform US-only. I don't expect anything except market returns. That is what I am in the business of. I let the other people with crystal balls do the speculating.


When two investment legends both come to the same conclusion, albeit for slightly different reasons to my knowledge, with their own sound arguments plus strong and lengthy historical data on their side, I don't believe we should take that lightly. They both know full well about Japan, the rise of America as the world's only superpower during the 20th century, diversification, etc. They have both taught us so much about what we now treat as 'gospel', but so many completely disregard their advice on this topic. Maybe they are wrong, but so far, bets that they were wrong before haven't generally gone well I think.

Au revoir.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Home Country Bias...makes sense?

Postby NiceUnparticularMan » Sun May 14, 2017 10:33 am

willthrill81 wrote:Someone will probably jump in and say that I'm ignoring the countries that outperformed the U.S. from 1900-2016 (i.e. Australia and South Africa). But in comparison to total market cap, they are tiny slivers of the market, whereas the U.S. is 53% of the global market. Just as we saw in 2008-2009, if the U.S. market suffers, so does the rest of the world's equities.


All the more reason to load up on Australia and South Africa--less contagion possibility!

It is just bizarre to me that people use the contagion argument to support overloading in U.S. stocks. That might be a good argument for looking for lower-contagion international categories (e.g., international small). But you know what has the most possible contagion from U.S. stocks? Other U.S. stocks!

This is one of those arguments where it helps to think as if you weren't a U.S. investor. If, say, you were a South American investor with a global weight portfolio, and someone mentioned to you the concern that if something bad happened to U.S. stock returns, it may bleed over into the rest of your portfolio, would you then respond by INCREASING your U.S. stocks? Of course not.

And it is almost surely wrong as a general proposition anyway. 2008 was a global financial crisis with lots of financial institutions in other countries participating in the underlying activities that went bad. There are very likely other sorts of bad things that could happen to U.S. stock returns that would be less global to begin with, and any contagion effect in such cases could easily be both lower and also fade quickly under such circumstances.

Valuethinker
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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 11:04 am

It should be reiterated that this "US is best" argument is hilarious to a non-US investor.

We have a real problem with home country bias. Studies show investors have it (in Canada, UK etc.) and how damaging it is.

If you sit in the USA, you can cherrypick one of the top performing markets of the last 117 years, and convince yourself that you know that, but the market does not, so therefore you have the ability to strategically weight towards the market that will outperform in the next 117 years: the USA.

The rest of us? We can't run down that chain of logic.
Last edited by Valuethinker on Sun May 14, 2017 11:07 am, edited 1 time in total.

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 11:06 am

willthrill81 wrote:
Someone will probably jump in and say that I'm ignoring the countries that outperformed the U.S. from 1900-2016 (i.e. Australia and South Africa). But in comparison to total market cap, they are tiny slivers of the market, whereas the U.S. is 53% of the global market. Just as we saw in 2008-2009, if the U.S. market suffers, so does the rest of the world's equities.


Be careful of trying to have your cake and eat it too.

Your logic reads:

US has outperformed and is now 53% of world markets

Therefore if US underperforms, so does the rest of the world.

That's not very good logic ;-). The second statement is impossible (given that we are talking about relative performance).

avalpert
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Re: Home Country Bias...makes sense?

Postby avalpert » Sun May 14, 2017 11:33 am

willthrill81 wrote:
avalpert wrote:By the way, while I find this approach to equity allocation mistaken for anyone it is particularly dangerous to the point of being reckless for someone who also chooses to go 100% equities.


I find it interesting that you would say such a thing about the advice of both Bogle and Buffett. Are they also "performance chasing," "cherry picking the timeframe," "applying rationale selectively," "mistaken," and "reckless?"

No, don't think they are cherry picking since I don't see them rest their argument on a single periods performance (as an aside, yes you are cherry picking when you use 1900-2016 data as you have exactly one sample there). I think they reflect clear home country bias and are a good reminder that even the intelligent are prone to cognitive biases. Also important reminder that argument from authority can be fallacious and just repeating what your guru says isn't a good argument or a wise approach to decision making.

But yes, they are mistaken and, at least when he allows it to be applied broadly, Buffett's recommendation of 90/10 all US can be reckless for many people.

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Re: Home Country Bias...makes sense?

Postby MnD » Sun May 14, 2017 11:59 am

willthrill81 wrote:
munemaker wrote:The one thing that concerns me the most about investing outside the US and Europe is insider trading and the like.

Enough shenanigans go on in the US where we have really good watchdogs. How good is enforcement in Asia and developing countries? They are very lax on intellectual property rights, and I don't expect they have much more respect for shareholder protections. I doubt the playing field is very level.


+1

Few Americans really grasp how light to non-existent enforcement of intellectual property rights is in the developing world, particularly in most of Asia. I've worked with several in business people who have had their patents stolen right out from under them by their 'partners' in Asia.


I seem to recall that not that many years ago, the US at multiple levels (corporate, financial, regulatory) took the star and leading role in almost collapsing the entire global financial system. Millions upon millions of US households were permanently damaged financially. The idea that we have some sort of regulatory or other systematic "edge" over the rest of the world is unsupported. Consider that a very high percentage (around 90%) of a globally market cap weighted equity portfolio is invested in countries with very advanced regulatory and accounting standards.

Have the proponents of taking a significant single country tilt to US ever looked at the country weightings in something like Vanguard Total World?
Here's the allocation of the top 10 countries that equal 84.2 percent of the fund. Not very scary IMO.

United States 53.2%
Japan 7.9%
United Kingdom 6.0%
Canada 3.1%
France 3.0%
Germany 3.0%
Switzerland 2.8%
Australia 2.4%
China 2.2%
Korea 1.6%
https://personal.vanguard.com/us/funds/ ... =INT#tab=2
Last edited by MnD on Sun May 14, 2017 10:32 pm, edited 1 time in total.

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Re: Home Country Bias...makes sense?

Postby letsgobobby » Sun May 14, 2017 12:53 pm

Valuethinker wrote:
willthrill81 wrote:
Someone will probably jump in and say that I'm ignoring the countries that outperformed the U.S. from 1900-2016 (i.e. Australia and South Africa). But in comparison to total market cap, they are tiny slivers of the market, whereas the U.S. is 53% of the global market. Just as we saw in 2008-2009, if the U.S. market suffers, so does the rest of the world's equities.


Be careful of trying to have your cake and eat it too.

Your logic reads:

US has outperformed and is now 53% of world markets

Therefore if US underperforms, so does the rest of the world.

That's not very good logic ;-). The second statement is impossible (given that we are talking about relative performance).

and more to the point, what was the market cap weight of the US in 1900?

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Re: Home Country Bias...makes sense?

Postby sean.mcgrath » Sun May 14, 2017 2:23 pm

willthrill81 wrote:I'm about 95% U.S., though I would like to own more international SC. It isn't in my 401k, so I only access it currently through my IRA.

Considering that over the last 45 years, the U.S. market has earned over 3% more than the rest of the world, I'm not interested in owning the global ex-U.S. market. People can argue about valuations and periods where international has outperformed, but IMHO this all pales in comparison to the historical data.


Hi Will,
I had a look at this when there was the thread about valuing stock markets using the growth formula (here). I compared US GDP growth vs. the UK from 1790 - 2016. Virtually all of the GDP difference could be put down to difference in population growth (i.e., per capita growth was very similar), and if you buy the growth formula to measure the market argument, this would also effect market valuation.

It makes sense to me, especially back when most industries were national: if your customer base was growing faster, so would your sales and profits. If that is the main driver for the 3%, the party is over.

Sean

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Re: Home Country Bias...makes sense?

Postby willthrill81 » Sun May 14, 2017 2:48 pm

sean.mcgrath wrote:
willthrill81 wrote:I'm about 95% U.S., though I would like to own more international SC. It isn't in my 401k, so I only access it currently through my IRA.

Considering that over the last 45 years, the U.S. market has earned over 3% more than the rest of the world, I'm not interested in owning the global ex-U.S. market. People can argue about valuations and periods where international has outperformed, but IMHO this all pales in comparison to the historical data.


Hi Will,
I had a look at this when there was the thread about valuing stock markets using the growth formula (here). I compared US GDP growth vs. the UK from 1790 - 2016. Virtually all of the GDP difference could be put down to difference in population growth (i.e., per capita growth was very similar), and if you buy the growth formula to measure the market argument, this would also effect market valuation.

It makes sense to me, especially back when most industries were national: if your customer base was growing faster, so would your sales and profits. If that is the main driver for the 3%, the party is over.

Sean


Correlation does not equal causation.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Home Country Bias...makes sense?

Postby sean.mcgrath » Sun May 14, 2017 3:08 pm

willthrill81 wrote:Correlation does not equal causation.


Um, GDP per capita is a pretty well-recognized mechanism. You're going to have to do some impressive econometrics before you convince people that having more people doesn't tend to grow the GDP. :happy

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Re: Home Country Bias...makes sense?

Postby willthrill81 » Sun May 14, 2017 3:17 pm

sean.mcgrath wrote:
willthrill81 wrote:Correlation does not equal causation.


Um, GDP per capita is a pretty well-recognized mechanism. You're going to have to do some impressive econometrics before you convince people that having more people doesn't tend to grow the GDP. :happy


No econometrics are necessary. The population growth rate for the U.S. has been on a general decline for 50 years. During that time, stocks have done quite well.

One instance does not disprove a general trend across countries, but it does disprove the notion that population growth is a necessary condition for stock returns.

If one really believed in this idea, then the logical course would be to invest heavily in places like India that are projected to experience substantial population growth.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 4:03 pm

sean.mcgrath wrote:
willthrill81 wrote:I'm about 95% U.S., though I would like to own more international SC. It isn't in my 401k, so I only access it currently through my IRA.

Considering that over the last 45 years, the U.S. market has earned over 3% more than the rest of the world, I'm not interested in owning the global ex-U.S. market. People can argue about valuations and periods where international has outperformed, but IMHO this all pales in comparison to the historical data.


Hi Will,
I had a look at this when there was the thread about valuing stock markets using the growth formula (here). I compared US GDP growth vs. the UK from 1790 - 2016. Virtually all of the GDP difference could be put down to difference in population growth (i.e., per capita growth was very similar), and if you buy the growth formula to measure the market argument, this would also effect market valuation.


There is definitely convergence amongst the GDP per capita of major countries. Where you do see differences (eg France v. USA) it seems to be actual preference-- the French prefer to work fewer hours and earn less money, but have a higher quality of life in other ways.

It makes sense to me, especially back when most industries were national: if your customer base was growing faster, so would your sales and profits. If that is the main driver for the 3%, the party is over.

Sean


In fact, big companies were probably more international in 1900 than at any time before the 1980s, if not 2000. The world in 1900, and in particular the British Empire, was carved up into a handful of giant trading blocs. TRoughly speaking, within those Empires, no trade or customs barriers. (very roughly speaking).

Finance was even more internationalized, because essentially all international transactions cleared through London, in pounds sterling (the discount bills trade).

But the actual issue is this.

Fast growing markets are not usually good for corporate profits. It's the oldest principle in economics: high returns attract new entrants and capital, which drive down returns. Think a gold rush (thousands of pan handlers, driving up the cost of equipment and accomodation). Think the internet (hundreds of money losing dot coms, telecoms companies suffer steady erosion of their business). Think airlines (ditto).

Oil & gas superior returns come out of exclusive access to key reserves. The original o & g industry was so volatile that John D Rockefeller ruthlessly built up monopoly position to stabilize it. Then it was broken up into the various Standard Oils, and along with their international counterparts they became the 7 Sisters, which rigged oil prices (and terms for developing countries that had oil reserves) ruthlessly for decades.

You make more money in mature, oligopolistic industries. Think tobacco-- probably the biggest single generator of shareholder value over the last 25 years. Or Google-- essentially search has become a 1 company monopoly. Or cable companies (sigh).

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 4:10 pm

willthrill81 wrote:
sean.mcgrath wrote:
willthrill81 wrote:Correlation does not equal causation.


Um, GDP per capita is a pretty well-recognized mechanism. You're going to have to do some impressive econometrics before you convince people that having more people doesn't tend to grow the GDP. :happy


No econometrics are necessary. The population growth rate for the U.S. has been on a general decline for 50 years. During that time, stocks have done quite well.

One instance does not disprove a general trend across countries, but it does disprove the notion that population growth is a necessary condition for stock returns.


It's actually profits growth that has been good. Profits have taken a steadily larger share of GDP (against wages) since the late 1970s. In addition, profits *per share* have gone up-- companies have retired record amounts of equity, so EPS has risen (in line with senior executive compensation, as most senior execs are now remunerated on EPS and Total Shareholder Return mechanisms).

If one really believed in this idea, then the logical course would be to invest heavily in places like India that are projected to experience substantial population growth.


India's population growth has probably slowed down more dramatically than the USA since 1967. In fact it almost certainly has. Total Fertility Ratio in the US then was something under 3.0 and is now c. 1.8? And India went from c. 6.0 in 1960 to just over 3.0 now (TFR = children per woman per lifespan, 2.1 is replacement). There's a demographic "sweet spot" though when your dependency ratio falls (non-workers to workers). See Ireland in the 1980s- -went from one of the poorest countries in Europe with high emigration, to one of the richest in about 15 years, following a sharp fall in the birthrate in the 1970s (I think it became legal to sell birth control to married couples in Ireland about 1971).

India is in that now-- rising numbers of old people doesn't offset falling numbers of under 19 year olds. China is *thru* that sweet spot, and so its growth rate will inevitably slow down (has done so)-- the effects of the 1 child policy and an aging population are beginning to be felt.

Rapidly growing economies tend to be highly competitive ones. If you've ever been to China you will have noticed how whatever it is, there is a knock-off brand closely resembling it on the same shelf, at a lower price; or a Starbucks clone 50 feet away from the real Starbucks. Markets are growing, but it's hard to make money.

Since it is Earnings Per Share growth that drives profits, Indian stockmarkets will do well if EPS growth is good, and if managements show signs of distributing that profit to external shareholders.

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Re: Home Country Bias...makes sense?

Postby Dirghatamas » Sun May 14, 2017 4:13 pm

lostdog wrote:Is home country bias basically speculation?

Yes. IMO anytime you move from market consensus (market cap weighted global stocks), you are speculating. It doesn't matter whether you speculate on country, sectors, industries, individual stocks and the 100 new "factors" that have become popular.

Deep down, most people don't want to be "average". They truly believe they can beat the market. I am humble enough to not even try. Perfectly happy holding the market consensus World Stocks for a quarter century now and will be satisfied with whatever "average" results it gives me in the next half century.

There are better things to spend one's energy on like brewing the best tasting cup of coffee :happy

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 4:19 pm

willthrill81 wrote:
sean.mcgrath wrote:
willthrill81 wrote:Correlation does not equal causation.


Um, GDP per capita is a pretty well-recognized mechanism. You're going to have to do some impressive econometrics before you convince people that having more people doesn't tend to grow the GDP. :happy


No econometrics are necessary. The population growth rate for the U.S. has been on a general decline for 50 years. During that time, stocks have done quite well.


Oh. sorry. Obvious point.

US TFR and population growth rate has fallen. US population has risen. The population of the US has risen quite substantially since 1967 (google says 198m people v. c. 350m now) -- a combination of 2 factors:

- birth rate was relatively high at the beginning of the period (the US Generation Y and Millennials are larger than the preceding cohorts despite the post Baby Boom sharp fall in birth rates, that's not true of all countries by any means)

- US experienced a wave of immigration since the early 1970s as large as previous immigration waves into the country (eg as the pre 1921 one) in terms of percentage of the population (moderately smaller, I think, but I'd have to check)

One instance does not disprove a general trend across countries, but it does disprove the notion that population growth is a necessary condition for stock returns.


Actually it doesn't. Because US population grew faster in the last 50 years than most developed countries (except Canada and Australia in particular).

There's a difference between a change and the rate of change in a number.

One factor you can see in the French numbers (and probably the German, and certainly the Russian)-- the impact of two world wars, each one of which killed or crippled c. 1/5 (France in WW1, probably 1/3) men of reproductive age (after the Paraguayan war in the 1800s, when they stood off *all* their neighbours at once, they actually legalized polygamy! ;-)).

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Re: Home Country Bias...makes sense?

Postby NiceUnparticularMan » Sun May 14, 2017 4:22 pm

If an unbiased observer was interested in the history of stock returns, they would, of course, control for population growth rates, and any other notable factor. And of course the correlation need not be perfect in order for it to be significant.

Although what you really might want to know is labor force growth rates. Things like the post WWII baby boom and increased female labor force participation led to an increase in the labor force growth rate in the 1970s, which was in fact correlated with higher real GDP growth rates than we have seen recently:

Image

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 4:29 pm

AlohaJoe wrote:Even with context, it is hard to know exactly what lessons we should be drawing in many cases :?

For instance, it is a little concerning (to me, at least) that basically all of the ex-US foreign countries that have done well are in the Anglosphere. Ireland, Australia, New Zealand, South Africa. Is there some magic "Anglo-Saxon Investing Influence"? (Is there an ETF for that?) Maybe that's the real secret sauce and not "don't have a war destroy you". (After all, the UK was in WW2 and they came out of it...okay.) On the other hand, only the UK really had an empire to leave that kind of legacy. It's not like there's some collapsed Swedish empire to compare against.


Actually there was a big Swedish Empire. Gustavus Adolphus? Overran much of East Central Europe during 30 years war (1618-48). Battle of Poltava (1714?) against Peter the Great finished it off-- Charles X of Sweden goes down as one of history's worst strategists. But for 2 centuries, the Swedes were serious players in the Baltic and ECE.

Go back to the mid 19th century Norway and Sweden were 2 of the most impoverished countries in Europe-- about the time the Industrial Revolution was reaching those countries. Hence the big migrations to the northern midwest of the USA-- isn't everybody in Minnesota blond and named something-son? ;-).

I'd argue the UK did badly in an economic sense out of 2 world wars. The first one spent all our international assets, and the second one left us with huge debts to the USA. The First World War was also demographically devastating (if not as bad as France and Germany). Plus the underlying social tensions exploded-- in particular trade union- management ones, and the class struggle. Along with Italy (and France) you might count us as the "losers" among the winners. France managed to follow WW2 as a "winner" (along with Italy and Germany)-- but we did not. French and German GDP per capita (and eventually Italian, although that has dropped back) passed British GDP per capita, and have never fallen back.

There might be an "Anglo Saxon capitalism" which is around the focus on finance, focus on shareholder value. And that might well prove to have deleterious long term consequences. There's definitely short termism in the way Anglo Saxon companies are managed compared to some of their European and Asian comperes.


Of course, there are definitely countries that just seem plain dysfunctional (Italy especially but also Spain) but for the most part, developed world returns have been basically the same as US returns other than the minor fact of wars that killed tens of millions. That "closeness" shows up by how sensitive things are to start/end dates. For instance, over the past 3-4 years, according to Credit Suisse, Australia went from "the best equities since 1900" to third or fourth place.


Generally you have made an excellent analysis and I love your St Petersburg stock index example! Thank you.
Last edited by Valuethinker on Sun May 14, 2017 4:33 pm, edited 1 time in total.

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Re: Home Country Bias...makes sense?

Postby willthrill81 » Sun May 14, 2017 4:30 pm

Valuethinker wrote:
willthrill81 wrote:One instance does not disprove a general trend across countries, but it does disprove the notion that population growth is a necessary condition for stock returns.


Actually it doesn't. Because US population grew faster in the last 50 years than most developed countries (except Canada and Australia in particular).

There's a difference between a change and the rate of change in a number.

One factor you can see in the French numbers (and probably the German, and certainly the Russian)-- the impact of two world wars, each one of which killed or crippled c. 1/5 (France in WW1, probably 1/3) men of reproductive age (after the Paraguayan war in the 1800s, when they stood off *all* their neighbours at once, they actually legalized polygamy! ;-)).


My point was simply that population growth rates are not the causal factor underlying stock market returns, as Sean McGrath was apparently claiming.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Sun May 14, 2017 4:34 pm

willthrill81 wrote:
Valuethinker wrote:
willthrill81 wrote:One instance does not disprove a general trend across countries, but it does disprove the notion that population growth is a necessary condition for stock returns.


Actually it doesn't. Because US population grew faster in the last 50 years than most developed countries (except Canada and Australia in particular).

There's a difference between a change and the rate of change in a number.

One factor you can see in the French numbers (and probably the German, and certainly the Russian)-- the impact of two world wars, each one of which killed or crippled c. 1/5 (France in WW1, probably 1/3) men of reproductive age (after the Paraguayan war in the 1800s, when they stood off *all* their neighbours at once, they actually legalized polygamy! ;-)).


My point was simply that population growth rates are not the causal factor underlying stock market returns, as Sean McGrath was apparently claiming.


No GDP per capita is closer, though. Perhaps because corporate profits don't tend to shift radically relative to GDP (but have risen sharply, particularly in the Anglo Saxon countries, since 1979). There's also a "modified CAPM" which hung on that factor, but to be honest I don't remember the academic debate about it.

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Re: Home Country Bias...makes sense?

Postby backpacker » Sun May 14, 2017 5:29 pm

Image

I thought I would take a swing at defending willthrill81's international skepticism. The best case for international skepticism IMO relies on being skeptical of long-term historical data, not relying on it.

Take a look at this chart from Vanguard's white paper on home bias. The blue line shows what happens to overall portfolio volatility as we add international stocks, assuming that international stocks in the future have the reasonably low volatility and low correlation with US stocks that they had in the past. But can we assume this?

As Vanguard notes in the paper, most US investor did not own much international stock during the period of low volatility and low correlations that we use now to justify owning them. The experience of most investors has better matched the purple line than the blue line. In fact, Vanguard notes that if the present (as of the publication of the paper) high volatility and high correlation of international stock continues, we will find ourselves on the top green line.

You can see where a US investor would look at the purple and green lines and think, hey, why am owning international stocks? They increase volatility and they cost 25 basis point more (or whatever) once taxes and fees are taken into account. Why am I paying to add risk to my portfolio? Sure, if we could get the low volatility and low correlations of the distant past, international stocks would be worth owning. But those are merely hypothetical. Real investors generally did not get them.

That all said, I own international stocks at market weight.

avalpert wrote:
willthrill81 wrote:I'm about 95% U.S., though I would like to own more international SC. It isn't in my 401k, so I only access it currently through my IRA.

Considering that over the last 45 years, the U.S. market has earned over 3% more than the rest of the world, I'm not interested in owning the global ex-U.S. market. People can argue about valuations and periods where international has outperformed, but IMHO this all pales in comparison to the historical data.

This is really the worst justification I could imagine. The 'historical data' you are using is of such a short specific time frame that happens to align with US overall economic dominance - the notion that it will inevitably look like that even in the near future is silly. In my opinion, the narrowly construed 'historical data' pales in comparison to arguments rooted in meaningful attempts to forecast the future (whether that is based in valuations or diversification simply cause no-one knows).

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Re: Home Country Bias...makes sense?

Postby NiceUnparticularMan » Sun May 14, 2017 6:23 pm

I agree using international stocks to try to reduce volatility may or may not work, and so I wouldn't recommend relying on them to address volatility-related concerns.

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Re: Home Country Bias...makes sense?

Postby ReadyOrNot » Sun May 14, 2017 6:27 pm

Analysis using detailed models to predict future performance do not work well for some things -- stock market performance is an example. So trying to include more factors to predict better with current models is likely to be fruitless, despite a strong current toward this kind of thing in this forum. Investing using simple rules that make sense to you works better, but these rules cannot optimize results. The two competing sets of rules here are sensible attempts to reduce risk, but almost obviously give up on trying to optimize. (1) Diversifying much as you can should diversify your risk, so global diversification makes sense.
(2) Investing only in what you know and understand, and being satisfied if it is good enough works with a known strategy -- investing in a broad US index fund is a simple and effective way to get returns which follow the returns of the US economy, with good results which many people are satisfied with. Bogle and Buffet indicate that they think such results are good enough, and don't worry about chasing better results. People criticize because they're obviously not optimizing. (For example, S&P 500 obviously is not as representative as Total US stock market index, but Buffet thinks it's good enough. Well, in practice, isn't it good enough?) It's not exactly just home country bias -- much of what is known and understood is about the US economy. And the known good results are for US investors in the US. Another example is Jane Bryant Quinn's noting that the success of a 4% withdrawal rule for reasonable US retirement portfolios was based on studies of US investments and really applicable for US investors only.

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Re: Home Country Bias...makes sense?

Postby NiceUnparticularMan » Sun May 14, 2017 6:41 pm

I don't think the problem with U.S.-only investments is they could end up slightly suboptimal. I think the problem is they could end up terrible. That's not likely in my view, but the consequences of such a scenario could be pretty bad for many investors.

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Re: Home Country Bias...makes sense?

Postby ReadyOrNot » Sun May 14, 2017 7:05 pm

It may be out-of-scope of this discussion, and difficult, to plan for the terrible cases when the rules break down. Would global investment be more useful than investments in defensible shelter, wood-burning stove, canned goods, survival training, crop seeds, a well and still for potable water, maybe silver coins for trading, extra good shoes, mountain bike, etc.? I guess I will be stuck in an urban condo and not have many of these things. Either investing globally or in US index funds probably would not save me if the US economy collapses completely. If the US and world economies can recover as they have historically (the US economy seems at least as likely to recover as the world economy in a historically bad collapse) the rules are probably still good.
Last edited by ReadyOrNot on Sun May 14, 2017 7:23 pm, edited 1 time in total.

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Re: Home Country Bias...makes sense?

Postby avalpert » Sun May 14, 2017 7:08 pm

ReadyOrNot wrote:It may be out-of-scope of this discussion, and difficult, to plan for the terrible cases when the rules break down. Would global investment be more useful than investments in defensible shelter, wood-burning stoves, canned goods, survival training, crop seeds, a well and still for potable water, maybe silver coins for trading, extra good shoes, etc.?

There is quite a bit of room between US equity markets doing poorly for an extended period and the downfall of society into an apocalyptic free for all.

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Re: Home Country Bias...makes sense?

Postby NiceUnparticularMan » Sun May 14, 2017 7:12 pm

ReadyOrNot wrote:It may be out-of-scope of this discussion, and difficult, to plan for the terrible cases when the rules break down. Would global investment be more useful than investments in defensible shelter, wood-burning stove, canned goods, survival training, crop seeds, a well and still for potable water, maybe silver coins for trading, extra good shoes, mountain bike, etc.?


It depends. There have been plenty of bad long-term scenarios for one country where most other countries move on. If the entire modern world fell apart, then some sort of non-financial plan might be necessary. If it isn't the whole world, you might more be thinking in terms of being able to move to another country than sticking it out where you were born.

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Re: Home Country Bias...makes sense?

Postby willthrill81 » Sun May 14, 2017 8:18 pm

NiceUnparticularMan wrote:
ReadyOrNot wrote:It may be out-of-scope of this discussion, and difficult, to plan for the terrible cases when the rules break down. Would global investment be more useful than investments in defensible shelter, wood-burning stove, canned goods, survival training, crop seeds, a well and still for potable water, maybe silver coins for trading, extra good shoes, mountain bike, etc.?


It depends. There have been plenty of bad long-term scenarios for one country where most other countries move on. If the entire modern world fell apart, then some sort of non-financial plan might be necessary. If it isn't the whole world, you might more be thinking in terms of being able to move to another country than sticking it out where you were born.


My wife and I have discussed our potentially needing to leave the U.S. at some point for whatever reason. It's not out of the question by any means.

Getting at ReadyOrNot's question, I've heard it said that planting a fruit tree in your backyard is your own 'private' super-Roth IRA. The tree grows tax-free (unless it increases your property taxes, which is doubtful), and the produce is untaxed as well regardless of your age. Some will view this as silly, but I don't think so at all. To the extent that you can decrease your future expenses, it's in many ways equivalent to increasing your future income.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Home Country Bias...makes sense?

Postby Hawaiishrimp » Sun May 14, 2017 8:24 pm

My AA is: 40% US, 30% International because I believe it's more diversified. I'm just keeping it simple and avoid over-thinking it too much. :wink:
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Home Country Bias...makes sense?

Postby simplesauce » Sun May 14, 2017 8:40 pm

Hawaiishrimp wrote:My AA is: 40% US, 30% International because I believe it's more diversified. I'm just keeping it simple and avoid over-thinking it too much. :wink:

This equals only 70%?

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Re: Home Country Bias...makes sense?

Postby Hawaiishrimp » Sun May 14, 2017 8:51 pm

simplesauce wrote:
Hawaiishrimp wrote:My AA is: 40% US, 30% International because I believe it's more diversified. I'm just keeping it simple and avoid over-thinking it too much. :wink:

This equals only 70%?


Yea, 30 % Bonds
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Home Country Bias...makes sense?

Postby simplesauce » Sun May 14, 2017 8:57 pm

Hawaiishrimp wrote:
simplesauce wrote:
Hawaiishrimp wrote:My AA is: 40% US, 30% International because I believe it's more diversified. I'm just keeping it simple and avoid over-thinking it too much. :wink:

This equals only 70%?


Yea, 30 % Bonds


Ok so you're about 57% US/43% Int'l.

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Re: Home Country Bias...makes sense?

Postby 2pedals » Sun May 14, 2017 9:48 pm

I really enjoyed reading "Global equities: Balancing home bias and diversification"paper from Vanguard Research. The paper concludes for many investors between 20% to 40% international is appropriate for various reasons such as volatility, currency risks, diversification and cost.

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Re: Home Country Bias...makes sense?

Postby simplesauce » Sun May 14, 2017 9:57 pm

2pedals wrote:I really enjoyed reading "Global equities: Balancing home bias and diversification"paper from Vanguard Research. The paper concludes for many investors between 20% to 40% international is appropriate for various reasons such as volatility, currency risks, diversification and cost.

Just finished reading that paper! They say "we have demonstrated that international allocations exceeding 40% have not historically added significant additional diversification benefits, particularly accounting for costs. For many investors, an allocation between 20% and 40% should be considered reasonable, given the historical benefits of diversification. Allocations closer to 40% may be suitable for
those investors seeking to be closer to a market- proportional weighting or for those who are hoping to obtain potentially greater diversification benefits and are less concerned with the potential risks and higher costs. On the other hand, allocations closer to 20% may be viewed as offering a greater balance among the benefits of diversification, the risks of currency volatility and higher U.S. to non-U.S. stock correlations, investor preferences, and costs."

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Mon May 15, 2017 2:21 am

avalpert wrote:
ReadyOrNot wrote:It may be out-of-scope of this discussion, and difficult, to plan for the terrible cases when the rules break down. Would global investment be more useful than investments in defensible shelter, wood-burning stoves, canned goods, survival training, crop seeds, a well and still for potable water, maybe silver coins for trading, extra good shoes, etc.?

There is quite a bit of room between US equity markets doing poorly for an extended period and the downfall of society into an apocalyptic free for all.


The period 1966-1980 was bad for US stocks & bonds. But not for every other country.

The US did not collapse in that period, although at times things felt pretty bleak.

Because it had more Tech Media Telecoms stocks than anywhere else, the US market did particularly badly 2000-03. Again, the US economy was not in collapse. 9-11 happened, but that was, in the end, an isolated terrorist incident (with long term global consequences).

Markets can get way ahead of themselves in valuation terms (Japan by 1990) and then stagnate or fall for a decade or more.

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Mon May 15, 2017 2:23 am

simplesauce wrote:
2pedals wrote:I really enjoyed reading "Global equities: Balancing home bias and diversification"paper from Vanguard Research. The paper concludes for many investors between 20% to 40% international is appropriate for various reasons such as volatility, currency risks, diversification and cost.

Just finished reading that paper! They say "we have demonstrated that international allocations exceeding 40% have not historically added significant additional diversification benefits, particularly accounting for costs. For many investors, an allocation between 20% and 40% should be considered reasonable, given the historical benefits of diversification. Allocations closer to 40% may be suitable for
those investors seeking to be closer to a market- proportional weighting or for those who are hoping to obtain potentially greater diversification benefits and are less concerned with the potential risks and higher costs. On the other hand, allocations closer to 20% may be viewed as offering a greater balance among the benefits of diversification, the risks of currency volatility and higher U.S. to non-U.S. stock correlations, investor preferences, and costs."


That's what many of us advise here.

If you are not a US based investor, then the argument has to be to be globally weighted. Anything else has too much country bias.

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Re: Home Country Bias...makes sense?

Postby JoMoney » Mon May 15, 2017 7:11 am

I don't know what (if any) conclusions can be drawn from it, but I find it interesting that according to the Fed Z.1 data it seems that U.S. investors hold a lot more foreign equity than non-U.S. entities hold in U.S. firms:

(4th Quarter 2016)
Market value of foreign equities held by U.S. residents (Includes American Depositary Receipts (ADRs))
$7,128.5 (in Billions)

Foreign holdings of U.S. corporate equities
$5,828.0 (in Billions)

...although, I don't know if they somehow are able to account for all the foreign holdings of U.S. equity derivatives, that may be quite significant.
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Re: Home Country Bias...makes sense?

Postby AlohaJoe » Mon May 15, 2017 7:22 am

JoMoney wrote:I don't know what (if any) conclusions can be drawn from it, but I find it interesting that according to the Fed Z.1 data it seems that U.S. investors hold a lot more foreign equity than non-U.S. entities hold in U.S. firms


Vanguard's white papers on home country bias also show that -- compared to other countries -- US home country bias is less.

My experience based on living in a few countries outside of the US is that is probably mostly down to the relative sophistication and education of US investors. The US basically leads the world when it comes to things like low-cost brokers, low fee investments, and the massive number of websites that talk about things related to investing.

There is no morningstar.com for French investors pushing out new content constantly. There is nothing like alphaarchitect, seekingalpha, or abnormalreturns for Australian investors. There is no Vanguard in Germany constantly trying to guide investors toward the right path. Most countries have nothing like Bogleheads or Rick Ferri or Larry Swedroe evangelising things.

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Re: Home Country Bias...makes sense?

Postby JoMoney » Mon May 15, 2017 9:18 am

AlohaJoe wrote:...the relative sophistication and education of US investors... trying to guide investors toward the right path... evangelising things.

This probably depicts the faith we put into whatever strategy we adopt, but some things (like keeping costs low) have provable benefits, whereas the necessity of broad international diversification has shakier grounds... a good story, logically sound premise, but empirical evidence doesn't show it to be true.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Home Country Bias...makes sense?

Postby asif408 » Mon May 15, 2017 10:28 am

simplesauce wrote:But I'm more interested in reviewing the concerns about political risk, inflationary risk, accounting concerns, currency risk, etc.

Those are the issues I'm concerned with. I don't think anybody knows who will outperform in the future. But regardless, if these other risks are real, then we should be cautious on how much international we invest in, no?
IMO it is pretty arrogant to think that the US is less likely to experiences the issues above than any other country. The argument for international is better for the above reasons than for any potential benefit to performance. Currencies ebb and flow, same for inflation, political risks, etc. Just because other countries have experienced some of these issues more recently than us doesn't make us more likely to avoid them in our lifetimes. I certainly wouldn't invest 100% in international stocks, but I also wouldn't invest 100% in US stocks, either.

I seriously doubt a globally diversified portfolio will be the best performer over the long haul, and if your primary goal with international diversification is to improve returns then that is a poor reason to do it. It's more about avoiding disaster scenarios in individual countries. I'm pretty confident that if one country has some major issues, and you are heavily invested in that one country, you are likely to have much poorer performance than someone more globally diversified. I don't care if my portfolio is one of the best performers, but I do care if I could potentially be one of the worst. A globally diversified portfolio is unlikely to ever be in the "worst" category, barring just a complete global catastrophe, in which case my investments will be the least of my worries.

So to me, that's the best argument I can come up with against home country bias. I treat no country as special, including my own.

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Re: Home Country Bias...makes sense?

Postby KyleAAA » Mon May 15, 2017 11:39 am

To use the historical record (1900-present) as evidence that the US is likely to outperform going forward, you'd need to assume America's standing on the world stage is similar to what it was in 1900. That, of course, is ridiculous. According to this random link I found, the US made up about 15% of the global market cap in 1900. It's over 50% today. The US is running out of share to steal.

http://www.mymoneyblog.com/world-stock- ... -1900.html

Nobody knows what will happen going forward, which is why you should diversify. You might not end up with the BEST possible return, but that's not the goal.

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Re: Home Country Bias...makes sense?

Postby bigred77 » Mon May 15, 2017 11:47 am

asif408 wrote:
I seriously doubt a globally diversified portfolio will be the best performer over the long haul, and if your primary goal with international diversification is to improve returns then that is a poor reason to do it. It's more about avoiding disaster scenarios in individual countries. I'm pretty confident that if one country has some major issues, and you are heavily invested in that one country, you are likely to have much poorer performance than someone more globally diversified. I don't care if my portfolio is one of the best performers, but I do care if I could potentially be one of the worst. A globally diversified portfolio is unlikely to ever be in the "worst" category, barring just a complete global catastrophe, in which case my investments will be the least of my worries.

So to me, that's the best argument I can come up with against home country bias. I treat no country as special, including my own.


I pretty strongly believe that a globally diversified portfolio will have better "risk adjusted" returns than a US only portfolio going forward. I suspect it will have better absolute returns as well but that's just a prognostication based on current valuations.

I strongly believe in your statement that I bolded. Good advice.

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Re: Home Country Bias...makes sense?

Postby bigred77 » Mon May 15, 2017 11:55 am

willthrill81 wrote:
When two investment legends both come to the same conclusion, albeit for slightly different reasons to my knowledge, with their own sound arguments plus strong and lengthy historical data on their side, I don't believe we should take that lightly. They both know full well about Japan, the rise of America as the world's only superpower during the 20th century, diversification, etc. They have both taught us so much about what we now treat as 'gospel', but so many completely disregard their advice on this topic. Maybe they are wrong, but so far, bets that they were wrong before haven't generally gone well I think.

Au revoir.


2 investment legends aren't enough for me (with ALL due respect to both).

I think Bogle suffers from exactly what we're discussing, home country bias. I think he is wrong on this subject. I think Buffet is being "folksy" and is also wrong on the subject.

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Re: Home Country Bias...makes sense?

Postby MnD » Tue May 16, 2017 7:29 pm

At global market cap weighting, we have a huge 53% position in US equity - 6.5X larger than the next highest country weighting.
90% of our fixed income positions are US bonds.
We have two valuable claims on US Social Security, the continued value of which relies heavily on the US government and US economy.
Although many don't, we have one govt backed defined benefit pension claim which again hinges heavily on the success of the USA.
Our city is not a global mecca so our significant home equity position relies on the ability of US buyers to have the income to purchase it.
Even the value of our major material possessions such as vehicles and collectibles hinges heavy on the success of US economy - they have little value to international buyers.

So basically our total net worth, stability and safety of other future income streams and investment portfolio net worth range from almost exclusively to heavily dependant on the US. The minority percentage (47%) of the ex-US equity portion of our investment portfolio (70% equity) is chump-change relative to the overall tilt to USA Inc. I would posit that those concerned with a lack of home country bias in just a global market cap equity weighting should first consider their total home-country risk exposure on a whole portfolio basis.

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Wed May 17, 2017 5:04 am

MnD wrote:At global market cap weighting, we have a huge 53% position in US equity - 6.5X larger than the next highest country weighting.
90% of our fixed income positions are US bonds.
We have two valuable claims on US Social Security, the continued value of which relies heavily on the US government and US economy.
Although many don't, we have one govt backed defined benefit pension claim which again hinges heavily on the success of the USA.
Our city is not a global mecca so our significant home equity position relies on the ability of US buyers to have the income to purchase it.
Even the value of our major material possessions such as vehicles and collectibles hinges heavy on the success of US economy - they have little value to international buyers.

So basically our total net worth, stability and safety of other future income streams and investment portfolio net worth range from almost exclusively to heavily dependant on the US. The minority percentage (47%) of the ex-US equity portion of our investment portfolio (70% equity) is chump-change relative to the overall tilt to USA Inc. I would posit that those concerned with a lack of home country bias in just a global market cap equity weighting should first consider their total home-country risk exposure on a whole portfolio basis.


I think this is a very good point.

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Wed May 17, 2017 5:08 am

bigred77 wrote:
willthrill81 wrote:
When two investment legends both come to the same conclusion, albeit for slightly different reasons to my knowledge, with their own sound arguments plus strong and lengthy historical data on their side, I don't believe we should take that lightly. They both know full well about Japan, the rise of America as the world's only superpower during the 20th century, diversification, etc. They have both taught us so much about what we now treat as 'gospel', but so many completely disregard their advice on this topic. Maybe they are wrong, but so far, bets that they were wrong before haven't generally gone well I think.

Au revoir.


2 investment legends aren't enough for me (with ALL due respect to both).

I think Bogle suffers from exactly what we're discussing, home country bias. I think he is wrong on this subject. I think Buffet is being "folksy" and is also wrong on the subject.


Bogle and Buffett made their investing careers in an investing environment where the US *was* the best. It's a reach then to say it will always be the best.

Bogle wants people to focus on low costs. He's absolutely right, but I think it distorts his views a bit.

Buffett has that knack of boiling down complex things to simple maxims. If everyone who paid attention to Warren Buffett had simply indexed to the S&P 500, as he has been saying for ?decades? then they would probably have been better off (other than owning his own stock i.e. BH, of course).

But Buffett makes international investments. His managerial style works best with US companies, probably, and he can fly to them (in Netjets ;-)) in half a day. The equivalent of the Silicon Valley maxim "the investee company must be headquartered within a day's drive of Sand Hill Row (Stanford U Science Park, centre of the VC industry)".

Home Country Bias is a thing, and it's real, and it lowers returns/ increases volatility for investors. It's less of a problem for a US investor than for anyone else, but we could find sub periods in the data when the converse was true.

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Wed May 17, 2017 5:09 am

KyleAAA wrote:To use the historical record (1900-present) as evidence that the US is likely to outperform going forward, you'd need to assume America's standing on the world stage is similar to what it was in 1900. That, of course, is ridiculous. According to this random link I found, the US made up about 15% of the global market cap in 1900. It's over 50% today. The US is running out of share to steal.

http://www.mymoneyblog.com/world-stock- ... -1900.html

Nobody knows what will happen going forward, which is why you should diversify. You might not end up with the BEST possible return, but that's not the goal.


This is the nub of it. US is c. 55% of developed world?

And there's sector risk. US has a lot of tech and a lot of healthcare. UK, for example, has a lot of mining. By not investing internationally (in equities) a US investor is losing diversification quite significantly (after all, something over $2,000 of say $100,000 invested in the S&P 500 goes into Apple?).

https://personal.vanguard.com/us/FundsQ ... thEnd=true

Oops. 3.7% in Apple. And 2.6% in Alphabet (Google) and Microsoft, each. 1.8% in Amazon.

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Re: Home Country Bias...makes sense?

Postby TX_Man » Wed May 17, 2017 5:42 am

All my investments are denominated in US dollars. Isn't that in and of itself home country bias irrespective of the actual investments?

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Re: Home Country Bias...makes sense?

Postby Valuethinker » Wed May 17, 2017 6:47 am

TX_Man wrote:All my investments are denominated in US dollars. Isn't that in and of itself home country bias irrespective of the actual investments?


Not really. One has to distinguish between dollar reporting, and dollar exposure.

You are a dollar reporting investor. That in and of itself doesn't give you a home country bias. You have plenty of exposure to non USD situations if you hold the global portfolio.

If the investment itself hedges back into USD, then it's a USD investment.

But if you own shares in Diageo, say, the world's largest listed drinks company (Guinness & Johnny Walker), then its home country is the UK and it reports in sterling. But more than 50% of its profits come from dollar countries. So it's to some extent *still* a dollar play.

Versus say AMEX which does business in the US but also abroad. Your share price is in dollars, it pays dividends in dollars, but you are exposed to non-dollar fluctuations (AMEX won't fully hedge its European profits, say, against the USD).

So being a dollar reporting investment doesn't make you home country biased.

Home Country Bias comes, in equities if you ignore the c. 50% of world stock markets that are outside the USA in your equity allocation. That's also true of bonds, but most of us hold here that since bonds are all about safety in either nominal or real dollars (straight bonds or TIPS, depending) as long as there is no credit risk with your government bond holdings, it's OK to hold bonds of your home country only.

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Re: Home Country Bias...makes sense?

Postby raven15 » Fri May 19, 2017 8:32 pm

simplesauce wrote:Hi all. When Taylor Larimore (much respect) was asked "why not market weights?" by someone trying to pick their US vs International allocation, Taylor replied with this list of concerns:

Several reasons:

* Higher costs

* Approximately half the sales of our 500 largest companies are to foreigners

* Americans buy and sell in U.S. dollars

* The U.S is the world's largest economy

* The greatest innovations have originated in the U.S.

* No currency risk

* Greater tax-efficiency

* Less inflation risk

* Less political risk

* Better accounting

* Less fraud and stock manipulation in the U.S.

* U.S. legal environment

* The most stable political environment

My portfolio has been built around VT (Vanguard World Stock Fund) as advised by Burton Malkiel and Charlie Ellis. This fund holds roughly 55% US, 45% Int'l.

But Taylor is in the same mindset as Jack Bogle, who advise to limit one's international stock holdings to only 20% of the portfolio.

I know many of you will say "it makes no difference" or "nobody knows the future," But I do think a discussion is warranted because of Taylor's concerns above. We always talk about the best allocation based on many factors. But not often enough do we address the above. Thank you.

Coming in late despite misgivings about posting in the 1000th international thread. Of those you mentioned currency risk is a real concern for retirees. Higher costs and taxes are valid arguments to the extents that they apply to you but not to most other investors (if your expenses are 0.1% and the government reimburses foreign taxes they might even be benefits). Most of the others the market should reasonably be able to account for over time. Perhaps the biggest risk is simply from investing across borders, which involves the risk that I will call "sometimes countries might be dicks to cross border investors just because they can be." But weighed against that is the concentrated risk associated with your home country which others pointed out.

As for how much international...David Swensen wrote that currency fluctuation is a benefit up to about 25%-30% of your total portfolio and a detriment beyond that. Bogleheads poster Siamond hypothesized that a good global rule of thumb is to invest 75% of stocks at global market weight and 25% in your home country, which results in an optimum international percentage of about 35-40% of stocks for a US investor with a range of 25% to 50%. I have a strong personal rule that having more than 50% of assets in US stocks is taking on too much unnecessary risk, so bonds and international stocks are needed. When you throw bonds into the mix all those rules of thumb seem give a pretty consistent US/international allocation in the range of 25% to 50% of stocks, balancing around the upper 30's.
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JoMoney
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Joined: Tue Jul 23, 2013 5:31 am

Re: Home Country Bias...makes sense?

Postby JoMoney » Sat May 20, 2017 12:08 am

Mr.Bogle has been harangued around here for some of his comments about the specific economic situations in various countries i.e.
John Bogle interview wrote: https://www.businessinsider.com.au/jack ... lly-2016-3
...In essence, you’re not diversifying your risks away from the US economy but adding another risk to your portfolio.
Bogle pointed to the 3 largest holdings in international index funds as an example.
“So if people knew they were putting 45% of their so-called international, non-US, money in Great Britain, France and Japan — I mean every one of those three countries has real problems,” Bogle said.
“The French don’t work very hard, The Japanese have a structured and deeply ageing economy overburdened by future retirement claims… Britain doesn’t know what’s going to happen if they do the exit from the European community, nor do they know what’s going to happen if they stay in.”...

adding to that, I stumbled onto a book the other day that makes some interesting points about the costs of doing business internationally.
Buyer Beware: The Hidden Cost of Labor in an International Merger and Acquisition
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham


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