"Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Taylor Larimore
Advisory Board
Posts: 25694
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

"Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Taylor Larimore » Fri May 19, 2017 10:23 pm

Bogleheads:

Professor Jeremy Siegel has updated one of my favorite charts. It is the "Total Return Indexes" chart through December, 2016. This important chart (page 6) shows the real (after inflation) returns of Stocks, Bonds, Treasury Bills, Gold and the Dollar since January, 1802.

The "Total Return Indexes" chart is useful because it shows the importance of staying-the-course -- which is a surprisingly straight line when looked at over an investor's lifetime.

The link below contains the "Total Return Indexes" chart and much more. Enjoy:

https://www.cfasociety.org/sandiego/Lin ... 17-CFA.pdf

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

User avatar
Peter Foley
Posts: 3908
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Peter Foley » Fri May 19, 2017 11:01 pm

This is a very interesting set of slides with a lot a graphs. I agree with Taylor that it supports staying the course.

I do not have enough knowledge of economic history to know if data from early time periods is relevant in a global marketplace, or from the evolution of an agricultural economy to an industrial economy to a post industrial economy. However, even if you ignore the 19th century and look at the past 117 years the line remain fairly straight as Taylor points out.

User avatar
privatefarmer
Posts: 236
Joined: Mon Sep 08, 2014 2:45 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby privatefarmer » Fri May 19, 2017 11:26 pm

So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...

Ari
Posts: 424
Joined: Sat May 23, 2015 6:59 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Ari » Sat May 20, 2017 3:10 am

These long-term graphs are indeed enlightening. Thank you, Taylor, for sharing!

I especially find the 50-year bear market in bills from 1931-1981 sobering. In bonds, negative real return 1941-1981. Bonds may be good for volatility reduction, but don't count on them for income!

privatefarmer wrote:So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...

You can see on the eighth slide that global real return of stocks has indeed been around 5%.
All in, all the time.

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 3:30 am

Thanks for sharing this!

John Bogle: "Stay the Course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you."
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
elgob.bogle
Posts: 696
Joined: Fri Feb 29, 2008 1:29 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby elgob.bogle » Sat May 20, 2017 3:37 am

Thanks! Great visuals to go with my morning coffee.

elgob

harvestbook
Posts: 247
Joined: Sat Mar 18, 2017 7:12 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby harvestbook » Sat May 20, 2017 6:15 am

Thanks, Taylor. Good info.
This supports some of my beliefs and challenges others. I'm prepared for lower returns on equities (the Bogle 10-year forecast of 4-5 percent nominal) and expect bonds to keep pace with inflation and no more. But it looks like gold bars buried in the henhouse is out as a plan.

User avatar
siamond
Posts: 2980
Joined: Mon May 28, 2012 5:50 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby siamond » Sat May 20, 2017 6:54 am

privatefarmer wrote:So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...

Check slide 8 and you'll find the answer to your question. It is unfortunate that Prof. Siegel spends so little time analyzing international returns in more details though. Maybe because it leads to the inevitable conclusion that the "Siegel's constant" (6.7%) is a fallacy...

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 7:12 am

siamond wrote:
privatefarmer wrote:So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...

Check slide 8 and you'll find the answer to your question. It is unfortunate that Prof. Siegel spends so little time analyzing international returns in more details though. Maybe because it leads to the inevitable conclusion that the "Siegel's constant" (6.7%) is a fallacy...

The data is what it is, but perhaps it provides evidence falsifying the idea of needing global diversification.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
privatefarmer
Posts: 236
Joined: Mon Sep 08, 2014 2:45 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby privatefarmer » Sat May 20, 2017 7:25 am

Ari wrote:These long-term graphs are indeed enlightening. Thank you, Taylor, for sharing!

I especially find the 50-year bear market in bills from 1931-1981 sobering. In bonds, negative real return 1941-1981. Bonds may be good for volatility reduction, but don't count on them for income!

privatefarmer wrote:So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...

You can see on the eighth slide that global real return of stocks has indeed been around 5%.


yeah so what's confusing is that the "world" data only goes back to 1900 but the first chart quoting 6.7% goes back to 1802. I am just wondering where he got his data from 1802-1900? is it US data or world? it really doesn't matter, I suppose. I don't expect more than a 5% real return in global equities going forward but did get overly excited when I saw his 6.7% figure...

Call_Me_Op
Posts: 6471
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Call_Me_Op » Sat May 20, 2017 7:27 am

Thanks Taylor! An excellent collection of historical data on investing.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

AlohaJoe
Posts: 2138
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby AlohaJoe » Sat May 20, 2017 7:38 am

privatefarmer wrote:I am just wondering where he got his data from 1802-1900?


They come from Professor G. William Schwert: http://schwert.ssb.rochester.edu/jbindex.htm

is it US data or world?


US data only.

Others have extended world data -- for at least some countries -- back beyond 1900. For instance Golez & Koudjis's recent "Four centuries of return predictability" which looks at the period 1629-2014.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 8:30 am

JoMoney wrote:The data is what it is, but perhaps it provides evidence falsifying the idea of needing global diversification.


Maybe if you are willing to assume U.S.-only data contains the full range of possibilities for U.S. stocks going forward.

To me that is a crazy assumption, but some U.S. patriots seem to like it.

209south
Posts: 452
Joined: Mon Jan 28, 2013 10:58 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby 209south » Sat May 20, 2017 8:56 am

A good presentation by Siegel - I will have to print and review in more detail, but my key takeaways are:
1. Long-term investments in US equities worked out very well over the past two centuries...this unfortunately provides little assistance with respect to future returns.
2. Global powers in 1900 such as Austria, Italy, France, Germany, etc. had dismal returns over the past century (p8)...with the US being the world leader today, is that indicative of the possible outcome for American investors looking forward?
3. LT real equity risk premium for US investors ~3.2%...with 10yr TIPs yields near zero is Siegel effectively projecting mid-3% real equity returns in the US?
4. While gold has done poorly relative to stocks and bonds, it has actually thrashed its true comparable, which is the dollar...if you took equities and bonds off of p6 and rebased the y-axis, you'd see that holding bullion under a mattress has been better than holding cash under a mattress!

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 9:16 am

209south wrote:A good presentation by Siegel - I will have to print and review in more detail, but my key takeaways are:
1. Long-term investments in US equities worked out very well over the past two centuries...this unfortunately provides little assistance with respect to future returns.
2. Global powers in 1900 such as Austria, Italy, France, Germany, etc. had dismal returns over the past century (p8)...with the US being the world leader today, is that indicative of the possible outcome for American investors looking forward?
3. LT real equity risk premium for US investors ~3.2%...with 10yr TIPs yields near zero is Siegel effectively projecting mid-3% real equity returns in the US?
4. While gold has done poorly relative to stocks and bonds, it has actually thrashed its true comparable, which is the dollar...if you took equities and bonds off of p6 and rebased the y-axis, you'd see that holding bullion under a mattress has been better than holding cash under a mattress!


The combination of (1) and (2) seems like it should be a real concern.

Note (4) is largely based on the one-time event in which Bretton Woods gradually collapsed. Under Bretton Woods, the price of gold was fixed at an artificially low price in USD. By the time Bretton Woods collapsed, it was finally free-floating.

Price-fixed gold and free-floating gold might as well be two totally different assets. If you happened to buy price-fixed gold and held it during the transition to free-floating gold, you did well. But that is an opportunity no longer available--and by the way, if it ever transitions back, the last thing you would want is to be holding gold as it transitioned back.

Anyway, price-fixed gold was extremely low volatility (price-fixing will do that), but had negative real returns. Still, holding paper cash was even worse, although I don't know why anyone would do that. Free-floating gold has around zero expected real returns, but much higher volatility and much higher risk of large losses or large gains. That makes it a "roulette wheel" type asset, which generally are not recommended under modern portfolio theory unless you happen to think you can predict where the price is going.

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 9:17 am

NiceUnparticularMan wrote:...Maybe if you are willing to assume U.S.-only data contains the full range of possibilities for U.S. stocks going forward.

To me that is a crazy assumption, but some U.S. patriots seem to like it.

*shrug* My comment was simply based on the past evidence. The data shows the past hasn't supported the idea that U.S. investors needed to be 'globally diversified'. You can interpret it whatever "crazy" way you wish, it's not really conclusive of anything about the future.... But I'll add,
Warren Buffett wrote:For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
http://www.berkshirehathaway.com/letters/2015ltr.pdf
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
knpstr
Posts: 1630
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby knpstr » Sat May 20, 2017 9:41 am

JoMoney wrote:
NiceUnparticularMan wrote:...Maybe if you are willing to assume U.S.-only data contains the full range of possibilities for U.S. stocks going forward.

To me that is a crazy assumption, but some U.S. patriots seem to like it.

*shrug* My comment was simply based on the past evidence. The data shows the past hasn't supported the idea that U.S. investors needed to be 'globally diversified'. You can interpret it whatever "crazy" way you wish, it's not really conclusive of anything about the future.... But I'll add,
Warren Buffett wrote:For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
http://www.berkshirehathaway.com/letters/2015ltr.pdf


I'm certain people have been taking the position that the "U.S. is done" or "is doomed to fail" forever. Maybe some day they will turn out to be right. Many have and will bet it will happen during their lifetime. As Buffett has said, so far that has been a house of pain.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 9:55 am

JoMoney wrote:*shrug* My comment was simply based on the past evidence. The data shows the past hasn't supported the idea that U.S. investors needed to be 'globally diversified'. You can interpret it whatever "crazy" way you wish, it's not really conclusive of anything about the future....


Well, that's a very different position from the one to which I was responding. The one to which I was responding was:

The data is what it is, but perhaps it provides evidence falsifying the idea of needing global diversification.


My point was that for the historic data to actually "falsify" that idea, you would need some powerful assumptions about how the future will be bounded by past results.

You are now substituting a much weaker claim, that the historic U.S. data does not necessarily support that idea, but it is not really conclusive about the future. I'd still suggest that weaker claim depends on assuming we should not look at non-U.S. data as indicative of U.S. possibilities, because as soon as you allow for the possibility the future of the U.S. could perhaps look like the past of other countries, the value of diversification becomes pretty apparent.

But in any event, as a much weaker claim, it does in fact require much weaker assumptions, which are not quite as "crazy" as the powerful assumptions necessary for the original claim you articulated.

But I'll add,
Warren Buffett wrote:For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
http://www.berkshirehathaway.com/letters/2015ltr.pdf


It is not clear just from that snippet what relationship he sees between the second clause ("and now is no time to start") and the first ("For 240 years it’s been a terrible mistake to bet against America"). It could be either the stronger form of the argument you originally articulated, which I do think is pretty crazy, or the much weaker form you subsequently articulated, which I think is still wrong but a little less crazy, or something else entirely.

But generally speaking, I do think all such arguments basically depend on ignoring what history actually teaches us is possible, once you no longer restrict your historical analysis to the history of just the United States.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 10:02 am

knpstr wrote:As Buffett has said, so far that has been a house of pain.


That's an overstatement of the historic record. For example, if you reached that conclusion in, say, the 1960s, when WWII had faded into the past and the U.S. had pretty much matured, you'd be perfectly fine having gone with a globally-diversified portfolio.

As it happens, you would have done somewhat better from that point until around 1990, and somewhat worse since then, which is why it averages out more or less. And then you would have done better in the 2000s specifically, but worse recently. And so on.

Some people think they can read something meaningful into this back-and-forth over the last 50 years, which they think permanently favors the U.S.-only investor going forward. To me that seems like a classic recency-bias mistake, but some U.S patriots see it differently.

User avatar
knpstr
Posts: 1630
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby knpstr » Sat May 20, 2017 12:03 pm

NiceUnparticularMan wrote:To me that seems like a classic recency-bias mistake, but some U.S patriots see it differently.


I have no doubt it seems that way to you.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 12:43 pm

knpstr wrote:
NiceUnparticularMan wrote:To me that seems like a classic recency-bias mistake, but some U.S patriots see it differently.


I have no doubt it seems that way to you.

240 years of recency bias :wink:
Hopefully people who do feel the international diversification is important don't feel their "patriotism" is at all in question, or that "patriotism" has anything to do with selecting a diversified portfolio of stocks that's been lower cost, less volatile, not subject to peculiarities of sovereign impacts (they don't have legal recourse or voting power to influence), or recognizing economic structural differences and taxation laws they don't need to be subject to.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Dirghatamas
Posts: 506
Joined: Fri Jan 01, 2016 6:18 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Dirghatamas » Sat May 20, 2017 12:44 pm

privatefarmer wrote:So does he use global stock return data to come up w/ the 6.7% real return since 1802 or is that just US data? From what I've read on other sources, the global real return going back as far as we can is only 5%... 6.7% real since 1802, if that is based on global markets, sounds too good to be true...


Others already replied that the best historical data based on Dimson/Marsh Credit Suisse Yearbook work only goes from 1900 to now for ~20 countries and averages at 5% real returns for world stocks. Leaving US aside, there is considerable older data for stocks and "stock like" assets. Thomas Piketty's book "Capital in the 21st Century" has extensive data going back hundreds of years from Europe and North America. There are numerous examples even in popular literature. For example, if you read Jane Austen's novels (yes weird on a financial forum but whatever), you will get a numerical sense of return on capital in England just before/starting of the Industrial Revolution in late 1700s-beginning of 1800s. The expected return on land/rent at the time was 5%.

I use 5% real as the much higher probability event for a world stock indexer. US has been an outlier in its 6.7%. That seems too high to me as a baseline future prediction.

What caught my eye in Siegel's presentation was how unusually high the equity risk premium is currently compared to the historical average. That could imply a higher return on equities or a seriously poor returns on bonds (I suspect the latter).

Overall, I thought this was a very interesting presentation visually. I would take the 6.7% average for US as a placeholder for future predictions with a HUGE grain of salt. That is NOT the same as betting against America.

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 12:51 pm

Dirghatamas wrote:Overall, I thought this was a very interesting presentation visually. I would take the 6.7% average for US as a placeholder for future predictions with a HUGE grain of salt. That is NOT the same as betting against America.


I don't think that Siegel was suggesting at all that one should expect U.S. equities to return 6.7% over the next 10 or even 20 years since the data he showed clearly illustrated that there have been several periods in the last 70 years where that didn't happen.

But I do think that he would say that using Shiller's version of CAPE (with GAAP data) to estimate future returns is, at best, unnecessarily bearish. And that's precisely what many people are relying on when they estimate stock returns of 4% nominal for the next ten years. CAPE has never been a great predictor of market returns (30% maximum explained variance means that 70% is unaccounted for), and for the last 26 years, it's been even worse. Even Larry Swedroe doesn't believe that Shiller's approach is appropriate.
“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

User avatar
oldzey
Posts: 653
Joined: Sun Apr 13, 2014 8:38 pm
Location: Land of Lincoln

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby oldzey » Sat May 20, 2017 1:03 pm

Thank you for sharing, Taylor!
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

Dirghatamas
Posts: 506
Joined: Fri Jan 01, 2016 6:18 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby Dirghatamas » Sat May 20, 2017 1:40 pm

willthrill81 wrote:I don't think that Siegel was suggesting at all that one should expect U.S. equities to return 6.7% over the next 10 or even 20 years since the data he showed clearly illustrated that there have been several periods in the last 70 years where that didn't happen.


Right. I didn't mean that Siegel's expects that: the problem is that his visual presentations are so good and compelling that a casual reader would look at the first graph and go: "OK, US has returned 6.7% for almost 200 years, so that's what it is going to be for my lifetime. Cool".

That's all I was trying to get to. It is prudent to be conservative about future expectations and be pleasantly surprised on the upside rather than plan for it as your baseline and then run into trouble.

NibbanaBanana
Posts: 194
Joined: Sun Jan 22, 2017 10:34 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NibbanaBanana » Sat May 20, 2017 1:48 pm

willthrill81 wrote:
Dirghatamas wrote:Overall, I thought this was a very interesting presentation visually. I would take the 6.7% average for US as a placeholder for future predictions with a HUGE grain of salt. That is NOT the same as betting against America.


I don't think that Siegel was suggesting at all that one should expect U.S. equities to return 6.7% over the next 10 or even 20 years since the data he showed clearly illustrated that there have been several periods in the last 70 years where that didn't happen.

But I do think that he would say that using Shiller's version of CAPE (with GAAP data) to estimate future returns is, at best, unnecessarily bearish. And that's precisely what many people are relying on when they estimate stock returns of 4% nominal for the next ten years. CAPE has never been a great predictor of market returns (30% maximum explained variance means that 70% is unaccounted for), and for the last 26 years, it's been even worse. Even Larry Swedroe doesn't believe that Shiller's approach is appropriate.


I think that's not too far off from what Vanguard's calling for. 5-6% for stocks. I don't know what numbers they use in their CAPM but they're calling for low and slow (rates and growth) for the next decade. But I don't see it beyond the realm of possibilities that the world goes into a prolonged period of general prosperity and businesses do better than expected. It's happened before. And there's no law that says the market has to crash every few years as those "waiting for the crash" seem to assume. Maybe there won't be another great crash in our lifetimes. Not impossible. Sarbanes Oxley has probably weeded out some of the criminals.

Past performance in not................

lazyday
Posts: 2769
Joined: Wed Mar 14, 2007 10:27 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby lazyday » Sat May 20, 2017 2:54 pm

Slide 18:
CAPE methodology forecasts forward 10 year real returns on stocks of only 2%,

Sounds kind of low, I wonder what forecast method is used. Maybe it assumes some reversion to the mean.

I think AQR used CAPE in January to predict a little over 4%, with no mean reversion. As I recall, they also used a dividend discount model and came up with a similar prediction, then averaged the two? I have a link if anyone wants it.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 3:12 pm

JoMoney wrote:240 years of recency bias :wink:


Well, no.

I was pointing out U.S. stocks and ex-U.S. stocks are roughly even for the last 50 years. I also pointed out it has been back and forth in that time, and as recently as the 2000s (meaning 2000 to 2010, and actually to 2012), ex-U.S. stocks beat U.S. stocks. But the last 5 years or so, U.S. has beat ex-U.S., and now a few people are saying things like it has been 240 years of pain for diversified investors. That is a highly misleading claim.

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 3:35 pm

NiceUnparticularMan wrote:... now a few people are saying things like it has been 240 years of pain for diversified investors. That is a highly misleading claim.
It is, and isn't what I think the case... my general stance is it's not likely to make much difference. I think people messing with their portfolios and allocations is more likely to have a negative impact than their decision on how much to allocate, so they should get it set to the amount (that may be zero) they're most likely to be able to live with, and won't be futzing with it if they hear or see something in the media. If you believe the broader diversification is warranted to reduce risk do it if it will help you sleep better, if you think you can sufficiently diversify a portfolio with U.S. stocks without taking on what international brings with it - then I think that's very reasonable... if you cant decide find some middle ground... but get to a point where you're not going to be influenced into making unnecessary changes.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 3:45 pm

I would suggest in a Japan-type scenario, it may be difficult for 100% U.S. investors to stay the course. But I agree that is a key consideration.

User avatar
JoMoney
Posts: 4187
Joined: Tue Jul 23, 2013 5:31 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby JoMoney » Sat May 20, 2017 4:03 pm

Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 4:28 pm

JoMoney wrote:Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:


That's a very good point. The pendulum swings both ways.
“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

User avatar
knpstr
Posts: 1630
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby knpstr » Sat May 20, 2017 4:58 pm

NiceUnparticularMan wrote:
JoMoney wrote:240 years of recency bias :wink:


Well, no.

I was pointing out U.S. stocks and ex-U.S. stocks are roughly even for the last 50 years.


So, recency bias? I'm kidding!

To be clear the pain is relative. Some would say being 100% bonds for the last 240 is just fine, just a low return, but didn't lose money and beat out the dollar. Others would call that pain because you could have invested in stocks.

However, Buffett's actual quote from 2016: "For 240 years it's been a terrible mistake to bet against America, and now is no time to start."
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

User avatar
nedsaid
Posts: 7755
Joined: Fri Nov 23, 2012 12:33 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby nedsaid » Sat May 20, 2017 5:17 pm

JoMoney wrote:Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:


The Japanese version of John Bogle would have said back in 1989 that the large Japanese Multi-National companies derive a lot of their revenues from outside of Japan. Furthermore, these are among the best companies in the world and make the highest quality products in the world. Thus a Japanese investor has no need to invest outside of Japan. He would further have said to stay the course no matter what! I wonder how Japanese stock market participants feel after all of these years.
A fool and his money are good for business.

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 5:45 pm

nedsaid wrote:
JoMoney wrote:Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:


The Japanese version of John Bogle would have said back in 1989 that the large Japanese Multi-National companies derive a lot of their revenues from outside of Japan. Furthermore, these are among the best companies in the world and make the highest quality products in the world. Thus a Japanese investor has no need to invest outside of Japan. He would further have said to stay the course no matter what! I wonder how Japanese stock market participants feel after all of these years.


I wasn't aware that such a person existed. :wink:

And the global ex-U.S. equities dropped by nearly 30% in total from 1990-1992, while the U.S. market increased by nearly 36% over the same period. That is, of course, cherry picking, but it's still stuck in many U.S. investors' minds.

And from 2008-2009, international equities dropped by over 23% while U.S. equities dropped by 19%. International equities certainly didn't save the day then.
“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

User avatar
nedsaid
Posts: 7755
Joined: Fri Nov 23, 2012 12:33 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby nedsaid » Sat May 20, 2017 6:01 pm

willthrill81 wrote:
nedsaid wrote:
JoMoney wrote:Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:


The Japanese version of John Bogle would have said back in 1989 that the large Japanese Multi-National companies derive a lot of their revenues from outside of Japan. Furthermore, these are among the best companies in the world and make the highest quality products in the world. Thus a Japanese investor has no need to invest outside of Japan. He would further have said to stay the course no matter what! I wonder how Japanese stock market participants feel after all of these years.


I wasn't aware that such a person existed. :wink:

And the global ex-U.S. equities dropped by nearly 30% in total from 1990-1992, while the U.S. market increased by nearly 36% over the same period. That is, of course, cherry picking, but it's still stuck in many U.S. investors' minds.

And from 2008-2009, international equities dropped by over 23% while U.S. equities dropped by 19%. International equities certainly didn't save the day then.


The point I was trying to make is that Japan looked pretty invincible in 1989. It was the number two economy in the world with booming stock and real estate markets. There was a lot of talk about the United States emulating Japan's economic model.

The United States has been a great place to invest money and we are still the world's number one economy. I know all the Buffett comments about not betting against the United States and all of that but it reeks of complacency. I don't believe that the United States will be the next Japan (though I think China well could be) and I am not betting against our own country.

What I am saying is that diversification outside our nation's borders is prudent. It certainly would have been for Japanese investors. The US Market soared during the 1990's while the Japanese market sank. Actually, the 1990's were a pretty good time for International Stocks if you exclude Japan. The 2000's, up until the financial crisis, were also good times for International Stocks.

Last I checked, International was almost 27% of my stocks, it has fluctuated between 24% and 27% over the last decade. So I am still primarily a U.S. investor.
A fool and his money are good for business.

User avatar
randomizer
Posts: 434
Joined: Sun Jul 06, 2014 3:46 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby randomizer » Sat May 20, 2017 6:07 pm

Lovely graphs.

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 6:49 pm

nedsaid wrote:Actually, the 1990's were a pretty good time for International Stocks if you exclude Japan.


But how would one know, a prior, to exclude Japan from one's international holdings?

Considering that international stocks grew at 4.96% annually while U.S. equities grew at 17.27% from 1990-1999, I'd be really interested to know what the difference in returns would have been with Japan excluded.
“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

IlliniDave
Posts: 2094
Joined: Fri May 17, 2013 7:09 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby IlliniDave » Sat May 20, 2017 7:17 pm

nedsaid wrote:
JoMoney wrote:Japan is a good example of situations that have made it difficult for U.S. investors to "stay the course" with an international allocation. :wink:


The Japanese version of John Bogle would have said back in 1989 that the large Japanese Multi-National companies derive a lot of their revenues from outside of Japan. Furthermore, these are among the best companies in the world and make the highest quality products in the world. Thus a Japanese investor has no need to invest outside of Japan. He would further have said to stay the course no matter what! I wonder how Japanese stock market participants feel after all of these years.


Good thing we have the real Jack Bogle!
Don't do something. Just stand there!

User avatar
baw703916
Posts: 6596
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby baw703916 » Sat May 20, 2017 7:30 pm

IlliniDave wrote:
Good thing we have the real Jack Bogle!


IOW, good thing the real Jack Bogle has had his home country bias directed fortuitously.
Most of my posts assume no behavioral errors.

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 8:11 pm

baw703916 wrote:
IlliniDave wrote:
Good thing we have the real Jack Bogle!


IOW, good thing the real Jack Bogle has had his home country bias directed fortuitously.


So if a Brazilian investor looks at all of the evidence and choose to invest primarily in the U.S. market, that's not home country bias, but if Bogle, Buffett, and countless others do the exact same thing, it is?
“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

User avatar
baw703916
Posts: 6596
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby baw703916 » Sat May 20, 2017 8:31 pm

willthrill81 wrote:
baw703916 wrote:
IlliniDave wrote:
Good thing we have the real Jack Bogle!


IOW, good thing the real Jack Bogle has had his home country bias directed fortuitously.


So if a Brazilian investor looks at all of the evidence and choose to invest primarily in the U.S. market, that's not home country bias, but if Bogle, Buffett, and countless others do the exact same thing, it is?


For a Brazilian investor, investing specifically in the U.S. can't be home country bias by definition.

I would define home country bias as a decision to invest in one's own country in excess of its market weight proportion of world equities, for reasons other than lower E/R, tax costs, or avoidance of currency risk.

So why does the Brazilian investor think she knows more than the markets how the U.S. will perform going forward? Or a why does a person in the U.S.?
Most of my posts assume no behavioral errors.

IlliniDave
Posts: 2094
Joined: Fri May 17, 2013 7:09 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby IlliniDave » Sat May 20, 2017 8:33 pm

baw703916 wrote:
IlliniDave wrote:
Good thing we have the real Jack Bogle!


IOW, good thing the real Jack Bogle has had his home country bias directed fortuitously.

Or wisely. :D
Don't do something. Just stand there!

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 8:36 pm

baw703916 wrote:So why does the Brazilian investor think she knows more than the markets how the U.S. will perform going forward? Or a why does a person in the U.S.?


They don't have to know more than the markets. Such a person may merely believe that the '240 year trend' won't slow down any time soon. Global cap-weighted investing is by no means the 'default' logical position to take.

I agree that there would be no home country bias in such an instance, and I'm sure that there are plenty non-U.S. investors who are primarily invested in the U.S. market. So readily accusing people of home country bias when one doesn't know the precise reasons for their choice is prejudicial.
“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

User avatar
baw703916
Posts: 6596
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby baw703916 » Sat May 20, 2017 8:53 pm

But the fact that many investors choose to invest in U.S. markets is reflected in the market caps of the U.S. vs. other markets. So an investor following market weights will have a larger proportion invested in the U.S. if the world consensus is to invest in the U.S.
Most of my posts assume no behavioral errors.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 9:00 pm

knpstr wrote:However, Buffett's actual quote from 2016: "For 240 years it's been a terrible mistake to bet against America, and now is no time to start."


Exactly. It hasn't been a "terrible mistake" in the lifetime of most current investors.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 9:04 pm

willthrill81 wrote:So if a Brazilian investor looks at all of the evidence and choose to invest primarily in the U.S. market, that's not home country bias, but if Bogle, Buffett, and countless others do the exact same thing, it is?


Who is this Brazilian investor?

Most non-U.S. investors I have encountered no more than market weight the United States. It seems like an odd coincidence that mostly the folks who buy into the 100% U.S. position are U.S. patriots.

NiceUnparticularMan
Posts: 1740
Joined: Sat Mar 11, 2017 7:51 am

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby NiceUnparticularMan » Sat May 20, 2017 9:05 pm

willthrill81 wrote:and I'm sure that there are plenty non-U.S. investors who are primarily invested in the U.S. market.


Why, exactly, are you sure of this? Do you mean 100% U.S.? Or just market weight?

User avatar
willthrill81
Posts: 1786
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby willthrill81 » Sat May 20, 2017 10:01 pm

NiceUnparticularMan wrote:
willthrill81 wrote:So if a Brazilian investor looks at all of the evidence and choose to invest primarily in the U.S. market, that's not home country bias, but if Bogle, Buffett, and countless others do the exact same thing, it is?


Who is this Brazilian investor?

Most non-U.S. investors I have encountered no more than market weight the United States. It seems like an odd coincidence that mostly the folks who buy into the 100% U.S. position are U.S. patriots.


"Foreigners own about $17 trillion worth of American portfolio assets—representing shares of funds like mutual funds, exchange-traded funds, etc. Foreign holdings of American portfolio assets are concentrated in bonds, worth about $11 trillion. Of this, Treasurys constitute the largest share, worth about $6.3 trillion, according to Bryson and Pershing."
http://www.marketwatch.com/story/how-mu ... 2016-09-27

It was mainly a thought experiment (clearly that person would have no home country bias, so it's not fair to automatically accuse an American buying U.S. equities of being biased or a "patriot"), but I would find it very hard to believe that there aren't a number of non-Americans who own more than market weight in U.S. equities, especially considering that $6 trillion of the stock market, a growing number, is owned by foreigners.

It's a lot easier, IMHO, to say that someone has home country bias if their country represents 2% of global equities, for instance, with a 'so so' long-term track record. At the very least, any disadvantage of home country bias seems much less likely to impact American investors than those in tiny countries.
“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

User avatar
nedsaid
Posts: 7755
Joined: Fri Nov 23, 2012 12:33 pm

Re: "Stocks, Bonds and Future Returns" by Prof. Jeremy Siegel

Postby nedsaid » Sun May 21, 2017 12:05 am

On the topic of home country bias and market capitalization, Canada has about 2% of the World Stock Market capitalization. I would have a very hard time telling a Canadian investor that he could only have 2% invested in his home country. So there are limits to that thinking. I suppose currency would be another argument for home country bias.
A fool and his money are good for business.


Return to “Investing - Theory, News & General”

Who is online

Users browsing this forum: ChrisMD, Michael B, miles2go, NDfan27, plannerman, selters, Yahoo [Bot] and 86 guests