John Bogle Has Been Right About Investing In International Stocks

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by patrick » Sun Jul 30, 2017 3:53 pm

chevca wrote:
patrick wrote:We do not expect regular posters here to start threads titled "(someone) was right about individual stocks" that point to one or two individual stocks outperforming over the last 24 years.
Did (someone) out there make a claim or prediction 24 years ago about that one or two stock outperforming? Then they would have technically been right, yes? :happy

That the international types have made so many posts in this one about what Bogle said that came true being wrong, and blasting Taylor for posting it is quite astonishing really. It's not like he came out in 2017 with a statement like, look US only would have been fine and actually better over the past 24 years. Then sure, blast away.

One doesn't have to agree nor even want to follow the advice. But, to say he was wrong when 24 years shows he wasn't.... wow...
Out of the many people making predictions about individual stocks 24 years ago, I have little doubt that at least one of them was right. I put in (someone) because I was too lazy to look up which one. But if you really think that the response of the "international types" is "astonishing" I will challenge you more directly to answer these two questions:

1) Would you expect a regular here to point to one of the individual stock forecasts and claim explicitly (or even implicitly) that it would be a good (or good enough) strategy in the future to invest in only those stocks?

2) Would you expect a newcomer to this forum doing who did the same to receive a positive reception?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by FIREchief » Sun Jul 30, 2017 3:57 pm

watchnerd wrote:
retiringwhen wrote:
YMMV and if you believed that America is not as exceptional or safe as it was before, you may weigh the balance differently.

When you see data like this...
MnD wrote:
Image
...it raises questions about how long such a divergence between global GDP share vs global market cap share can continue.
Are you implying that US GDP and global market cap share are somehow linked? Doesn't this chart just illustrate that US companies generate about fifty percent of their earnings from overseas? (which we already knew) The only way that divergence would disappear would be if somehow US companies got kicked out of all foreign countries. I guess it could happen, but good people in bad neighborhoods generally don't want the cops to leave.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Sun Jul 30, 2017 4:02 pm

visualguy wrote:
tadamsmar wrote:I recommended to my MIL (who in about 90) to invest in the Vanguard Target Retirement Income Fund.

I recommended to my daughter to invest in the age appropriate Vanguard Target Retirement Fund.

Suppose that it turns out we observe that international beat US over the 24 years after my recommendations.

What I right or wrong about investing in international stocks?

Suppose that it turns out we observe that US beats international over the 24 years after my recommendations.

What I right or wrong about investing in international stocks?
It's not a matter of "beating". It's not a competition. The question is if it makes sense to keep a large chunk of your money in the ex-US index. The answer is that if you're doing it because you think this is an investment that's proven to work in the long run, then you are wrong.
Hmmm. Well perhaps you should let eminent Finance professors Elroy Dimson, Paul Marsh, & Mike Staunton that your most recent 24 year sample just demolished their widely cited findings that the real returns on a global portfolio have been about 5% compounded annually since 1900. They might find it interesting to learn that they've been wrong all of these years.

Credit Suisse too, since they go through the trouble of releasing yearbook updates each year based on Dimson, Marsh, & Stanton's base data.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by happyisland » Sun Jul 30, 2017 4:11 pm

FIREchief wrote: Are you implying that US GDP and global market cap share are somehow linked? Doesn't this chart just illustrate that US companies generate about fifty percent of their earnings from overseas? (which we already knew) The only way that divergence would disappear would be if somehow US companies got kicked out of all foreign countries. I guess it could happen, but good people in bad neighborhoods generally don't want the cops to leave.
Wait, did you just compare "foreign countries" to bad neighborhoods, and "US companies" to cops? I'm starting to get the feeling that there is a heaping helping of home country bias going on in this thread...

Serious question to the thread: are there any non-USA citizens among those of you who are promoting a USA tilt?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by triceratop » Sun Jul 30, 2017 4:13 pm

^^^ To add some context and links: here is the link to the Credit Suisse yearbook: https://publications.credit-suisse.com/ ... 52F61BA0B4

See Chart 5 and Table 2. I would be interested to hear what they respond if you do choose to contact them. Note: I would not recommend doing so.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by patrick » Sun Jul 30, 2017 4:26 pm

visualguy wrote:The US index has provided decent long-term results, the ex-US index hasn't. Like I said many times before, it's absolute, not relative. Investing in the ex-US index hasn't provided an acceptable real return for a very long period of 24 years, while subjecting investors to a lot of volatility. I don't know why you keep mentioning South Africa and Australia, and what those countries have to do with the observation that ex-US simply hasn't been an acceptable investment.
What is the minimum absolute return you consider acceptable?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Sun Jul 30, 2017 4:30 pm

visualguy wrote:
triceratop wrote:
"The U.S. has substantially underperformed South Africa and Australia. It clearly doesn't make sense to keep a large chunk of your money in an ex-SA/ex-AUS index, such as a US TSM index. If you think this is an investment that's proven to work in the long run, then you are wrong."
The US index has provided decent long-term results, the ex-US index hasn't. Like I said many times before, it's absolute, not relative. Investing in the ex-US index hasn't provided an acceptable real return for a very long period of 24 years, while subjecting investors to a lot of volatility. I don't know why you keep mentioning South Africa and Australia, and what those countries have to do with the observation that ex-US simply hasn't been an acceptable investment.
I think the question that needs to asked here, especially since you are stating here that this can be determined on an "absolute" basis, is where exactly should one put the line in determining what an "acceptable real return" is?

Admittedly, I have a sneaking suspicion the line will be drawn right around, but just a smidge higher, than the return of ex-US equities over the past 24 years, but curiosity still gets the best of me in asking.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by FIREchief » Sun Jul 30, 2017 4:52 pm

happyisland wrote:
FIREchief wrote: Are you implying that US GDP and global market cap share are somehow linked? Doesn't this chart just illustrate that US companies generate about fifty percent of their earnings from overseas? (which we already knew) The only way that divergence would disappear would be if somehow US companies got kicked out of all foreign countries. I guess it could happen, but good people in bad neighborhoods generally don't want the cops to leave.
Wait, did you just compare "foreign countries" to bad neighborhoods, and "US companies" to cops? I'm starting to get the feeling that there is a heaping helping of home country bias going on in this thread...
Do you watch the news?! :twisted:

Not US companies, the US as the only remaining super power. If a country kicks US companies out, they probably lose the benefit of that free security that many benefit from, so highly unlikely to happen in my lifetime.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by happyisland » Sun Jul 30, 2017 5:05 pm

FIREchief wrote:
Do you watch the news?! :twisted:
Absolutely not! :D

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by FIREchief » Sun Jul 30, 2017 5:15 pm

happyisland wrote:
FIREchief wrote:
Do you watch the news?! :twisted:
Absolutely not! :D
Good! I also tend to avoid it as much as possible. :sharebeer
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Big Dog » Sun Jul 30, 2017 5:37 pm

real returns on a global portfolio have been about 5% compounded annually since 1900.
tbf: that 5% compounded is Total World, which includes US, correct? Per page 48 of the CreditSuisse report (thanks for posting, btw), ex-US is "4.3% per year, which is 2.1% less" than US...
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Sun Jul 30, 2017 5:46 pm

Big Dog wrote:
real returns on a global portfolio have been about 5% compounded annually since 1900.
tbf: that 5% compounded is Total World, which includes US, correct. Per page 48 of the CreditSuisse report (thanks for posting, btw), ex-US is "4.3% per year, which is 2.1% less" than US...
Correct, the global portfolio would include the U.S. in that figure.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 5:57 pm

Big Dog wrote:
real returns on a global portfolio have been about 5% compounded annually since 1900.
tbf: that 5% compounded is Total World, which includes US, correct. Per page 48 of the CreditSuisse report (thanks for posting, btw), ex-US is "4.3% per year, which is 2.1% less" than US...
Right, so I don't know why the conventional wisdom here has been that they perform the same over the long term. Also, taking this into consideration, I don't understand why people think that there will be some sort of a "reversion to the mean" with ex-US.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Davefish1958 » Sun Jul 30, 2017 6:03 pm

As a new investor and to this forum
This whole thread gives me second thoughts about any type of foreign investment at my age 58

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by GaryA505 » Sun Jul 30, 2017 6:15 pm

I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retiringwhen » Sun Jul 30, 2017 7:02 pm

GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.
Funny you mention this. My wife and I were discussing this thread at dinner tonight and it dawned on her that I have counselled by children to invest in Vanguard target funds as they are just starting out and don't have enough assets to effectively create a three or even two fund portfolio yet. She said, why if you only believe that 15% international is prudent for you do you recommend that your kids have 40%? My answer is that all things being considered, I am will to take that risk to get them investing in a balanced long-term portfolio, once they have $30K (arbitrary) we can talk about adjusting that priority. In other words, I don't like it, but it is what the store has to offer.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 7:07 pm

GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.
Yeah, it seems to make no sense from the investor's perspective. I don't know about the perspective of these fund companies - maybe they want to diversify/divert the money more into their foreign funds because it helps them in some ways.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retiringwhen » Sun Jul 30, 2017 7:27 pm

visualguy wrote:
Big Dog wrote:
real returns on a global portfolio have been about 5% compounded annually since 1900.
tbf: that 5% compounded is Total World, which includes US, correct. Per page 48 of the CreditSuisse report (thanks for posting, btw), ex-US is "4.3% per year, which is 2.1% less" than US...
Right, so I don't know why the conventional wisdom here has been that they perform the same over the long term. Also, taking this into consideration, I don't understand why people think that there will be some sort of a "reversion to the mean" with ex-US.
Beware back-tested data.

It all depends on time-frame of looking at things. Bogle's data from Common Sense on Mutual Funds had at least one period (1960-1997) where returns were identical between the S&P500 and Ex-US EAFE Index @ 11.5% ARR (Common Sense on Mutual Funds, 10th Anniversary Edition, Page 267) and he used that as part of his argument that Global Markets do not reward any excess returns for the attendant risks associated with International investing.

The Credit Suisse Paper was not available when Bogle wrote those words, but it shows a much longer period and is careful to not invoke survivor bias (meaning the great inflations and communist takeovers that eliminated large amounts of personal property are included in the analysis) shows a much higher return for the US vs. the World of 6.4% vs. 5.1% for 1900 through 2016 (4.3% for the World Ex-US). Some Markets won, some lost, and over the interim there have clearly been periods of significant over-performance in both directions, but over the very long-term the US rewarded US investors (Note all numbers in the Credit Suisse paper in USD so the individual country investors would have had very different results based solely on currency fluctuations.)

The careful reading of the Credit Suisse Paper makes it clear that two major factors impact investors of Global Equities Markets: Currency and Inflation Rates among different markets/economies and political/structural risks related to the laws and governments of the individual markets.

Funny how those sound like components of Jack Bogle's argument against investing outside the USA.

But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retiringwhen » Sun Jul 30, 2017 7:30 pm

visualguy wrote:
GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.
Yeah, it seems to make no sense from the investor's perspective. I don't know about the perspective of these fund companies - maybe they want to diversify/divert the money more into their foreign funds because it helps them in some ways.
From a marketing perspective, the theorists have been pushing Global for almost 30 years now and it is considered the "prudent" path for investing. Products like the Target Date Funds clearly have to pass the "prudent" test to not risk being sued by class actions or the SEC. I am not an expert on the SEC rules, but there are industry norms that must be followed to reduce exposure when producing such products.

For some companies, I believe there is a draw for the marginally higher cost structure of international investing as well.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 7:41 pm

visualguy wrote: The US index has provided decent long-term results, the ex-US index hasn't. Like I said many times before, it's absolute, not relative. Investing in the ex-US index hasn't provided an acceptable real return for a very long period of 24 years, while subjecting investors to a lot of volatility.
Since you say it's absolute, and not relative, how much return is an acceptable return?
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 7:47 pm

retiringwhen wrote:
But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?
Are you suggesting that it could be a 116 year long pendulum swing that we went through, and now it may start swinging the other way after well over a century? It doesn't sound like a good bet...

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Wakefield1 » Sun Jul 30, 2017 7:54 pm

If as a result of advertising and advice to the public (and creation of new non-USA investing funds) to increase investment allocations towards having more non-USA funds and stocks there might be enough additional or new money flowing in from USA investors to boost valuations and hence fund prices as a sort of bump independently of the long term success of the companies making up the non-USA funds. Perhaps an opportunity for get in and get out sector/market timers?

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Wakefield1 » Sun Jul 30, 2017 7:58 pm

I think the relative performance of USA markets vs. other markets,especially those in Continental Europe ,over the last 100 years or so reflects some of the results of the two World Wars. Perhaps if there isn't another such disaster soon Europe will strengthen relative to the USA.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 7:59 pm

FIREchief wrote: Are you implying that US GDP and global market cap share are somehow linked? Doesn't this chart just illustrate that US companies generate about fifty percent of their earnings from overseas? (which we already knew)
Deeper implication questions of the graph should be directed to the editorial staff of The Economist; this chart contains no explicit data about about the sources of US corporate income.

What it does show is the de-correlation of of Japanese stock market cap from Japanese share of global GDP as the Japanese stock bubble grew, then a reversion to mean / re-correlation as that stock bubble caved in.

And, as we all know, Japanese multinational corporations also derive significant sources of their income from global trade.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 8:00 pm

Wakefield1 wrote:If as a result of advertising and advice to the public (and creation of new non-USA investing funds) to increase investment allocations towards having more non-USA funds and stocks there might be enough additional or new money flowing in from USA investors to boost valuations and hence fund prices as a sort of bump independently of the long term success of the companies making up the non-USA funds. Perhaps an opportunity for get in and get out sector/market timers?
No, this started years ago, and ex-US still performed poorly over this period.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 8:03 pm

Wakefield1 wrote:I think the relative performance of USA markets vs. other markets,especially those in Continental Europe ,over the last 100 years or so reflects some of the results of the two World Wars. Perhaps if there isn't another such disaster soon Europe will strengthen relative to the USA.
The problem is that it isn't just 100 years. You can go back 24 years and see the same thing without world wars.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Gort » Sun Jul 30, 2017 8:08 pm

GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.

Well, after reading through nine pages on this topic I have to say I agree with you. My take away is that nobody really knows what the optimum asset allocation is. Having said this, I think I would agree more with what Vanguard, Fidelity, Schwab and TRP do with their retirement funds rather than listening to what individual posters in this forum believe. I believe Vanguard knows more than I do so I am going to follow their lead.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 8:11 pm

GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.
I almost hesitate to post this given how often Jeremy Grantham's GMO 7 Year Asset Forecast has turned out to be dead wrong, but I have to give the guy some sort of credit for actually publicly taking a stab at future returns based on current valuations (even though the market seems to now be de-coupled from his methods). Here is the latest I could find publicly:

Image
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retiringwhen » Sun Jul 30, 2017 8:14 pm

visualguy wrote:
retiringwhen wrote:
But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?
Are you suggesting that it could be a 116 year long pendulum swing that we went through, and now it may start swinging the other way after well over a century? It doesn't sound like a good bet...
That is one question for sure. In other words, do you want to bet that the US continues to be the market where equity investments make the best return for whatever reason (e.g., legal, social, technical, geographical, etc.) over the very long-term.

The other question is, there will surely be periods in the future (as in the past) where international markets will outperform. Do you wish to diversify into those markets to include their risk/reward value proposition?

I think this is why this thread is so interesting in the end, almost no one answers those questions exactly the same way even all confirmed "Bogleheads"

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Sun Jul 30, 2017 8:15 pm

Gort wrote: Well, after reading through nine pages on this topic I have to say I agree with you. My take away is that nobody really knows what the optimum asset allocation is. Having said this, I think I would agree more with what Vanguard, Fidelity, Schwab and TRP do with their retirement funds rather than listening to what individual posters in this forum believe. I believe Vanguard knows more than I do so I am going to follow their lead.
My question on this would be what makes you think that your best interest is their first priority in making their decisions? These are all companies pursuing their best interest first.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 8:36 pm

retiringwhen wrote: But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?
Amongst graying societies, the US will probably continue to perform better than its demographic cohort group. However, I would posit that's only of tertiary importance.

As they say, "demographics is destiny", and when I look at data like this, it becomes clear that capturing a significant portion of the world's growing, and young, population will be key to future profits. Facebook, for example, knows this, as do other American-based companies, but I have no doubt there will be strong competitors with origins outside the US:

Image

Image

Now, if you're over 70, maybe you don't care about this because you're not likely to be breathing in 2050. Bogle and Buffet fall into this camp. Zuckerberg likely doesn't.

Maybe US vs International is more related to the age of the investor?

And maybe that's entirely rational...
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by tibbitts » Sun Jul 30, 2017 8:52 pm

watchnerd wrote:
retiringwhen wrote: But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?
Amongst graying societies, the US will probably continue to perform better than its demographic cohort group. However, I would posit that's only of tertiary importance.

As they say, "demographics is destiny", and when I look at data like this, it becomes clear that capturing a significant portion of the world's growing, and young, population will be key to future profits. Facebook, for example, knows this, as do other American-based companies, but I have no doubt there will be strong competitors with origins outside the US...

Now, if you're over 70, maybe you don't care about this because you're not likely to be breathing in 2050. Bogle and Buffet fall into this camp. Zuckerberg likely doesn't.

Maybe US vs International is more related to the age of the investor?

And maybe that's entirely rational...
You would have to forecast and account for the quality of people, not just the quantity. Way above my pay scale.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by tibbitts » Sun Jul 30, 2017 8:55 pm

visualguy wrote:
Gort wrote: Well, after reading through nine pages on this topic I have to say I agree with you. My take away is that nobody really knows what the optimum asset allocation is. Having said this, I think I would agree more with what Vanguard, Fidelity, Schwab and TRP do with their retirement funds rather than listening to what individual posters in this forum believe. I believe Vanguard knows more than I do so I am going to follow their lead.
My question on this would be what makes you think that your best interest is their first priority in making their decisions? These are all companies pursuing their best interest first.
I don't know that we've established that ex-US funds are are better for fund companies, as you suggest. Maybe they do, I just haven't seen data on that - and I don't think you can just conclude that from expense ratios alone.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by retiringwhen » Sun Jul 30, 2017 8:59 pm

tibbitts wrote:
watchnerd wrote:
retiringwhen wrote: But in the end, if you are going to make a bet, you gotta decide, will the US outperformance over the long-run continue or are we just at one end of the pendulum swing?
Amongst graying societies, the US will probably continue to perform better than its demographic cohort group. However, I would posit that's only of tertiary importance.

As they say, "demographics is destiny", and when I look at data like this, it becomes clear that capturing a significant portion of the world's growing, and young, population will be key to future profits. Facebook, for example, knows this, as do other American-based companies, but I have no doubt there will be strong competitors with origins outside the US...

Now, if you're over 70, maybe you don't care about this because you're not likely to be breathing in 2050. Bogle and Buffet fall into this camp. Zuckerberg likely doesn't.

Maybe US vs International is more related to the age of the investor?

And maybe that's entirely rational...
You would have to forecast and account for the quality of people, not just the quantity. Way above my pay scale.
And why do we believe these population predictions either? There are plenty of reasons from education, prosperity, war, gov't policies, etc. that may make these things look a lot different in the future (For example, many people did not predict the utter collapse of Russian population even 20 years ago.)

But with that said, the good old USA is looking more and more like Japan, Sweden and Germany every day when it comes to our birthrates......

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by GaryA505 » Sun Jul 30, 2017 9:07 pm

retiringwhen wrote:
visualguy wrote:
GaryA505 wrote:I'm a skeptic about investing international stock, but if I'm right, then virtually all of the companies that run target date and target retirement funds are wrong. These companies include Vanguard, Fidelity, Schwab and TRP. In fact, Vanguard recently increased their foreign equity percentage from 30% to 40%, and even their retirement income fund (VTINX) has this percentage of foreign stocks. OK, so John Bogle and Warren Buffet say you don't need it, but these guys are so wealthy they could invest in anything and they'll still be rich. I don't know what to think about this anymore.
Yeah, it seems to make no sense from the investor's perspective. I don't know about the perspective of these fund companies - maybe they want to diversify/divert the money more into their foreign funds because it helps them in some ways.
From a marketing perspective, the theorists have been pushing Global for almost 30 years now and it is considered the "prudent" path for investing. Products like the Target Date Funds clearly have to pass the "prudent" test to not risk being sued by class actions or the SEC. I am not an expert on the SEC rules, but there are industry norms that must be followed to reduce exposure when producing such products.

For some companies, I believe there is a draw for the marginally higher cost structure of international investing as well.
I hadn't considered it from the "prudent" viewpoint. All the research suggests that the reversal should happen. So if they DON'T allocate a good percentage to foreign and it happens soon, people will say "see, you blew it". If they DO allocate a good percentage to foreign and it doesn't happen soon, they can just say, "well all the research says it will happen eventually, but nobody knows when".

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 9:09 pm

tibbitts wrote: You would have to forecast and account for the quality of people, not just the quantity. Way above my pay scale.
I'm not sure what you mean. People the world over want to have better lives, buy better stuff.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Sun Jul 30, 2017 9:11 pm

retiringwhen wrote: But with that said, the good old USA is looking more and more like Japan, Sweden and Germany every day when it comes to our birthrates......
Right. Hence my comment about "amongst graying societies", the US looks good, but still suffers from declining population growth, which blunts top line GDP growth.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Sun Jul 30, 2017 9:15 pm

visualguy wrote:
Wakefield1 wrote:I think the relative performance of USA markets vs. other markets,especially those in Continental Europe ,over the last 100 years or so reflects some of the results of the two World Wars. Perhaps if there isn't another such disaster soon Europe will strengthen relative to the USA.
The problem is that it isn't just 100 years. You can go back 24 years and see the same thing without world wars.
But if you go back 50 years (see these same Credit Suisse), you actually wouldn't see the same thing - see that same Credit Suisse yearbook which shows that from 1967 - 2016, U.S. equity outperformance has been pretty small (5.8% vs. 5.5%).

So this gets back to the original point - you're pinning an awful lot on a single 24 year period here (we'll leave aside the fact that 24 years is a pretty arbitrary period, apparently chosen due to the fact that this was the time period at which Jack Bogle decided to brag about his no-international equity stance being "really right"). Since you don't want to volunteer where you draw this "unacceptable" line at, we'll cut to the chase and just use the actual real CAGR for ex-US equities from this 1993 to 2016 time period, which is ... 3.16% CAGR

Now, since the possibility of producing a 3.16% CAGR in any 24 year period is apparently "unacceptable", we might ask ourselves if such an event has ever occurred with U.S. equities. And as a matter of fact, you would have actually found 5 such occasions in the past 37 years alone (year end of 1979, 1982, 1983, 1984, 1985), where by your own standards, you would have looked back at the 24 year annualized real return of U.S. equities, deemed them "unacceptable", and subsequently tossed them from your portfolio.*

Of course, if you done so, you would have missed out a pretty epic bull market in U.S. equities.


*Note: In the interest of transparency and in case anyone is curious about the source for the S&P 24 year total return numbers, below is the Python code to pull and play with data used to derive:

Code: Select all

import quandl
from matplotlib import style
%matplotlib inline  
style.use('fivethirtyeight')

Shiller = quandl.get("YALE/SPCOMP")

Shiller["TTM Real Return"] = (100*((Shiller["Real Price"].diff(12) + Shiller["Real Dividend"])/Shiller["Real Price"].shift(12)))
Annual_Shiller = Shiller[["Real Price", "Real Dividend", "TTM Real Return"]].filter(like='-12-31', axis=0)    
Annual_Shiller["TR Index"] = ((Annual_Shiller["TTM Real Return"]+100)/100).cumprod()

lookback = 24
Annual_Shiller[str(lookback) + " Yr Ret"] = ((Annual_Shiller["TR Index"].pct_change(lookback)+1)**(1/lookback)-1)*100

Annual_Shiller[Annual_Shiller[str(lookback) + " Yr Ret"] < 3.16]

Annual_Shiller[str(lookback) + " Yr Ret"].plot()

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by GoldenFinch » Sun Jul 30, 2017 9:32 pm

Wow, nine pages! :shock:

I'm just going to go with the "nobody knows" adage and not change anything....

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by TimeRunner » Sun Jul 30, 2017 9:34 pm

GoldenFinch wrote:Wow, nine pages! :shock:

I'm just going to go with the "nobody knows" adage and not change anything....
One could even remark that "Nobody knows Jack." :twisted:
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by LadyGeek » Sun Jul 30, 2017 9:57 pm

Chuffly wrote:...*Note: In the interest of transparency and in case anyone is curious about the source for the S&P 24 year total return numbers, below is the Python code to pull and play with data used to derive:[/i]

Code: Select all

import quandl
from matplotlib import style
%matplotlib inline  
style.use('fivethirtyeight')

Shiller = quandl.get("YALE/SPCOMP")

Shiller["TTM Real Return"] = (100*((Shiller["Real Price"].diff(12) + Shiller["Real Dividend"])/Shiller["Real Price"].shift(12)))
Annual_Shiller = Shiller[["Real Price", "Real Dividend", "TTM Real Return"]].filter(like='-12-31', axis=0)    
Annual_Shiller["TR Index"] = ((Annual_Shiller["TTM Real Return"]+100)/100).cumprod()

lookback = 24
Annual_Shiller[str(lookback) + " Yr Ret"] = ((Annual_Shiller["TR Index"].pct_change(lookback)+1)**(1/lookback)-1)*100

Annual_Shiller[Annual_Shiller[str(lookback) + " Yr Ret"] < 3.16]

Annual_Shiller[str(lookback) + " Yr Ret"].plot()
Since you posted the code, I tried it. :) Using Linux:

First, I installed the quandl library as:

Code: Select all

# pip install quandl
I saved the code as test.py and ran:

Code: Select all

$ python test.py
But got a syntax error on line 3.

Code: Select all

  File "test.py", line 3
    %matplotlib inline 
    ^
SyntaxError: invalid syntax
What am I doing wrong?
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Sun Jul 30, 2017 10:29 pm

LadyGeek wrote:
Chuffly wrote:...*Note: In the interest of transparency and in case anyone is curious about the source for the S&P 24 year total return numbers, below is the Python code to pull and play with data used to derive:[/i]

Code: Select all

import quandl
from matplotlib import style
%matplotlib inline  
style.use('fivethirtyeight')

Shiller = quandl.get("YALE/SPCOMP")

Shiller["TTM Real Return"] = (100*((Shiller["Real Price"].diff(12) + Shiller["Real Dividend"])/Shiller["Real Price"].shift(12)))
Annual_Shiller = Shiller[["Real Price", "Real Dividend", "TTM Real Return"]].filter(like='-12-31', axis=0)    
Annual_Shiller["TR Index"] = ((Annual_Shiller["TTM Real Return"]+100)/100).cumprod()

lookback = 24
Annual_Shiller[str(lookback) + " Yr Ret"] = ((Annual_Shiller["TR Index"].pct_change(lookback)+1)**(1/lookback)-1)*100

Annual_Shiller[Annual_Shiller[str(lookback) + " Yr Ret"] < 3.16]

Annual_Shiller[str(lookback) + " Yr Ret"].plot()
Since you posted the code, I tried it. :) Using Linux:

First, I installed the quandl library as:

Code: Select all

# pip install quandl
I saved the code as test.py and ran:

Code: Select all

$ python test.py
But got a syntax error on line 3.

Code: Select all

  File "test.py", line 3
    %matplotlib inline 
    ^
SyntaxError: invalid syntax
What am I doing wrong?
My apologies, that "% matplotlib inline" line only works if you use the jupyter notebooks. Probably should have removed that for folks that don't use jupyter notebooks and instead run straight python scripts.

Try the script below instead (alternatively, just delete or comment out the "% matplotlib inline" line from the previous script you tried). Also, please note that the below script is Python 3 - print statement needs to be modified if run in Python 2.

And let me know if you have any feedback on how I set up the calculations! Shiller's data set seemed like the best one to come up with the total return stretching back to 1870. Unfortunately, I couldn't find a readily available data set on Quandl with the annual real return (with dividends reinvested) so I had to calculate that part myself in the script. I did dividend reinvestment annually, as I didn't know of a better way to do that accurately - this was the first time I've really worked with Shiller's data, but I presumed his "Real Dividend" column was the TTM dividends paid so any more frequent dividend reinvestment than annually seemed like it would create problems.

So the "TTM Real Return" column was the change in the "Real Price" over the preceding 12 months (one year of real price gains) + plus the corresponding Real Dividend (presuming it was TTM), then dividing that sum of those two numbers by the Real Price from 12 months ago.

Code: Select all

import quandl
from matplotlib import style
style.use('fivethirtyeight')

Shiller = quandl.get("YALE/SPCOMP")

Shiller["TTM Real Return"] = (100*((Shiller["Real Price"].diff(12) + Shiller["Real Dividend"])/Shiller["Real Price"].shift(12)))
Annual_Shiller = Shiller[["Real Price", "Real Dividend", "TTM Real Return"]].filter(like='-12-31', axis=0)    
Annual_Shiller["TR Index"] = ((Annual_Shiller["TTM Real Return"]+100)/100).cumprod()

lookback = 24
Annual_Shiller[str(lookback) + " Yr Ret"] = ((Annual_Shiller["TR Index"].pct_change(lookback)+1)**(1/lookback)-1)*100

print(Annual_Shiller[Annual_Shiller[str(lookback) + " Yr Ret"] < 3.16])

Annual_Shiller[str(lookback) + " Yr Ret"].plot()

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by visualguy » Mon Jul 31, 2017 1:44 am

1966-1982 was a really bad period of runaway inflation and zero real returns in the US stock market (and horrible real returns in bonds). Fortunately, this was a unique period. Not really comparable to what is going on with ex-US where it performs poorly during much more frequent long-term periods of time, and it performs poorly while nothing bad is going on such as a major war or crazy inflation or depression.

Having said that, I don't think that acceptable long-term performance is a given with the US stock index (or bonds) either, which is the reason I also invest in direct ownership of real estate. I just find that the US index has a good-enough track record to merit investment, while ex-US doesn't.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by watchnerd » Mon Jul 31, 2017 2:16 am

visualguy wrote:1966-1982 was a really bad period of runaway inflation and zero real returns in the US stock market (and horrible real returns in bonds). Fortunately, this was a unique period. Not really comparable to what is going on with ex-US where it performs poorly during much more frequent long-term periods of time, and it performs poorly while nothing bad is going on such as a major war or crazy inflation or depression.

Having said that, I don't think that acceptable long-term performance is a given with the US stock index (or bonds) either, which is the reason I also invest in direct ownership of real estate. I just find that the US index has a good-enough track record to merit investment, while ex-US doesn't.
US stocks are trading at an all time CAPE high, while ex-US are not.

To quote Larry Swedroe:

Investors who abandon the strategy of broad global diversification due to recency would now be selling international and emerging market equities when their valuations are much lower, and their expected returns are much higher. They likely would already have suffered the pains of the lower returns and would at this point be selling low to buy high.

Over the 40-year period ending in 2008, U.S. large-cap and small-cap growth stocks both underperformed long-term U.S. Treasury bonds. I would hope that investors didn’t abandon the idea that these risky assets should be expected to outperform in the future just because they had experienced a long period of underperformance. Yet when it comes to international investing, perhaps because of home country bias, investors are far too willing to abandon well-thought-out strategies involving global diversification of international equities when those investments experience inevitable periods of underperformance.
http://www.etf.com/sections/index-inves ... nopaging=1
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Chuffly » Mon Jul 31, 2017 2:59 am

visualguy wrote:1966-1982 was a really bad period of runaway inflation and zero real returns in the US stock market (and horrible real returns in bonds). Fortunately, this was a unique period. Not really comparable to what is going on with ex-US where it performs poorly during much more frequent long-term periods of time, and it performs poorly while nothing bad is going on such as a major war or crazy inflation or depression.

Having said that, I don't think that acceptable long-term performance is a given with the US stock index (or bonds) either, which is the reason I also invest in direct ownership of real estate. I just find that the US index has a good-enough track record to merit investment, while ex-US doesn't.
I'm not sure why you think this is a period where "nothing bad has gone on" that ex-US has had to deal with. Here would be a few:

1) The continued deflation of the Japanese equity bubble (given the country's outsized weight) and the subsequent deflationary crisis' effects (as well as aging demographics) on the Japanese economy was a drag towards the beginning of the period.

2) The popping of the internet bubble. While U.S. equities were certainly the locus of the tech bubble, Foreign Developed Markets didn't escape the overvaluations endemic to the irrational exuberance of the late 90's. So they took a good sized hit when the tech bubble popped.

3) Last, but not least, the Great Financial Crisis. Not sure why you are putting this one under the "nothing bad" category.

So I'm curious, why do you give the US a get-out-of-jail-free card for the "crazy inflation" of 1966 to 1982, but not ex-US for issues such as the above? I honestly don't look at 1966 to 1982 as really being all that unimaginable of an occurrence. While the specifics of what occurred won't occur again in exactly the same manner, I think the odds are pretty decent that we could see another 15 year period where U.s. equities return 0 real at some point during my remaining lifespan (I'm 31, to put that in perspective).

Further, I am curious as to all of these frequent periods of long-term underperformance for ex-US equities - could you please cite these (ideally, years and returns) so we can more accurately discuss?

Yes, performance was poor when the rest of the world was ravaged by Marxism (see the wipe out of Russian and Chinese equity holders when the proletariat seized the means of production) and two world wars (see the wipe out of German and Japanese shareholders when the respective Axis powers capitulated). But what about outside those periods? Yes, you have pointed to one unacceptable 24 year period in this thread. How many others have you found?
Last edited by Chuffly on Mon Jul 31, 2017 4:05 am, edited 1 time in total.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by trasmuss » Mon Jul 31, 2017 3:47 am

I don't know if it has been pointed out but I believe Taylor has about 30% of his equities in international (Taylor can correct with the exact amount). So while he admires Mr. Bogle he has decided to keep a substantial portion in international. More than Mr. Bogle recommends.

The chart showing returns moving back and forth was excellent. From my viewpoint it may have a pattern. That pattern is that when the winner changes it appears to change in multi year segments. I am guessing that the value of the dollar has a great deal to do with which one is the winner.

I have been low on international equities up until a few months back (15-20% of equities). I am now 30% with a pure guess that perhaps the multi year trend of a strong dollar has started to shift. It didn't hurt that the price to book ratio of foreign stocks is also very attractive (although you could say that the lower growth rate offsets the attractive valuations).

Is that market timing. Yes, guilty as charged. My 50-50 stock bond allocation remains the same, however. And that will likely be the biggest determinant of total returns.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by lazyday » Mon Jul 31, 2017 3:48 am

watchnerd wrote:US stocks are trading at an all time CAPE high, while ex-US are not.
This might be true for US Smallcap, though the broad US market had higher CAPE in the dotcom bubble.

You can see charts on the Research Affiliates and Barclays sites. RA includes US smallcap on their chart. Links and instructions here: viewtopic.php?f=10&t=224374

At the top of the thread is estimated CAPE for US vs EAFE vs EM from three sources.

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by columbia » Mon Jul 31, 2017 5:07 am

This kind of discussion will really heat up when China class A shares start showing in broad based international indices. :P

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Re: John Bogle Has Been Right About Investing In International Stocks

Post by Johnnie » Mon Jul 31, 2017 8:33 am

Alongside this thread is one discussing what high CAPE 10 ratios suggest for long term returns going forward.

This may be unfair but I sense a potential contradiction: Those who are most likely to embrace CAPE as a warning to expect low returns on US stocks for the next 10 years tend to also be Strict Rules of Bogle players who insist on 100% domestic only - TSM-and-done.

And yet, if you take to heart the message that CAPE 10 is a potentially useful indicator of longer term returns, one would not expect to see such resistance here to owning international indexes.
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Re: John Bogle Has Been Right About Investing In International Stocks

Post by munemaker » Mon Jul 31, 2017 9:11 am

watchnerd wrote: US stocks are trading at an all time CAPE high, while ex-US are not.
Warren Buffet doesn't think the CAPE ratios are a problem, considering the low interest rates.

https://www.forbes.com/sites/investor/2 ... 6a0ab704ac

http://www.multpl.com/shiller-pe/

Recently there seems to be a number of posters openly bad mouthing investing advice from Jack Bogle and Warren Buffet. I value their opinions and believe they are worth considering.

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