Larry Swedroe: Non-US Valuations Look Attractive

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Random Walker
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Larry Swedroe: Non-US Valuations Look Attractive

Post by Random Walker » Wed Oct 11, 2017 12:11 am

http://www.etf.com/sections/index-inves ... nopaging=1

This is an excellent review of valuations in US, Int, EM. Lower valuations internationally imply higher expected returns. Larry also shows higher expected returns for small and value internationally. He reminds us that the markets price risk, and lower valuations imply higher perceived risk internationally. He also mentions the diversification benefits of international equities. He doesn’t mention it in this article, but I believe International small value is a very good diversifier, even better than EM.

Dave

Random Walker
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Random Walker » Wed Oct 11, 2017 12:13 am

For those looking to improve portfolio efficiency, I would consider this time, with these relative valuations, a good opportunity to increase one’s international allocation towards it’s market cap weighting of 50%.

Dave

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TD2626
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by TD2626 » Wed Oct 11, 2017 12:33 am

Random Walker wrote:
Wed Oct 11, 2017 12:13 am
For those looking to improve portfolio efficiency, I would consider this time, with these relative valuations, a good opportunity to increase one’s international allocation towards it’s market cap weighting of 50%.

Dave
In my opinion, an investor who wants market cap weighting in stocks could consider Vanguard Total World Admiral.

Investors should be careful to avoid market timing based on valuations - staying the course is important.

That being said, if one is tempted to "tinker" with domestic vs international, mabye a fund like Vanguard Total World Admiral would help with that behavioral economics concern.

Unfortunately, Total World Admiral doesn’t exist. Investor and ETF shares exist, but have a higher ER.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Longtermgrowth » Wed Oct 11, 2017 1:10 am

Back when Mr. Swedroe was still posting on the forums last year, he said similar things. The lower valuations and diversification benefits of adding Developed and Emerging Small Value were enough to persuade me to add those funds.
I'm still nowhere near global market cap weighting, but much higher percentage international thanks to Mr. Swedroe posting here.

Even after their decent run since last year, they still look tempting!

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by lazyday » Wed Oct 11, 2017 4:20 am

Using data from AQR Capital Management, as of June 30, 2017, the CAPE 10 earnings yield for developed markets was
Is this data publicly available from AQR?

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by garlandwhizzer » Wed Oct 11, 2017 1:54 pm

I agree with Larry's assessment. If you're looking to juice returns by increasing risk/volatility, I believe INTL exposure including EM is an attractive place to look, more so than concentrating solely on seeking factor premiums in richly priced, more efficient US markets. I also believe that both beta and factor approaches in INTL are likely to produce higher future returns after costs for risk-tolerant investors than such approaches in the US. INTL markets are generally more risky, lower priced, more inefficient in pricing assets, and less heavily scrutinized by professionals. This is both the good news (higher expected returns) and the bad news (more volatility and risk). Like all opinions about future market action, mine could turn out to be wrong, but I believe it sufficiently to be 50 US/50 INTL equity. Uncertainty about the future of market action is one of my guiding principals, so I choose to cover all equity bases: US, EM, and DM and also to employ both cap weight beta and factor approaches.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 2:05 pm

The problem is that international (ex-US) has done poorly over very long periods of time, so the track record is frightening. I would have to look it up, but there was a thread here a couple of months ago showing performance over very long time frames (starting at 100 years ago or so), and it didn't look good for international. That may or may not change in the coming decades, but if you think it will change, the question is why. It's possible to think of reasons for it to be different, but at least it's important to know that the past results (even very long-term) weren't good for what it's worth.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by kosomoto » Wed Oct 11, 2017 2:30 pm

International indexes always seem cheap compared to the US.

That didn't lead to them having better returns, in fact long term performance of international funds drastically underperformed the US.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Whakamole » Wed Oct 11, 2017 2:34 pm

He lists the P/E for DFA international small/value/etc. funds. By comparison, the Vanguard small/mid cap international fund VFSVX has:
P/E: 15.14
P/B: 1.49

These values are higher than the DFA international small cap value funds, but it's also better than the DFA international small cap (non-value) fund.

I've been tempted by this before - small cap international, in theory, should have a higher diversification factor than large cap international. I'm guessing like many small cap funds, the amount of lending revenue means that this would be better held in a tax-advantaged account?

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by triceratop » Wed Oct 11, 2017 2:39 pm

Whakamole wrote:
Wed Oct 11, 2017 2:34 pm
He lists the P/E for DFA international small/value/etc. funds. By comparison, the Vanguard small/mid cap international fund VFSVX has:
P/E: 15.14
P/B: 1.49

These values are higher than the DFA international small cap value funds, but it's also better than the DFA international small cap (non-value) fund.

I've been tempted by this before - small cap international, in theory, should have a higher diversification factor than large cap international. I'm guessing like many small cap funds, the amount of lending revenue means that this would be better held in a tax-advantaged account?
It's not the lending revenue that makes this fund better suited for tax-advantaged accounts; it is the low portion of qualified dividends. Run the numbers yourself though: viewtopic.php?t=208818
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by DavidRoseMountain » Wed Oct 11, 2017 4:27 pm

US stocks command a higher P/E ratio partly because US law on contracts and securities is stronger and more solid than in emerging market economies. This doesn't take into account the discrepancy between the US and Europe/Japan. One can argue that Europe and Japan are experiencing secular stagnation in their economies.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by nedsaid » Wed Oct 11, 2017 4:38 pm

kosomoto wrote:
Wed Oct 11, 2017 2:30 pm
International indexes always seem cheap compared to the US.

That didn't lead to them having better returns, in fact long term performance of international funds drastically underperformed the US.
Well of course long term performance doesn't look too good right now. From 2009-2016, US Stocks outperformed International Stocks by a lot. Much of this was due to flight to quality and safe haven, thus US Stocks and US Dollar were very strong. A lot of the International underperformance is due to a strong US Dollar, a strengthening Dollar creates headwinds for International and a weakening dollar creates tailwinds for International. So far, 2017 looks great for International because, guess what, the US Dollar has been weakening vs. foreign currencies.

If you went back to 2007 or even early 2008, I saw articles saying that International Stocks were the "must have" asset class because their long term performance was better than U.S. with limited correlation. A great diversifier. That shows what eight years of underperformance relative to US can do to long term results. International went from hero to zero in eight years.
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by kosomoto » Wed Oct 11, 2017 4:43 pm

nedsaid wrote:
Wed Oct 11, 2017 4:38 pm
kosomoto wrote:
Wed Oct 11, 2017 2:30 pm
International indexes always seem cheap compared to the US.

That didn't lead to them having better returns, in fact long term performance of international funds drastically underperformed the US.
Well of course long term performance doesn't look too good right now. From 2009-2016, US Stocks outperformed International Stocks by a lot. Much of this was due to flight to quality and safe haven, thus US Stocks and US Dollar were very strong. A lot of the International underperformance is due to a strong US Dollar, a strengthening Dollar creates headwinds for International and a weakening dollar creates tailwinds for International. So far, 2017 looks great for International because, guess what, the US Dollar has been weakening vs. foreign currencies.

If you went back to 2007 or even early 2008, I saw articles saying that International Stocks were the "must have" asset class because their long term performance was better than U.S. with limited correlation. A great diversifier. That shows what eight years of underperformance relative to US can do to long term results. International went from hero to zero in eight years.
International underperformed in most 20 year periods I could find before 2008 as well.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 5:03 pm

kosomoto wrote:
Wed Oct 11, 2017 4:43 pm
International underperformed in most 20 year periods I could find before 2008 as well.
Correct. Actually, international has under-performed even if you look at much longer periods. I need to look up that study that was quoted here a couple of months ago. It went back something like 100 years.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by kosomoto » Wed Oct 11, 2017 5:10 pm

visualguy wrote:
Wed Oct 11, 2017 5:03 pm
kosomoto wrote:
Wed Oct 11, 2017 4:43 pm
International underperformed in most 20 year periods I could find before 2008 as well.
Correct. Actually, international has under-performed even if you look at much longer periods. I need to look up that study that was quoted here a couple of months ago. It went back something like 100 years.
To be fair to international stocks that 100 years includes world wars. But yeah all the data I saw showed broad international indexes failing to perform as well as the US over whatever long term period chosen, war or not.

International stocks were cheap in the past too, I really think something structural is affecting the returns of international indexes.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by FIREchief » Wed Oct 11, 2017 5:13 pm

If a person chooses to shift more into international because they feel the increased diversification is worth the slightly increased costs and volatility; then it may be a reasonable long term move.

If a person chooses to shift more into international because "Lower valuations internationally imply higher expected returns;" then I think they are market timing.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 5:24 pm

kosomoto wrote:
Wed Oct 11, 2017 5:10 pm

To be fair to international stocks that 100 years includes world wars. But yeah all the data I saw showed broad international indexes failing to perform as well as the US over whatever long term period chosen, war or not.

International stocks were cheap in the past too, I really think something structural is affecting the returns of international indexes.
Some say go active... Evidently, in Europe even the average active fund beats the index:

http://www.morningstar.co.uk/uk/news/16 ... ities.aspx

I did some research on active international funds in the past and eventually ditched that effort, and basically gave up on international.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by kosomoto » Wed Oct 11, 2017 5:32 pm

visualguy wrote:
Wed Oct 11, 2017 5:24 pm
kosomoto wrote:
Wed Oct 11, 2017 5:10 pm

To be fair to international stocks that 100 years includes world wars. But yeah all the data I saw showed broad international indexes failing to perform as well as the US over whatever long term period chosen, war or not.

International stocks were cheap in the past too, I really think something structural is affecting the returns of international indexes.

Some say go active... Evidently, in Europe even the average active fund beats the index:

http://www.morningstar.co.uk/uk/news/16 ... ities.aspx

I did some research on active international funds in the past and eventually ditched that effort, and basically gave up on international.
Interesting, even after accounting for survivorship bias?

I haven't completely given up on international. I own shares in VIGI, the international dividend appreciation fund by Vanguard released last year. It should weed out the low quality companies.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 5:49 pm

kosomoto wrote:
Wed Oct 11, 2017 5:32 pm
I haven't completely given up on international. I own shares in VIGI, the international dividend appreciation fund by Vanguard released last year. It should weed out the low quality companies.
I saw it mentioned when it was released. Looked interesting, but the international index has beaten it so far... I'm not sure this approach will save you from whatever makes the international index an under-performing investment.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by kosomoto » Wed Oct 11, 2017 6:04 pm

visualguy wrote:
Wed Oct 11, 2017 5:49 pm
kosomoto wrote:
Wed Oct 11, 2017 5:32 pm
I haven't completely given up on international. I own shares in VIGI, the international dividend appreciation fund by Vanguard released last year. It should weed out the low quality companies.
I saw it mentioned when it was released. Looked interesting, but the international index has beaten it so far... I'm not sure this approach will save you from whatever makes the international index an under-performing investment.
Yeah, I'll see how it compares to total international after five years or so. Worst case scenario it's an uncorrelated asset to rebalance with.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by inittowinit » Wed Oct 11, 2017 6:22 pm

I market weight so am already 50/50 and will stay the course.

Int'l exposure helps me weather all this angst about US valuations.

Cheers to diversification :sharebeer

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 6:38 pm

inittowinit wrote:
Wed Oct 11, 2017 6:22 pm
I market weight so am already 50/50 and will stay the course.

Int'l exposure helps me weather all this angst about US valuations.

Cheers to diversification :sharebeer
Not sure about that... Historically, when the markets in the US catch a cold, international markets catch pneumonia...

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by AlohaJoe » Wed Oct 11, 2017 7:25 pm

Whakamole wrote:
Wed Oct 11, 2017 2:34 pm
He lists the P/E for DFA international small/value/etc. funds. By comparison, the Vanguard small/mid cap international fund VFSVX has:
You can't compare P/E from different sources like that. Vanguard calculates it in a different way from DFA.

Here is the Boglehead wiki on P/E: https://www.bogleheads.org/wiki/P/E
And here is the August 2017 post about them changing their P/E calculations to a crazy method: viewtopic.php?t=226217

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by AlohaJoe » Wed Oct 11, 2017 7:28 pm

visualguy wrote:
Wed Oct 11, 2017 6:38 pm
inittowinit wrote:
Wed Oct 11, 2017 6:22 pm
I market weight so am already 50/50 and will stay the course.

Int'l exposure helps me weather all this angst about US valuations.

Cheers to diversification :sharebeer
Not sure about that... Historically, when the markets in the US catch a cold, international markets catch pneumonia...
The US did worse than international markets in 1907, 1929, 1958, 1969, 1973 and 1987. I guess you could restate your claim to
"sometimes when the US catches a cold, international catches pneumonia but I'm basing that on just the past 15 years or so that I can actually remember and haven't done any kind of real, actual historical analysis".

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Whakamole » Wed Oct 11, 2017 7:39 pm

AlohaJoe wrote:
Wed Oct 11, 2017 7:25 pm
Whakamole wrote:
Wed Oct 11, 2017 2:34 pm
He lists the P/E for DFA international small/value/etc. funds. By comparison, the Vanguard small/mid cap international fund VFSVX has:
You can't compare P/E from different sources like that. Vanguard calculates it in a different way from DFA.

Here is the Boglehead wiki on P/E: https://www.bogleheads.org/wiki/P/E
And here is the August 2017 post about them changing their P/E calculations to a crazy method: viewtopic.php?t=226217
I used data from Morningstar.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by FIREchief » Wed Oct 11, 2017 8:32 pm

visualguy wrote:
Wed Oct 11, 2017 5:24 pm

Some say go active... Evidently, in Europe even the average active fund beats the index:
How is that possible mathematically?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Valuation investing vs Stay-the-course investing

Post by Taylor Larimore » Wed Oct 11, 2017 8:52 pm

Bogleheads:

Changing investments based on changing valuations is a form of market-timing which many studies have shown does not work.
Stay the course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it ever time. It is the most important single piece of investment wisdom I can give to you.-- Jack Bogle
What Experts Say

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

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 10:26 pm

AlohaJoe wrote:
Wed Oct 11, 2017 7:28 pm
visualguy wrote:
Wed Oct 11, 2017 6:38 pm
Not sure about that... Historically, when the markets in the US catch a cold, international markets catch pneumonia...
The US did worse than international markets in 1907, 1929, 1958, 1969, 1973 and 1987. I guess you could restate your claim to
"sometimes when the US catches a cold, international catches pneumonia but I'm basing that on just the past 15 years or so that I can actually remember and haven't done any kind of real, actual historical analysis".
No need to restate anything. You're talking about times when the US market caught pneumonia (not a cold), and international markets caught pneumonia too.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 10:36 pm

FIREchief wrote:
Wed Oct 11, 2017 8:32 pm
visualguy wrote:
Wed Oct 11, 2017 5:24 pm

Some say go active... Evidently, in Europe even the average active fund beats the index:
How is that possible mathematically?
Why wouldn't it be possible mathematically?

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by MotoTrojan » Wed Oct 11, 2017 10:50 pm

visualguy wrote:
Wed Oct 11, 2017 10:36 pm
FIREchief wrote:
Wed Oct 11, 2017 8:32 pm
visualguy wrote:
Wed Oct 11, 2017 5:24 pm

Some say go active... Evidently, in Europe even the average active fund beats the index:
How is that possible mathematically?
Why wouldn't it be possible mathematically?
The index is in theory the average, it is the total stock market. So if the average active fund beats the index, you are providing more than the entire stock-markets growth, in growth. Fees aside, the average active fund should match the indexes (but of course, there are winners and losers). With presumed higher fees, the average active fund MUST underperform the market.

This doesn't mean there are more/less losers than winners. You could have all active funds but 1 be losers, and 1 active fund absolutely slaughters the index.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Wed Oct 11, 2017 11:14 pm

MotoTrojan wrote:
Wed Oct 11, 2017 10:50 pm
The index is in theory the average, it is the total stock market. So if the average active fund beats the index, you are providing more than the entire stock-markets growth, in growth. Fees aside, the average active fund should match the indexes (but of course, there are winners and losers). With presumed higher fees, the average active fund MUST underperform the market.

This doesn't mean there are more/less losers than winners. You could have all active funds but 1 be losers, and 1 active fund absolutely slaughters the index.
There are more owners of stock than active mutual funds and index funds. These funds don't cover the entire stock market ownership, so not sure how your analysis can be valid.

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Re: Valuation investing vs Stay-the-course investing

Post by Fundhunter » Thu Oct 12, 2017 12:04 am

Taylor Larimore wrote:
Wed Oct 11, 2017 8:52 pm
Bogleheads:

Changing investments based on changing valuations is a form of market-timing which many studies have shown does not work.
Stay the course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it ever time. It is the most important single piece of investment wisdom I can give to you.-- Jack Bogle
What Experts Say

Best wishes
Taylor
Seems kind of like market timing to me. I keep 25% of my equity position in international, mostly in Vanguard Total International Index Fund, rebalancing to that % when I rebalance. I think I will "stay the course" with that plan.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by asif408 » Thu Oct 12, 2017 7:24 am

AlohaJoe wrote:
Wed Oct 11, 2017 7:28 pm
visualguy wrote:
Wed Oct 11, 2017 6:38 pm
inittowinit wrote:
Wed Oct 11, 2017 6:22 pm
I market weight so am already 50/50 and will stay the course.

Int'l exposure helps me weather all this angst about US valuations.

Cheers to diversification :sharebeer
Not sure about that... Historically, when the markets in the US catch a cold, international markets catch pneumonia...
The US did worse than international markets in 1907, 1929, 1958, 1969, 1973 and 1987.
And in 2002........ http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by MotoTrojan » Thu Oct 12, 2017 8:07 am

visualguy wrote:
Wed Oct 11, 2017 11:14 pm
MotoTrojan wrote:
Wed Oct 11, 2017 10:50 pm
The index is in theory the average, it is the total stock market. So if the average active fund beats the index, you are providing more than the entire stock-markets growth, in growth. Fees aside, the average active fund should match the indexes (but of course, there are winners and losers). With presumed higher fees, the average active fund MUST underperform the market.

This doesn't mean there are more/less losers than winners. You could have all active funds but 1 be losers, and 1 active fund absolutely slaughters the index.
There are more owners of stock than active mutual funds and index funds. These funds don't cover the entire stock market ownership, so not sure how your analysis can be valid.

Fair. Would be a more substantial analysis but I'm going to go out on a limb and say there aren't enough shares available outside the indeces for the average active fund to surpass the index after fees consistently. That is a tiny subset of the market that is going to be very expensive to trade as well.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by asif408 » Thu Oct 12, 2017 8:11 am

nedsaid wrote:
Wed Oct 11, 2017 4:38 pm
If you went back to 2007 or even early 2008, I saw articles saying that International Stocks were the "must have" asset class because their long term performance was better than U.S. with limited correlation. A great diversifier. That shows what eight years of underperformance relative to US can do to long term results. International went from hero to zero in eight years.
Like here: http://www.aaii.com/objects/get/908.gif

It just shows how the starting and ending points chosen can paint any picture you want to see. The above starts with the beginning of a bull market in EM stocks and ends near the end of the EM bull market. If I start in 1994 and go to 2014 I get a different picture: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. Obviously this one begins with a US bull market and (possibly?) ends with a US bull market.

My prediction is that the 2002-2022 time frame will again show international as the better performer, because 2002 was the start of a period of international outperformance, and everyone will flock to international. And then between 2008-2028 US will be the best, because 2008 was the beginning of US outperformance, and 2028 will be the end of a US bull run, and everyone will flock to US. And the performance chasing will go on and on and on..........

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by Hustlinghustling » Thu Oct 12, 2017 12:14 pm

Always perplexed by how many Bogleheads insist on not picking single stocks to simply take what the market will bear. Yet have no issue holding a US only or US dominant portfolio that's so far out of line with global market proportions.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by visualguy » Thu Oct 12, 2017 12:32 pm

Hustlinghustling wrote:
Thu Oct 12, 2017 12:14 pm
Always perplexed by how many Bogleheads insist on not picking single stocks to simply take what the market will bear. Yet have no issue holding a US only or US dominant portfolio that's so far out of line with global market proportions.
Mr. Bogle himself (or even Warren Buffet for that matter) likes US-only indexing, so why would Bogleheads have an issue with it? Ex-US indexing hasn't worked well in the past - under-performance over long periods of time as mentioned above in this thread. It's possible to argue about the reasons and whether the next century will be like the last century, but the reality so far is what it is, and it's a huge red flag.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by inbox788 » Thu Oct 12, 2017 12:34 pm

I'm confused. Am I supposed to increase my non-us holdings based on this?

Why didn't you tell me this in January before VXUS went up over 20% (vs VTI up 13) when it was 20% more attractive?

If my ideal 50/50 US/Int AA goal was rebalanced in January, I'd be overweight non-US and rebalancing now would mean SELLING.

As interesting as this debate is, I think I'll just do absolutely nothing at this time.


BTW,
https://money.usnews.com/money/blogs/fl ... an-anymore

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by betablocker » Thu Oct 12, 2017 1:05 pm

inbox788 wrote:
Thu Oct 12, 2017 12:34 pm
I'm confused. Am I supposed to increase my non-us holdings based on this?

Why didn't you tell me this in January before VXUS went up over 20% (vs VTI up 13) when it was 20% more attractive?

If my ideal 50/50 US/Int AA goal was rebalanced in January, I'd be overweight non-US and rebalancing now would mean SELLING.

As interesting as this debate is, I think I'll just do absolutely nothing at this time.


BTW,
https://money.usnews.com/money/blogs/fl ... an-anymore

http://thebamalliance.com/blog/emerging ... me-to-buy/

http://thereformedbroker.com/2017/05/24 ... an-stocks/

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triceratop
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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by triceratop » Thu Oct 12, 2017 1:23 pm

inbox788 wrote:
Thu Oct 12, 2017 12:34 pm
I'm confused. Am I supposed to increase my non-us holdings based on this?

Why didn't you tell me this in January before VXUS went up over 20% (vs VTI up 13) when it was 20% more attractive?

If my ideal 50/50 US/Int AA goal was rebalanced in January, I'd be overweight non-US and rebalancing now would mean SELLING.

As interesting as this debate is, I think I'll just do absolutely nothing at this time.


BTW,
https://money.usnews.com/money/blogs/fl ... an-anymore
Larry has been talking about international valuations and the importance of not being home-biased for a long, long time.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by azanon » Thu Oct 12, 2017 1:24 pm

So Larry is being a LOT more kind to US stock expected returns than, say, researchaffiliates (and many other sites, I might add). Researchaffiliates puts the "valuation based" expected return of US stocks slightly below US Intermediate treasury bonds, despite how much riskier in terms of volatility stocks are versus T-notes. And they have EAFE expected return ~ 4.3% higher (real), and EM 5.8% higher than US stocks.

So someone's math is wrong, and as analytical as the folks at researchaffiliates are, i don't like Larry's odds in that competition.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by dkturner » Thu Oct 12, 2017 1:45 pm

inbox788 wrote:
Thu Oct 12, 2017 12:34 pm
I'm confused. Am I supposed to increase my non-us holdings based on this?

Why didn't you tell me this in January before VXUS went up over 20% (vs VTI up 13) when it was 20% more attractive?

If my ideal 50/50 US/Int AA goal was rebalanced in January, I'd be overweight non-US and rebalancing now would mean SELLING.

As interesting as this debate is, I think I'll just do absolutely nothing at this time.


BTW,
https://money.usnews.com/money/blogs/fl ... an-anymore
I can't speak for other posters but I posted here that I had doubled my international equity exposure in late 2016 early 2017, because international equity returns over prior 10 years were so poor when compared to US equity returns. There are no certainties in life but I couldn't ignore such a long term disparity in returns. Something had to give - and it did. Some call it market timing. I prefer the term valuation driven capital redeployment.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by triceratop » Thu Oct 12, 2017 2:49 pm

lazyday wrote:
Wed Oct 11, 2017 4:20 am
Using data from AQR Capital Management, as of June 30, 2017, the CAPE 10 earnings yield for developed markets was
Is this data publicly available from AQR?
You could PM or e-mail Larry; it's possible only he knows the answer to that question.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by PuddlesTheDuck » Thu Oct 12, 2017 2:57 pm

dkturner wrote:
Thu Oct 12, 2017 1:45 pm
I can't speak for other posters but I posted here that I had doubled my international equity exposure in late 2016 early 2017, because international equity returns over prior 10 years were so poor when compared to US equity returns. There are no certainties in life but I couldn't ignore such a long term disparity in returns. Something had to give - and it did. Some call it market timing. I prefer the term valuation driven capital redeployment.
That's certainly market timing, but it's a very different type of timing than the one people usually think about. You haven't changed your risk profile (kept the same stock:bond ratio, though I guess you could have switch out of consumer staples or something like that) or your expected returns. But you have changed what you're invested in based on what you believe the market will do in the future. But unlike how most people view market timing, you're not making any claims about market movements. You're only saying you believe that over the next few years, one class of assets will outperform another.

I did the same thing shifting to a healthier dose of emerging markets early this year both because of the valuations but also because I felt like I could stomach the ups and downs. I'd be lying to myself if I didn't call it market timing of some sort, but like your shift it wasn't done anticipating any single event.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by asif408 » Thu Oct 12, 2017 3:17 pm

visualguy wrote:
Thu Oct 12, 2017 12:32 pm
Ex-US indexing hasn't worked well in the past - under-performance over long periods of time as mentioned above in this thread. It's possible to argue about the reasons and whether the next century will be like the last century, but the reality so far is what it is, and it's a huge red flag.
So should I be concerned that ex-US outperformed US for the 12 years between 2002 and 2014: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D,
or that emerging markets have outperformed US markets from late 1998 until today (almost 20 straight years):
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by WhiteMaxima » Thu Oct 12, 2017 3:23 pm

Actually, a large % of US company revenue is from internationally. So even if you are 100% in US stock, you still have exposure to Intl market.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by azanon » Thu Oct 12, 2017 3:31 pm

WhiteMaxima wrote:
Thu Oct 12, 2017 3:23 pm
Actually, a large % of US company revenue is from internationally. So even if you are 100% in US stock, you still have exposure to Intl market.
It goes both ways, so that argument nulls itself out.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by rustymutt » Thu Oct 12, 2017 3:36 pm

azanon wrote:
Thu Oct 12, 2017 3:31 pm
WhiteMaxima wrote:
Thu Oct 12, 2017 3:23 pm
Actually, a large % of US company revenue is from internationally. So even if you are 100% in US stock, you still have exposure to Intl market.
It goes both ways, so that argument nulls itself out.

I guess I'm a contrarian, I'm all US equities and bonds. I use to hold 50% foreign stocks, but not anymore.
Knowledge is knowing that the Tomato is a fruit. Wisdom is knowing better than to put the tomato in a fruit salad.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by azanon » Thu Oct 12, 2017 3:43 pm

rustymutt wrote:
Thu Oct 12, 2017 3:36 pm
azanon wrote:
Thu Oct 12, 2017 3:31 pm
WhiteMaxima wrote:
Thu Oct 12, 2017 3:23 pm
Actually, a large % of US company revenue is from internationally. So even if you are 100% in US stock, you still have exposure to Intl market.
It goes both ways, so that argument nulls itself out.

I guess I'm a contrarian, I'm all US equities and bonds. I use to hold 50% foreign stocks, but not anymore.
I imagine that's less contrarian than what I do. I'm over 50% foreign now. The typical US investor is pretty heavy home-country bias.

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Re: Larry Swedroe: Non-US Valuations Look Attractive

Post by inbox788 » Thu Oct 12, 2017 3:52 pm

PuddlesTheDuck wrote:
Thu Oct 12, 2017 2:57 pm
That's certainly market timing, but it's a very different type of timing than the one people usually think about. You haven't changed your risk profile (kept the same stock:bond ratio, though I guess you could have switch out of consumer staples or something like that) or your expected returns. But you have changed what you're invested in based on what you believe the market will do in the future. But unlike how most people view market timing, you're not making any claims about market movements. You're only saying you believe that over the next few years, one class of assets will outperform another.

I did the same thing shifting to a healthier dose of emerging markets early this year both because of the valuations but also because I felt like I could stomach the ups and downs. I'd be lying to myself if I didn't call it market timing of some sort, but like your shift it wasn't done anticipating any single event.
Slippery slope switching asset classes. If you time your AA between US vs non-US and Developed vs Emerging, why not Growth vs Value? Consumer Staples vs Discretionary? Healthcare vs Biotech? Financials vs Technology? Small-cap vs Value vs Small-cap Value? Whether you call it timing or tilt, it all sounds similar to me. Maybe the difference is how long you switch back and forth vs permanent strategy. The active management types call this Tactical Asset Allocation.

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