"A Case Against Over Weighting International Equity"

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dwickenh
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"A Case Against Over Weighting International Equity"

Post by dwickenh » Mon Nov 13, 2017 5:20 pm

I have seen many recent threads on tilting towards International due to Cape and richly valued U.S markets. This is an interest article by Corey Hoffstein about over weighting International.

https://blog.thinknewfound.com/2017/11/ ... -387551457

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Sandtrap
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Re: "A Case Against Over Weighting International Equity"

Post by Sandtrap » Mon Nov 13, 2017 5:23 pm

Thanks, "Dan"
Interesting article.
I think they're saying, ". . . all things in moderation. . .including moderation . . . ".
j :D

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TomP10
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Re: "A Case Against Over Weighting International Equity"

Post by TomP10 » Mon Nov 13, 2017 9:17 pm

I don't find the arguments particularly convincing. While I agree the difference in valuation metrics across markets might be partly due to inherent differences (that is, emerging markets might always have a lower P/E ratio), the author don't provide any serious historical context proving his point. He is just casting doubt. I would like more evidence that the US' current higher P/E is "normal".

In addition, I think the folks who I rely on for advice (Swedroe, Bernstein) don't talk of major changes in allocation, but rather small changes. For instance, moving from 30% international to 35% or 40% international.

Finally, the author's company charge 5.5% loads and 2%+ expense ratio. From where I sit, anything he says must be taken with a grain of salt.
"It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." -- Charlie Munger

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whodidntante
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Re: "A Case Against Over Weighting International Equity"

Post by whodidntante » Mon Nov 13, 2017 10:56 pm

If you don't like what you read in the financial news, wait a few hours.

Money Market
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Re: "A Case Against Over Weighting International Equity"

Post by Money Market » Mon Nov 13, 2017 11:19 pm

I'm a bit confused here. I thought this forum promotes buy and hold as opposed to market timing. I'm seeing a lot of threads and comments from members here this year stating that they modified their asset allocation to hold more international equities due to high P/E's in the US market. I wonder if it has something to do with international stocks outgrowing US stocks this year?

ResearchMed
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Re: "A Case Against Over Weighting International Equity"

Post by ResearchMed » Mon Nov 13, 2017 11:30 pm

Money Market wrote:
Mon Nov 13, 2017 11:19 pm
I'm a bit confused here. I thought this forum promotes buy and hold as opposed to market timing. I'm seeing a lot of threads and comments from members here this year stating that they modified their asset allocation to hold more international equities due to high P/E's in the US market. I wonder if it has something to do with international stocks outgrowing US stocks this year?
There are several ways of interpreting/understanding a general "Bogleheads" approach.
Some focus on "live below your means"; others on "buy and hold"; some on rebalancing; some on "index only"; some on "basic 3 or 4 fund approach", etc.
And then there are combos of these, and variations.

And then there are those who slice and dice, or tilt (value? small? momentum?)...

One major commonality does seem to be an emphasis on mutual funds and ETF's, rather than on individual stocks, although there are certainly some who have some (or many) stocks as well.

I'm sure others would have a different idea of generalities.

It's not one size fits all.
Even "whether to follow Jack Bogle" varies, especially with respect to his opinion about international holdings.

RM
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Ari
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Re: "A Case Against Over Weighting International Equity"

Post by Ari » Tue Nov 14, 2017 2:07 am

When valuations are discussed, it seems people are always talking about them returning or not returning to the mean/historical average. This might be relevant if you're talking about a single market over time, but I find it less important when comparing different markets. All else being equal, a market with a PE of 15 is a better investment than one with a PE of 30, even if their PEs never change.
All in, all the time.

Ron Scott
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Re: "A Case Against Over Weighting International Equity"

Post by Ron Scott » Tue Nov 14, 2017 8:26 am

Ari wrote:
Tue Nov 14, 2017 2:07 am
When valuations are discussed, it seems people are always talking about them returning or not returning to the mean/historical average. This might be relevant if you're talking about a single market over time, but I find it less important when comparing different markets. All else being equal, a market with a PE of 15 is a better investment than one with a PE of 30, even if their PEs never change.
Huh, I smell smart beta here.

Knock out the technology, real estate and energy market sectors from tha S&P and buy the rest. Beat the market.

We shall see...

Random Walker
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Re: "A Case Against Over Weighting International Equity"

Post by Random Walker » Tue Nov 14, 2017 8:45 am

The market prices risk. The lower P/E ratios of Int and EM reflect perceived higher risk and thus higher expected return. FWIW, I think the real bang for the portfolio diversification buck is in international small value. You diversify internationally and diversify into the size and value factors. Moreover international small companies are more subject to local economy effects than are either big Int or EM. I believe ISV is an even better portfolio diversifier than EM.

Dave

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bertilak
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Re: "A Case Against Over Weighting International Equity"

Post by bertilak » Tue Nov 14, 2017 10:35 am

Money Market wrote:
Mon Nov 13, 2017 11:19 pm
I'm a bit confused here. I thought this forum promotes buy and hold as opposed to market timing. I'm seeing a lot of threads and comments from members here this year stating that they modified their asset allocation to hold more international equities due to high P/E's in the US market. I wonder if it has something to do with international stocks outgrowing US stocks this year?
The forum is open to everyone, no matter their investment philosophy, theory, strategy or tactics. I enjoy reading contrarian (contra-Bogle) points of view. I sometimes write scathing reviews but never (well, almost never) actually post them. This helps me organize my thoughts and makes me pay attention to what I read. Besides, I might be wrong!
Listen very carefully. I shall say this only once. (There! I've said it.)

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randomizer
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Re: "A Case Against Over Weighting International Equity"

Post by randomizer » Tue Nov 14, 2017 10:42 am

I wouldn't tilt to international. I'd like to hold a world market cap portfolio though. Like many others, I have slight home country bias in my holdings because that's what Vanguard does in its TR funds. I'm working on gradually correcting it via new contributions.

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iceport
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Re: "A Case Against Over Weighting International Equity"

Post by iceport » Tue Nov 14, 2017 10:47 am

bertilak wrote:
Tue Nov 14, 2017 10:35 am
Money Market wrote:
Mon Nov 13, 2017 11:19 pm
I'm a bit confused here. I thought this forum promotes buy and hold as opposed to market timing. I'm seeing a lot of threads and comments from members here this year stating that they modified their asset allocation to hold more international equities due to high P/E's in the US market. I wonder if it has something to do with international stocks outgrowing US stocks this year?
The forum is open to everyone, no matter their investment philosophy, theory, strategy or tactics. I enjoy reading contrarian (contra-Bogle) points of view.
True, but in this case, the use of "tactical asset allocation" is actually cautiously embraced by Jack Bogle.

This is one area in which Jack is far more adventuresome than I. :|
"Discipline matters more than allocation.” ─William Bernstein

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