Malkiel -Investing In Overpriced World WSJ

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EvelynTroy
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Malkiel -Investing In Overpriced World WSJ

Post by EvelynTroy » Wed Jan 24, 2018 8:48 am

Boglehead type advice from Burton Malkiel -he makes reference to Mr. Bogle, i.e. market timing is losing proposition.
Yes market is overpriced need to be aware that no valuation metric can predict the future with accuracy.
Strategies that work, broad diversification, rebalancing, and control costs.
https://www.wsj.com/articles/how-to-inv ... 1516666457

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EvelynTroy
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Re: Malkiel -Investing In Overpriced World WSJ

Post by EvelynTroy » Wed Jan 24, 2018 9:00 am

I read the article closer - Malkiel notes:
All investors should hold at least 10% of their stocks in emerging-market equities, and allocations up to 25% would not be imprudent today. I think this advice to say "all" doesn't work for me.

Strategies that work, broad diversification, rebalancing, and control costs. And I'd add, maybe he assumes your asset allocation is most important way to control risk in any market.
Evelyn

ShenziNation

Re: Malkiel -Investing In Overpriced World WSJ

Post by ShenziNation » Wed Jan 24, 2018 11:41 am

Would be nice if you could copy/paste the article content here for those of us who don't have a WSJ subscription.

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Ever Ready
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Re: Malkiel -Investing In Overpriced World WSJ

Post by Ever Ready » Wed Jan 24, 2018 12:01 pm

bad78andy
Would be nice if you could copy/paste the article content here for those of us who don't have a WSJ subscription.
Taht is not permitted.

Fair Use Policy:

viewtopic.php?t=152520

ShenziNation

Re: Malkiel -Investing In Overpriced World WSJ

Post by ShenziNation » Wed Jan 24, 2018 12:07 pm

My bad. I forgot this is BH, not the other finance forums I frequent. Thanks for the article, I'm interested in it. Will see if I can get it somewhere else.

Edit: found it. http://www.cetusnews.com/news/How-to-In ... lySBz.html

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Re: Malkiel -Investing In Overpriced World WSJ

Post by david1082b » Wed Jan 24, 2018 12:15 pm

bad78andy wrote:
Wed Jan 24, 2018 11:41 am
Would be nice if you could copy/paste the article content here for those of us who don't have a WSJ subscription.
Archive.is is still not blocked by WSJ from archiving it http://archive.is/FMlTQ
Much of the world—particularly emerging markets, with their younger populations—is growing faster than the American economy.
This is a common thing to say. What is usually left unsaid is that higher economic growth is not necessarily correlated with higher stock returns. The returns of Vanguard's emerging index fund since its start in 1994 have shown as much.

ShenziNation

Re: Malkiel -Investing In Overpriced World WSJ

Post by ShenziNation » Wed Jan 24, 2018 12:26 pm

I think there's a "hedge" being made that the emerging middle class in emerging markets will shed it's "save" mentality and become big "spenders", buying big ticket goods from multinationals and large corporations.


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Re: How to Invest in an Overpriced World: Burton Malkiel WSJ article

Post by thx1138 » Wed Jan 24, 2018 3:04 pm

Already linked with an ongoing discussion halfway down the front page:

viewtopic.php?f=10&t=239121

InvestoGuy
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Re: How to Invest in an Overpriced World: Burton Malkiel WSJ article

Post by InvestoGuy » Wed Jan 24, 2018 4:55 pm

Oh and i thought i searched before i posted. Thanks for pointing out.

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Re: Malkiel -Investing In Overpriced World WSJ

Post by triceratop » Wed Jan 24, 2018 5:12 pm

^^ Don't worry about it; I merged the posts into here.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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iceport
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Re: Malkiel -Investing In Overpriced World WSJ

Post by iceport » Wed Jan 24, 2018 8:06 pm

EvelynTroy wrote:
Wed Jan 24, 2018 9:00 am
I read the article closer - Malkiel notes:
All investors should hold at least 10% of their stocks in emerging-market equities, and allocations up to 25% would not be imprudent today. I think this advice to say "all" doesn't work for me.
The assertion does seem a bit strong, but Malkiel is not the only author recommending a strong overweight in EM. Swensen has revised his generic "lazy" portfolio recommendation to include over 14% of equities in EM. And in fact, Jack Bogle allows up to 10% of equities in EM. He's given general advice in interviews that up to 20% of equities allocated to international stocks is acceptable, and up to 50% of that could be in EM. That's a fairly strong overweight advocated by even JB.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Malkiel -Investing In Overpriced World WSJ

Post by Investor2 » Wed Jan 24, 2018 9:47 pm

iceport wrote:
Wed Jan 24, 2018 8:06 pm
EvelynTroy wrote:
Wed Jan 24, 2018 9:00 am
I read the article closer - Malkiel notes:
All investors should hold at least 10% of their stocks in emerging-market equities, and allocations up to 25% would not be imprudent today. I think this advice to say "all" doesn't work for me.
The assertion does seem a bit strong, but Malkiel is not the only author recommending a strong overweight in EM. Swensen has revised his generic "lazy" portfolio recommendation to include over 14% of equities in EM. And in fact, Jack Bogle allows up to 10% of equities in EM. He's given general advice in interviews that up to 20% of equities allocated to international stocks is acceptable, and up to 50% of that could be in EM. That's a fairly strong overweight advocated by even JB.
Interesting article. Yes, some other authors have also been recommending an overweight in EM stocks due to their relatively poor returns over the past several years, on the theory that they are now cheaper than other stocks and may be due for better returns going forward.

For example, Vanguard index funds had the following CUMULATIVE returns for the 10 year period ending 12/31/2017:
- Total Stock Market Index (U.S.) - 130.63%
- Total Bond Market Index (U.S.) - 47.27%
- Developed Markets Index (international stocks in developed countries in Europe & Pacific region) - 26.02%
- Emerging Markets Stock Index - 13.68%

I've been slowly increasing both my developed international and EM equity allocations over the past several years in an attempt to reduce the risks inherent in the long bull market in U.S. stocks and EM is now 21% of my total equity portfolio.

I admit that this is a form of market timing, which usually doesn't work. Also, Vanguard EM index fund is 32.6% China and 14.4% Taiwan (47% combined), which is concerning.

cegibbs
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Re: Malkiel -Investing In Overpriced World WSJ

Post by cegibbs » Thu Jan 25, 2018 9:32 am

I’ve never heard or read that Bogle recommends international. To the best of my knowledge he always says if you have to no more than 20 percent international. And he adds that he would not do it. Am I wrong in what Bogle says?

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Re: Malkiel -Investing In Overpriced World WSJ

Post by selters » Thu Jan 25, 2018 10:16 am

cegibbs wrote:
Thu Jan 25, 2018 9:32 am
I’ve never heard or read that Bogle recommends international. To the best of my knowledge he always says if you have to no more than 20 percent international. And he adds that he would not do it. Am I wrong in what Bogle says?
No, you're right. But you don't have to do what Bogle says to be a Boglehead.

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iceport
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Re: Malkiel -Investing In Overpriced World WSJ

Post by iceport » Thu Jan 25, 2018 10:25 am

cegibbs wrote:
Thu Jan 25, 2018 9:32 am
I’ve never heard or read that Bogle recommends international. To the best of my knowledge he always says if you have to no more than 20 percent international. And he adds that he would not do it. Am I wrong in what Bogle says?
Yes, you're right. He's been very consistent about that. That's why I wrote: "He's given general advice in interviews that up to 20% of equities allocated to international stocks is acceptable, and up to 50% of that could be in EM."

The interesting point was that he found it acceptable to dedicate a full 50% of that (acceptable) 20% international allocation to emerging markets. This goes back years, to maybe just after the last crash. It wasn't recent. Jack is fairly conservative with his advice (I don't think anyone would disagree), and yet there must be something about emerging markets that Jack Bogle finds attractive for even this conservative "own-the-market" advocate to consider such a large overweight advantageous. Granted, at 10% of equities the stakes aren't enormous. I just thought EvelynTroy might be interested.

Also note that neither Jack Bogle nor David Swensen are advising anyone to vary their EM stakes based on market conditions. Both clearly advocate to buy and hold. Swensen advocates a dedicated EM overweight, and Bogle finds one acceptable. But if you hold EM, both caution that you need to be aware of the risks and maintain the position through thick and thin.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Malkiel -Investing In Overpriced World WSJ

Post by saltycaper » Thu Jan 25, 2018 10:36 am

A 10% allocation to emerging markets is not overweight--it's approximately the market weight. If you are allocating 20% of equities to international, with 10% to emerging markets and 10% to developed ex-US, you still are not overweighting emerging markets. You are underweighting developed ex-US. Bogle does not define the market. The market defines the market.
Quod vitae sectabor iter?

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iceport
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Re: Malkiel -Investing In Overpriced World WSJ

Post by iceport » Thu Jan 25, 2018 10:58 am

saltycaper wrote:
Thu Jan 25, 2018 10:36 am
A 10% allocation to emerging markets is not overweight--it's approximately the market weight. If you are allocating 20% of equities to international, with 10% to emerging markets and 10% to developed ex-US, you still are not overweighting emerging markets. You are underweighting developed ex-US. Bogle does not define the market. The market defines the market.
That's certainly one way of looking at it. But it's not how I allocate.

If someone has decided upon a home country bias, it makes sense to me that the cap-weighting of the international market would be the starting point for the international allocation, whatever that underweight (from a global perspective) allocation might be.

From the standpoint of everything ex-US, a 50% weight to EM is a strong overweight.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Malkiel -Investing In Overpriced World WSJ

Post by triceratop » Thu Jan 25, 2018 11:02 am

saltycaper wrote:
Thu Jan 25, 2018 10:36 am
A 10% allocation to emerging markets is not overweight--it's approximately the market weight. If you are allocating 20% of equities to international, with 10% to emerging markets and 10% to developed ex-US, you still are not overweighting emerging markets. You are underweighting developed ex-US. Bogle does not define the market. The market defines the market.
I appreciate what you are saying, but respectfully disagree. If I decide to put 25% of my portfolio in tech stocks, and 80% of that in FANG, the rest of the tech sector is underrepresented relative to the way my portfolio was constructed. I suppose it depends on the thinking process when constructing the porfolio: is one allocating 20% to international and *then* deciding on 50% of that to be EM? Or, is one instead choosing 50% of DM and EM as US diversifiers. I would argue they both overweight EM relative to international weight, but perception can be important too.

In any case, I think we both agree that the real issue in such a situation is a severe underweight to non-US stocks,which distorts every other analysis of the asset allocation.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Malkiel -Investing In Overpriced World WSJ

Post by saltycaper » Thu Jan 25, 2018 11:27 am

I guess I just don't see the point in thinking of underweight/overweight relative to anything but the market. Taking a subset that already is different from the market and breaking it down into smaller subsets and comparing those back to the original set removes any meaning from these terms, IMO.

If someone says they are underweight int'l but overweight emerging markets, you have no idea what their allocation to emerging markets is relative to the market.

Referring back to the market is also more descriptive of Bogle's opinions, at least from what I've seen and heard from him. Two countries he has referenced as unexciting are Japan and France. His AA advice amounts to underweighting developed ex-US, and his other comments seem to support that end result.
Quod vitae sectabor iter?

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iceport
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Re: Malkiel -Investing In Overpriced World WSJ

Post by iceport » Sat Jan 27, 2018 9:09 am

Vanguard Emerging Markets Stock Index (VEMAX) is up 10.63% in the first 4 weeks of 2018. Wow.

BTW, it was a July 9, 2008 phone interview in which Jack Bogle threw out the idea of allocating 50% of international equity (up to 10% of all equity) to emerging markets. So that was just before the crash, though EM was already down significantly for the YTD.
"Discipline matters more than allocation.” ─William Bernstein

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