Why International again?

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Da5id
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Re: Why International again?

Post by Da5id » Fri Mar 09, 2018 1:19 pm

2015 wrote:
Fri Mar 09, 2018 1:17 pm
International/No international is yet another circular debate here with people whirling their time around it like water going down the drain in a bathtub. I really, really like the signature that cfs has with respect to any of these debates/decisions.
But what you obviously don't get here is clearly established by this link: https://xkcd.com/386/

:)

MnD
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Re: Why International again?

Post by MnD » Fri Mar 09, 2018 1:21 pm

I don't see the need for investing in companies that aren't headquartered in Minnesota and surrounding states.
The Mairs and Power Growth fund does this and has outperformed the S&P 500 for decades.
Minnesota companies sell products and earn profits not only to the entire the rest of the US, but to countries around the world so you have all the US and international diversification you need. 3M for example has 60% of sales outside the US. No need to directly invest in companies in sketchy far-away lands.

Anyone whose has traveled to Minnesota will tell you the vast majority of citizens are law-abiding, well-educated polite and with a great work ethic. Low crime rate, excellent medical care, tidy lawns and gardens - the list of inherent advantages just goes on and on. Its just better than a lot of rather unsavory places elsewhere in the US and the world. So I'm not missing out on anything by risky investing in lawless areas outside of Minnesota and surrounding states. The low cost of living in the upper Midwest keeps expenses low for everything.

Here's a 30-year chart of Mairs and Power Growth versus S&P 500 which really seals the deal. I'm sure sure Jack Bogle would agree.
And an article that explains why Minnesota investing is the way to go for global reach.

Image
https://www.mairsandpower.com/images/Ar ... _Local.pdf
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alex_686
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Re: Why International again?

Post by alex_686 » Fri Mar 09, 2018 1:31 pm

Noobvestor wrote:
Thu Mar 08, 2018 8:00 pm
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988.
https://www.bogleheads.org/wiki/Callan_ ... nt_returns

I think you're running the numbers wrong. Also, international beat US from 2000-2010 (overall, not every year). Long time to lag global returns.
You are both running the numbers wrong. Slice it growth verse value and growth wins. This has a higher explanatory power than the domestic verse international. Plus we should always be wary of back testing. Over the past 20 years multinationals have dominated the indexes and markets have become much more integrated. Predictably the explanatory power of a company's home market has been falling.

This is why I hold a market neutral holdings of international companies. This was not my view 20 years ago. The world has changed.

2015
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Re: Why International again?

Post by 2015 » Fri Mar 09, 2018 1:34 pm

Da5id wrote:
Fri Mar 09, 2018 1:19 pm
2015 wrote:
Fri Mar 09, 2018 1:17 pm
International/No international is yet another circular debate here with people whirling their time around it like water going down the drain in a bathtub. I really, really like the signature that cfs has with respect to any of these debates/decisions.
But what you obviously don't get here is clearly established by this link: https://xkcd.com/386/

:)
:beer

MJW
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Re: Why International again?

Post by MJW » Fri Mar 09, 2018 1:38 pm

thangngo wrote:
Thu Mar 08, 2018 11:45 pm
See this chart, tell us what do you see.
Image
I see that either REITs, emerging markets or small cap stocks were the winners in every year but one.

One of them is often the worst loser as well. :)

H-Town
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Re: Why International again?

Post by H-Town » Fri Mar 09, 2018 1:43 pm

MJW wrote:
Fri Mar 09, 2018 1:38 pm
thangngo wrote:
Thu Mar 08, 2018 11:45 pm
See this chart, tell us what do you see.
Image
I see that either REITs, emerging markets or small cap stocks were the winners in every year but one.

One of them is often the worst loser as well. :)
Haha.. I have all REITs, EM, and small caps in my portfolio at a set allocation so that I can continue buy low and sell high. Time will tell if diversification works in my favor.

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Peculiar_Investor
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Re: Why International again?

Post by Peculiar_Investor » Fri Mar 09, 2018 1:54 pm

Two words ... Total Market.

The basic premise behind indexing is it is the only way to guarantee your fair share of stock market returns. Index funds eliminate the risks of individual stocks, market sectors and manager selections. Only stock market risk remains. Why does this wonderfully simple methodology have to stop at a particular country's borders? If you restrict yourself to specific country borders, aren't you essentially doing the same things as if you were restricting yourself to particular market sectors?

Maybe this concept is easier for me to see, after all I'm Canadian and our share of the global equity market cap is about 4%. It makes absolutely no sense for me to restrict my investable market at our border.
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H-Town
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Re: Why International again?

Post by H-Town » Fri Mar 09, 2018 2:35 pm

Peculiar_Investor wrote:
Fri Mar 09, 2018 1:54 pm
Two words ... Total Market.

The basic premise behind indexing is it is the only way to guarantee your fair share of stock market returns. Index funds eliminate the risks of individual stocks, market sectors and manager selections. Only stock market risk remains. Why does this wonderfully simple methodology have to stop at a particular country's borders? If you restrict yourself to specific country borders, aren't you essentially doing the same things as if you were restricting yourself to particular market sectors?

Maybe this concept is easier for me to see, after all I'm Canadian and our share of the global equity market cap is about 4%. It makes absolutely no sense for me to restrict my investable market at our border.
yeah... agree with you. The thing is that people has enjoyed good return on large caps U.S. stocks since 2010. Recency bias says that those investors believe this trend will continue on forever.

longleaf
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Re: Why International again?

Post by longleaf » Fri Mar 09, 2018 2:46 pm

My Vanguard mug says China on the underside, but my Vanguard account has zero international.
Frugality, indexing, time.

bikechuck
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Re: Why International again?

Post by bikechuck » Fri Mar 09, 2018 2:49 pm

lostdog wrote:
Fri Mar 09, 2018 9:58 am
I follow Vanguards recommendation to diversify at 40% international. They know more than me.


https://investor.vanguard.com/investing ... -investing
They know more than me too, but so do Jack Bogle and Warren Buffet. There are smarter people than me on all sides of this issue. I have settled on having approx 20 percent of my equities in foreign stocks.

3funder
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Re: Why International again?

Post by 3funder » Fri Mar 09, 2018 2:59 pm

Because I'm more comfortable owning the world than I am owning one country. And no, I don't go for the "lots of companies enjoy revenue from overseas" argument.

UpperNwGuy
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Re: Why International again?

Post by UpperNwGuy » Fri Mar 09, 2018 3:06 pm

+1 My US:international ratio within the equity side of my portfolio is 67:33.

kosomoto
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Re: Why International again?

Post by kosomoto » Fri Mar 09, 2018 3:11 pm

patrick wrote:
Thu Mar 08, 2018 11:40 pm
If you are going to look at past results, note that Australian and South African stocks have both dramatically outperformed US stocks from 1900 to present -- a much longer period than the short time you are looking at. With this long history of superior performance, why not keep all of your investments in South Africa and/or Australia? Why invest in the US at all?
Because South Africa is literally running out of water in a few months and Australia will become uninhabitable if global average temperatures increase.
Last edited by kosomoto on Fri Mar 09, 2018 3:27 pm, edited 1 time in total.

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bligh
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Re: Why International again?

Post by bligh » Fri Mar 09, 2018 3:11 pm

I think the distinction between US company and International is arbitrary. To a UK investor the US is International investing.

Would you tell a resident of the UK to only invest in US stocks? Would you tell that resident to only invest in UK stocks?

Dont find the needle in the haystack, but the haystack. Could the US outperform exUS over the next 20 or 30 years? Absolutely. But no one over here would be surprised if the reverse happened. You have no way of knowing if exUS will outperform or not. You accept market returns and sleep well at night that you are not un necessarily exposing yourself to a single country in order to chase returns.

Dominic
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Re: Why International again?

Post by Dominic » Fri Mar 09, 2018 3:20 pm

kosomoto wrote:
Fri Mar 09, 2018 3:11 pm
patrick wrote:
Thu Mar 08, 2018 11:40 pm
If you are going to look at past results, note that Australian and South African stocks have both dramatically outperformed US stocks from 1900 to present -- a much longer period than the short time you are looking at. With this long history of superior performance, why not keep all of your investments in South Africa and/or Australia? Why invest in the US at all?
Because South Africa is literally running out of water on a few months and Australia will become uninhabitable if global average temperatures increase.
This is as strong an argument for global diversification as any. Don't concentrate yourself in any one country.

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flamesabers
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Re: Why International again?

Post by flamesabers » Fri Mar 09, 2018 3:28 pm

OP,

Avoiding home country bias is one of the top reasons why I invest internationally.

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pokebowl
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Re: Why International again?

Post by pokebowl » Fri Mar 09, 2018 6:27 pm

MnD wrote:
Fri Mar 09, 2018 1:21 pm
I don't see the need for investing in companies that aren't headquartered in Minnesota and surrounding states.
The Mairs and Power Growth fund does this and has outperformed the S&P 500 for decades.
Minnesota companies sell products and earn profits not only to the entire the rest of the US, but to countries around the world so you have all the US and international diversification you need. 3M for example has 60% of sales outside the US. No need to directly invest in companies in sketchy far-away lands.

Anyone whose has traveled to Minnesota will tell you the vast majority of citizens are law-abiding, well-educated polite and with a great work ethic. Low crime rate, excellent medical care, tidy lawns and gardens - the list of inherent advantages just goes on and on. Its just better than a lot of rather unsavory places elsewhere in the US and the world. So I'm not missing out on anything by risky investing in lawless areas outside of Minnesota and surrounding states. The low cost of living in the upper Midwest keeps expenses low for everything.

Here's a 30-year chart of Mairs and Power Growth versus S&P 500 which really seals the deal. I'm sure sure Jack Bogle would agree.
And an article that explains why Minnesota investing is the way to go for global reach.

Image
https://www.mairsandpower.com/images/Ar ... _Local.pdf
Hehe :beer

I can understand the endless debate over actual percentage allocations, but honestly can not understand how so many here stand behind the concepts of low cost indexing, buying the haystacks, ignoring past performance because no one knows anything...though that all gets thrown out the window when it comes to international indexing.
Nullius in verba.

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Peculiar_Investor
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Re: Why International again?

Post by Peculiar_Investor » Fri Mar 09, 2018 6:34 pm

pokebowl wrote:
Fri Mar 09, 2018 6:27 pm
I can understand the endless debate over actual percentage allocations, but honestly can not understand how so many here stand behind the concepts of low cost indexing, buying the haystacks, ignoring past performance because no one knows anything...though that all gets thrown out the window when it comes to international indexing.
That is a very good summary of most the discussions I've read.
flamesabers wrote:
Fri Mar 09, 2018 3:28 pm
Avoiding home country bias is one of the top reasons why I invest internationally.
Agreed. It is one of the biggest behavioral pitfalls.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

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cfs
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Re: Why International again?

Post by cfs » Fri Mar 09, 2018 7:09 pm

2015 wrote:
Fri Mar 09, 2018 1:17 pm
. . . International/No international is yet another circular debate here . . .
I totally concur with our shipmate's 2015 statement. My recommendation to anyone suffering from "Domestic Good, International Bad" fatigue is to take some time away from the forum and recharge batteries. The same can be said about those suffering from "Passive Good, Active Bad" fatigue. Just walk away from your computer, take some time off, and come back in a couple of days "ready, willing, and able" to engage. Gracias por leer ~cfs~
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MotoTrojan
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Re: Why International again?

Post by MotoTrojan » Fri Mar 09, 2018 7:48 pm

My only input: 10% of equities is not enough to be worth the added complexity in my view. I hold 25% international market because I don’t know the future.

jibantik
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Re: Why International again?

Post by jibantik » Fri Mar 09, 2018 7:53 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
You have it backwards (as often is the case in these threads). Holding market weight is the null position. You must convince us that your crystal ball is accurate. Why should you move away from international and weight more heavily towards US stocks. So far you have presented two arguments towards moving away from market weight. You say:
  • it [international] primarily adds volatility to a portfolio.
  • when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988
Personally, I don't find these two reasons convincing enough for me to move away from the default position of holding market weight. Your crystal ball still looks fuzzy to me :)

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Noobvestor
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Re: Why International again?

Post by Noobvestor » Fri Mar 09, 2018 9:10 pm

jibantik wrote:
Fri Mar 09, 2018 7:53 pm
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
You have it backwards (as often is the case in these threads). Holding market weight is the null position. You must convince us that your crystal ball is accurate. Why should you move away from international and weight more heavily towards US stocks. So far you have presented two arguments towards moving away from market weight. You say:
  • it [international] primarily adds volatility to a portfolio.
  • when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988
Personally, I don't find these two reasons convincing enough for me to move away from the default position of holding market weight. Your crystal ball still looks fuzzy to me :)
Worse yet, both of those reasons are inaccurate, as I've shown above. To reiterate: (1) historically, adding up to 60% international (i.e. more than basically anyone recommends) has actually reduced volatility, and (2) international has done better than US over various years in this century, not just for a few years during the mid-1980s. Regardless, I agree that the default is a neutral global weighting. Deviations require justification.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

lostdog
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Re: Why International again?

Post by lostdog » Fri Mar 09, 2018 11:38 pm

MnD wrote:
Fri Mar 09, 2018 1:21 pm
I don't see the need for investing in companies that aren't headquartered in Minnesota and surrounding states.
The Mairs and Power Growth fund does this and has outperformed the S&P 500 for decades.
Minnesota companies sell products and earn profits not only to the entire the rest of the US, but to countries around the world so you have all the US and international diversification you need. 3M for example has 60% of sales outside the US. No need to directly invest in companies in sketchy far-away lands.

Anyone whose has traveled to Minnesota will tell you the vast majority of citizens are law-abiding, well-educated polite and with a great work ethic. Low crime rate, excellent medical care, tidy lawns and gardens - the list of inherent advantages just goes on and on. Its just better than a lot of rather unsavory places elsewhere in the US and the world. So I'm not missing out on anything by risky investing in lawless areas outside of Minnesota and surrounding states. The low cost of living in the upper Midwest keeps expenses low for everything.

Here's a 30-year chart of Mairs and Power Growth versus S&P 500 which really seals the deal. I'm sure sure Jack Bogle would agree.
And an article that explains why Minnesota investing is the way to go for global reach.

Image
https://www.mairsandpower.com/images/Ar ... _Local.pdf
Are you serious? This is the first time I've seen a post covering home state bias...

Looking at your past posts I assume you're being sarcastic. Hehe :sharebeer
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aristotelian
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Re: Why International again?

Post by aristotelian » Sat Mar 10, 2018 8:13 am

What if US becomes the next Japan and China becomes the next US? Owning the whole global stock market ensures you do not miss out on the winners or go down with the losers. Right now US is the biggest so international hasn't added much, but you never know and that is how diversification helps. I look at our political and educational systems and I don't necessarily like what I see.

Ari
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Re: Why International again?

Post by Ari » Sat Mar 10, 2018 12:07 pm

InvestInLife wrote:
Fri Mar 09, 2018 9:24 am
In portfoliovisualizer.com backtest portfolio asset class allocation, I enter 10,000 set to maximum date range, defaults to 1986.
Portfolio 1: 100% US Stock Market. Final balance: 250,840. CAGR 10.56. Stdev 15.01.
Portfolio 2: 100% ex-US Stock Market. Final balance: 102,288. CAGR 7.52. Stdev 17.88.
As I said, a few countries have outrperformed. The US is one of them. But most have underperformed. Will the same countries who outperformed in the past continue to outperform in the future? Past results are no guarantee for future returns.
All in, all the time.

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cfs
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Re: Why International again?

Post by cfs » Sat Mar 10, 2018 12:38 pm

"Past results are no guarantee for future returns"

It depends. Sometimes our investment decisions are based on the past. The number one reason given for using "passive" instead of "active" is that only a few [actively managed funds] have managed to beat their index counterpart. So, based on past performance, what would you pick, active or passive? Something to think about.

Good luck with your investments, y gracias por leer ~cfs~
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aj76er
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Re: Why International again?

Post by aj76er » Sat Mar 10, 2018 3:08 pm

MnD wrote:
Fri Mar 09, 2018 1:21 pm
I don't see the need for investing in companies that aren't headquartered in Minnesota and surrounding states.
The Mairs and Power Growth fund does this and has outperformed the S&P 500 for decades.
Minnesota companies sell products and earn profits not only to the entire the rest of the US, but to countries around the world so you have all the US and international diversification you need. 3M for example has 60% of sales outside the US. No need to directly invest in companies in sketchy far-away lands.

Anyone whose has traveled to Minnesota will tell you the vast majority of citizens are law-abiding, well-educated polite and with a great work ethic. Low crime rate, excellent medical care, tidy lawns and gardens - the list of inherent advantages just goes on and on. Its just better than a lot of rather unsavory places elsewhere in the US and the world. So I'm not missing out on anything by risky investing in lawless areas outside of Minnesota and surrounding states. The low cost of living in the upper Midwest keeps expenses low for everything.

Here's a 30-year chart of Mairs and Power Growth versus S&P 500 which really seals the deal. I'm sure sure Jack Bogle would agree.
And an article that explains why Minnesota investing is the way to go for global reach.

Image
https://www.mairsandpower.com/images/Ar ... _Local.pdf
Your metaphor misses a key point:

The value of a US dollar is the same between Minnesota and California. The same cannot be said between the US and India, for example.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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fortyofforty
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Re: Why International again?

Post by fortyofforty » Sat Mar 10, 2018 4:15 pm

For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

Valuethinker
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Re: Why International again?

Post by Valuethinker » Sat Mar 10, 2018 5:38 pm

kosomoto wrote:
Fri Mar 09, 2018 3:11 pm
patrick wrote:
Thu Mar 08, 2018 11:40 pm
If you are going to look at past results, note that Australian and South African stocks have both dramatically outperformed US stocks from 1900 to present -- a much longer period than the short time you are looking at. With this long history of superior performance, why not keep all of your investments in South Africa and/or Australia? Why invest in the US at all?
Because South Africa is literally running out of water in a few months and Australia will become uninhabitable if global average temperatures increase.
I have (I hope) as great an appreciation of the threats as anyone posting here who does not actually work in the field. (Jeff Goodell's new book is excellent, btw).


Cape Town not South Africa

Cape Town is running out of water (to be precise, there ate still privately accessible boreholes, it's the municipal reservoirs that are depleted).

http://worldpopulationreview.com/countr ... on/cities/

although this list shows Cape Town as the largest population, there's something funny in it - Soweto is part of greater Johannesburg. Similarly the constituent cities of Durban are given, but not Durban itself.

Nonetheless Cape Town is only one city in a much larger country. All of South Africa is not running out of water in the next few weeks.

It would be like me writing "the USA is literally running out of water in a few weeks" because Phoenix AZ is.

Australia

Australia will not be uninhabitable. This is one of the world's richest countries and covers a truly vast range of latitude and longitude. It does not even have the population of Canada (which is actually smaller in total area).

Or put it another way it's a bit like On the Beach (the Nevil Shute novel of 1950s nuclear war aftermath, and the movie https://en.wikipedia.org/wiki/On_the_Beach_(1959_film) ). If Australia is uninhabitable we all have a lot bigger problem than that.
The bulk of the Australian land mass lies between latitudes 10 degrees 41 minutes (10°41´) south (Cape York, Queensland) and 43°38´ south (South East Cape, Tasmania), and between longitudes 113°09´ east (Steep Point, Western Australia) and 153°38´ east (Cape Byron, New South Wales).
People live in the middle of the Australian desert in underground towns (diamond mining communities). As they did in Roman times in the middle of the Libyan desert https://en.wikipedia.org/wiki/Garamantes )

Australians are wealthy, and the country is huge. They will simply move to more amenable latitudes -- that's probably the biggest latitude range of any single country? -- 33 degrees? And they can afford air conditioning.

What is true is that sea level rise is a significant threat- -most Australians live near major cities in the narrow coastal strips. It's one of the world's most (sub) urbanized societies, much more so than the USA

http://www.ozcoasts.gov.au/climate/sd_visual.jsp

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Re: Why International again?

Post by BlackHat » Sat Mar 10, 2018 5:51 pm

fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
I wouldn't. I just love the United States and think we're better.
“Life is really simple, but we insist on making it complicated.” -- Confucius

MnD
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Re: Why International again?

Post by MnD » Sat Mar 10, 2018 6:21 pm

BlackHat wrote:
Sat Mar 10, 2018 5:51 pm
fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
I wouldn't. I just love the United States and think we're better.
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
Last edited by MnD on Sat Mar 10, 2018 6:30 pm, edited 1 time in total.
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Re: Why International again?

Post by H-Town » Sat Mar 10, 2018 6:29 pm

fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
If I knew, my money would be invested in 100% international. Patriotic has nothing to do with my wealth.

Da5id
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Re: Why International again?

Post by Da5id » Sat Mar 10, 2018 6:42 pm

thangngo wrote:
Sat Mar 10, 2018 6:29 pm
fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
If I knew, my money would be invested in 100% international. Patriotic has nothing to do with my wealth.
Me as well. US citizen, love my country, but not sure what that has to do with where I put my money.

lostdog
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Re: Why International again?

Post by lostdog » Sat Mar 10, 2018 6:45 pm

MnD wrote:
Sat Mar 10, 2018 6:21 pm
BlackHat wrote:
Sat Mar 10, 2018 5:51 pm
fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
I wouldn't. I just love the United States and think we're better.
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
+1
95% VTWAX | 3% VBTLX | 2% VTABX

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fortyofforty
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Re: Why International again?

Post by fortyofforty » Sat Mar 10, 2018 6:46 pm

The point, then, is that, since we're not certain whether the U.S. or international will perform better, doesn't it make sense to at least have some money invested ex-U.S.?
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

fennewaldaj
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Re: Why International again?

Post by fennewaldaj » Sat Mar 10, 2018 10:33 pm

fortyofforty wrote:
Sat Mar 10, 2018 6:46 pm
The point, then, is that, since we're not certain whether the U.S. or international will perform better, doesn't it make sense to at least have some money invested ex-U.S.?
Yeah to me the arguments to have no international don't even make sense. Like I read them and the logic just does not follow to me. Arguments for under weighting do make some sense to me though I lean closer to market cap myself. It seems like for those that go all US our arguments in favor of international don't make sense to them. There is definitely a lot of talking past each other on this issue.

MJW
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Re: Why International again?

Post by MJW » Sun Mar 11, 2018 1:45 am

MnD wrote:
Sat Mar 10, 2018 6:21 pm
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
I think impossible is overstating it a bit. I prefer rational discussions and am interested to learn others' point of view.

I wonder how many forum members fall into my camp of investing internationally but also having to suspend some measure of disbelief in order to do so.

kosomoto
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Re: Why International again?

Post by kosomoto » Sun Mar 11, 2018 2:19 am

MJW wrote:
Sun Mar 11, 2018 1:45 am
MnD wrote:
Sat Mar 10, 2018 6:21 pm
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
I think impossible is overstating it a bit. I prefer rational discussions and am interested to learn others' point of view.

I wonder how many forum members fall into my camp of investing internationally but also having to suspend some measure of disbelief in order to do so.
That would be me, 30% international and I hate holding it. I would really like to be pleasantly surprised 30 years from now.

..But if international returns continue to be 5% or less over the next 30 years I will blame you all as I'm chilling in retirement, drinking a lower quality cocktail.

visualguy
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Re: Why International again?

Post by visualguy » Sun Mar 11, 2018 2:35 am

I would invest in the ex-US index if it was indeed a good way to participate in the economic growth of the world outside the US. The problem is that this is not the case. For example, I'd love to have a piece of the growth of India and China. Alas, buying their stock markets doesn't get me that because of the way their economies and stock markets work. Much of the real action isn't accessible to me through investing in the ex-US index, and I find the stuff that is accessible to be less compelling than just investing in the US index and avoiding the currency risk.

jbranx
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Re: Why International again?

Post by jbranx » Sun Mar 11, 2018 2:53 am

MnD wrote:
Fri Mar 09, 2018 1:21 pm
I don't see the need for investing in companies that aren't headquartered in Minnesota and surrounding states.
The Mairs and Power Growth fund does this and has outperformed the S&P 500 for decades.
Minnesota companies sell products and earn profits not only to the entire the rest of the US, but to countries around the world so you have all the US and international diversification you need. 3M for example has 60% of sales outside the US. No need to directly invest in companies in sketchy far-away lands.

Anyone whose has traveled to Minnesota will tell you the vast majority of citizens are law-abiding, well-educated polite and with a great work ethic. Low crime rate, excellent medical care, tidy lawns and gardens - the list of inherent advantages just goes on and on. Its just better than a lot of rather unsavory places elsewhere in the US and the world. So I'm not missing out on anything by risky investing in lawless areas outside of Minnesota and surrounding states. The low cost of living in the upper Midwest keeps expenses low for everything.

Here's a 30-year chart of Mairs and Power Growth versus S&P 500 which really seals the deal. I'm sure sure Jack Bogle would agree.
And an article that explains why Minnesota investing is the way to go for global reach.

Image
https://www.mairsandpower.com/images/Ar ... _Local.pdf
Here's the first 25 of 51 holdings of this fund. Looks to me like a lot of non-Minn. companies.

Morningstar
Rating
Ecolab Inc 09/30/1993 USD 134.91 0.57 | 0.42% -0.01 10.30 6.22 12.54 38,969.89
US Bancorp 09/30/1993 USD 55.28 1.34 | 2.48% 0.40 2.73 9.24 12.02 91,257.93
Honeywell International Inc 03/31/2000 USD 154.21 2.98 | 1.97% 0.84 24.44 16.32 17.63 115,407.80
Johnson & Johnson 09/30/1993 USD 133.80 1.74 | 1.32% -4.23 8.90 12.51 13.73 358,972.22
Graco Inc 09/30/1993 USD 46.81 1.04 | 2.27% 8.26 53.98 24.52 19.92 7,931.60
3M Co 05/31/2002 USD 241.35 5.01 | 2.12% 1.92 29.67 15.29 19.84 143,723.92
Medtronic PLC 09/30/1993 USD 83.15 0.94 | 1.14% 3.13 2.62 4.63 14.66 112,699.30
Donaldson Co Inc 06/30/1998 USD 45.55 0.63 | 1.40% -6.31 5.15 8.08 5.76 5,917.29
Abbott Laboratories 06/30/2016 USD 63.60 1.73 | 2.80% 16.91 41.74 12.51 14.50 111,066.84
Hormel Foods Corp 11/30/1995 USD 33.76 0.26 | 0.78% -8.84 -0.27 7.30 13.54 17,878.79
Walt Disney Co 12/31/2010 USD 104.73 0.70 | 0.67% 0.48 -4.22 1.24 14.15 157,479.94
Alphabet Inc C 09/30/2016 USD 1,160.04 34.04 | 3.02% 11.86 38.32 26.93 — 806,849.30
Bemis Co Inc 09/30/1996 USD 45.93 0.46 | 1.01% -2.22 -3.54 1.16 6.07 4,178.51
General Mills Inc 09/30/1993 USD 51.45 -0.25 | -0.48% -6.98 -11.92 2.82 5.37 29,277.30
Bio-Techne Corp 03/31/2003 USD 146.36 2.42 | 1.68% 13.92 37.80 15.67 17.61 5,484.70
Pentair PLC 12/31/2012 USD 71.82 1.55 | 2.21% 3.17 23.66 5.69 8.58 12,949.62
Roche Holding AG ADR 08/31/2013 USD 30.07 0.04 | 0.13% -0.50 -2.39 -0.95 4.10 206,319.31
H.B. Fuller Co 09/30/1997 USD 54.65 1.58 | 2.98% 1.52 13.24 9.20 6.35 2,761.33
Principal Financial Group Inc 11/30/2004 USD 63.05 1.68 | 2.74% -11.43 3.03 10.40 16.12 18,262.86
Fastenal Co 06/30/2007 USD 57.97 1.45 | 2.57% 8.48 18.17 14.70 4.31 16,674.93
The Toro Co 09/30/1993 USD 63.60 1.46 | 2.35% -3.23 6.83 24.98 22.75 6,742.89
C.H. Robinson Worldwide Inc 12/31/2008 USD 91.74 2.14 | 2.39% 4.84 19.15 9.46 11.85 12,820.56
Schlumberger Ltd 06/30/2012 USD 68.78 2.04 | 3.06% 9.03 -10.06 -3.17 -0.04 95,326.13
Pfizer Inc 09/30/1993 USD 36.77 0.27 | 0.74% 3.83 11.81 5.91 8.54 218,886.84
Fiserv Inc 06/30/2009 USD 148.23 2.13 | 1.46% 12.53 26.21 23.79 28.47 30,625.48
Portfolio Date: 12/31/2017

Here's the remainder of the portfolio:


Zimmer Biomet Holdings Inc 09/30/2006 USD 120.86 0.65 | 0.54% 6.81 2.22 1.82 10.70 24,552.34
Wells Fargo & Co 09/30/1993 USD 58.23 1.51 | 2.66% -1.16 1.84 4.73 12.37 284,031.62
American Express Co 05/31/2015 USD 99.05 2.46 | 2.55% 0.86 26.60 8.47 10.09 85,210.62
UnitedHealth Group Inc 01/31/2016 USD 225.43 0.70 | 0.31% 1.01 35.96 26.63 34.38 218,140.25
Target Corp 09/30/1993 USD 70.49 0.74 | 1.06% 15.87 32.16 -0.45 4.11 38,183.14
Qualcomm Inc 02/28/2013 USD 63.03 1.21 | 1.96% -1.00 12.66 -1.56 1.68 93,307.30
United Parcel Service Inc Class B 12/31/2006 USD 110.38 1.58 | 1.45% -6.92 7.44 6.05 8.19 95,105.04
The Western Union Co 06/30/2010 USD 20.17 0.51 | 2.59% 4.93 6.10 4.18 9.59 9,264.05
Badger Meter Inc 03/31/2012 USD 49.20 0.80 | 1.65% 7.83 43.61 21.30 14.49 1,432.29
Great Western Bancorp Inc 03/31/2016 USD 43.50 0.76 | 1.78% 8.87 -0.78 23.90 — 2,561.98
Tennant Co 03/31/2017 USD 69.95 1.70 | 2.49% 11.10 1.56 3.92 8.90 1,250.80
Patterson Companies Inc 03/31/2006 USD 25.29 0.37 | 1.48% -27.97 -40.71 -17.24 -4.28 2,393.29
Corning Inc 03/31/2001 USD 29.93 0.60 | 2.05% -6.92 10.90 10.01 20.62 25,663.57
Associated Banc-Corp 06/30/2004 USD 26.50 0.50 | 1.92% 6.39 7.90 14.24 14.20 4,534.72
Eli Lilly and Co 03/31/2017 USD 79.61 0.72 | 0.91% -7.26 -3.33 7.23 10.22 87,220.52
Cray Inc 03/31/2012 USD 22.45 0.80 | 3.70% 0.22 13.67 -8.85 2.16 908.68
CoreSite Realty Corp 12/31/2017 USD 98.19 1.34 | 1.38% -14.11 17.64 31.60 25.67 3,362.33
General Electric Co 04/30/2002 USD 14.94 0.42 | 2.89% -14.29 -47.20 -11.92 -4.14 129,717.69
Snap-on Inc 09/30/2016 USD 153.38 -1.39 | -0.90% -10.45 -7.07 3.31 15.01 8,699.87
Baxter International Inc 09/30/1993 USD 68.89 1.07 | 1.58% 7.81 33.38 14.63 8.69 37,210.16
Generac Holdings Inc 08/31/2014 USD 47.61 0.60 | 1.28% -2.56 24.05 -1.08 8.77 2,967.33
NVE Corp 12/31/2010 USD 75.26 1.74 | 2.37% -2.17 -5.37 10.97 10.44 364.41
Proto Labs Inc 11/30/2015 USD 118.90 0.65 | 0.55% 25.03 132.68 18.61 19.78 3,198.55
The Home Depot Inc 09/30/2017 USD 182.16 4.22 | 2.37% -0.12 26.76 18.52 22.30 212,717.10
Gentherm Inc

Valuethinker
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Re: Why International again?

Post by Valuethinker » Sun Mar 11, 2018 6:49 am

MnD wrote:
Sat Mar 10, 2018 6:21 pm
BlackHat wrote:
Sat Mar 10, 2018 5:51 pm
fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
I wouldn't. I just love the United States and think we're better.
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
From the perspective of a non US-ian the position taken is often slightly surreal. Because the mirror position of not holding US stocks is not tenable.

"The US is best". But no, it's actually "the US is best and it's better than the market perceives it to be". i.e. I believe in the Efficient Market, but when it comes to USA stocks, the Efficient Market does not apply, the US is best and its valuation does not already reflect that. I know it will do better in the future, too.

Maybe that's a sign of a late stage bull market? We have forgotten the dot com crash, Enron, Worldcom, Sarbanes-Oxley, the Financial Crash, The Big Short etc.

mindboggling
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Re: Why International again?

Post by mindboggling » Sun Mar 11, 2018 6:59 am

As Frank Zappa and the Mothers of Invention sang many years ago:

"It can't happen here."

Or can it?
In broken mathematics, We estimate our prize, --Emily Dickinson

BlackHat
Posts: 91
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Re: Why International again?

Post by BlackHat » Sun Mar 11, 2018 9:39 am

MnD wrote:
Sat Mar 10, 2018 6:21 pm
BlackHat wrote:
Sat Mar 10, 2018 5:51 pm
fortyofforty wrote:
Sat Mar 10, 2018 4:15 pm
For those who hold zero international (ex-U.S.), I wonder--if you magically knew the returns of international would be higher than the U.S.--would you invest some money internationally.
I wouldn't. I just love the United States and think we're better.
I appreciate your honesty and have no doubt your opinion is shared by many.
This is also Exhibit A as to why its impossible to have a rational discussion on the % in non-US investments on this board.
That's why I don't offer an opinion anymore because my investment choice is actually an emotional decision. I think if anyone tries to make an argument for or against international it has to be void of emotion and personal opinion. Purely numbers, white papers and rational thought.
“Life is really simple, but we insist on making it complicated.” -- Confucius

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fortyofforty
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Re: Why International again?

Post by fortyofforty » Sun Mar 11, 2018 12:26 pm

How about this for rational thought?

We allow that the "market" is efficient, to a very large degree. And, we allow that money can flow between countries and companies, in many cases.

However, the flow of information and money between nations is not perfectly fluid. That is to say that we cannot be certain that a Chinese investor (just a hypothetical example) is allowed by his government to invest freely inside or outside China. An external investor might not be freely able to place money into or withdraw money out of China. And a company in China might not be subject to the same rules of accounting and reporting as American companies, and not freely able to share financial information.

Therefore, it is not necessary that the "market weight" of assets placed globally truly reflects where they would be if all individual country markets were equally free for the exchange of information and money. We are all somewhat grasping in the dark, and many of us probably have the sense of trying to account for a generally efficient global market without a 100% buy-in.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

H-Town
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Re: Why International again?

Post by H-Town » Sun Mar 11, 2018 12:40 pm

fortyofforty wrote:
Sun Mar 11, 2018 12:26 pm
How about this for rational thought?

We allow that the "market" is efficient, to a very large degree. And, we allow that money can flow between countries and companies, in many cases.

However, the flow of information and money between nations is not perfectly fluid. That is to say that we cannot be certain that a Chinese investor (just a hypothetical example) is allowed by his government to invest freely inside or outside China. An external investor might not be freely able to place money into or withdraw money out of China. And a company in China might not be subject to the same rules of accounting and reporting as American companies, and not freely able to share financial information.

Therefore, it is not necessary that the "market weight" of assets placed globally truly reflects where they would be if all individual country markets were equally free for the exchange of information and money. We are all somewhat grasping in the dark, and many of us probably have the sense of trying to account for a generally efficient global market without a 100% buy-in.
Nah. I think of it as the degree of correlation among different asset classes that make up your portfolio. I recommend the book "The Intelligent Asset Allocator" by Dr. Bernstein. He has detailed research on different asset classes, including U.S. equity and international equity way back in 1900s.

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fortyofforty
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Re: Why International again?

Post by fortyofforty » Sun Mar 11, 2018 12:54 pm

thangngo wrote:
Sun Mar 11, 2018 12:40 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:26 pm
How about this for rational thought?

We allow that the "market" is efficient, to a very large degree. And, we allow that money can flow between countries and companies, in many cases.

However, the flow of information and money between nations is not perfectly fluid. That is to say that we cannot be certain that a Chinese investor (just a hypothetical example) is allowed by his government to invest freely inside or outside China. An external investor might not be freely able to place money into or withdraw money out of China. And a company in China might not be subject to the same rules of accounting and reporting as American companies, and not freely able to share financial information.

Therefore, it is not necessary that the "market weight" of assets placed globally truly reflects where they would be if all individual country markets were equally free for the exchange of information and money. We are all somewhat grasping in the dark, and many of us probably have the sense of trying to account for a generally efficient global market without a 100% buy-in.
Nah. I think of it as the degree of correlation among different asset classes that make up your portfolio. I recommend the book "The Intelligent Asset Allocator" by Dr. Bernstein. He has detailed research on different asset classes, including U.S. equity and international equity way back in 1900s.
I like Dr Bernstein's book, and have read it several times (although not in many years). I consider equities to be an asset class, as opposed to bonds, whether domestic or foreign.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

simpleman1
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Re: Why International again?

Post by simpleman1 » Sun Mar 11, 2018 1:00 pm

InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
There is no reason to hold international from my perspective. We keep it very simple.

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arcticpineapplecorp.
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Re: Why International again?

Post by arcticpineapplecorp. » Sun Mar 11, 2018 9:23 pm

Noobvestor wrote:
Fri Mar 09, 2018 9:10 pm
jibantik wrote:
Fri Mar 09, 2018 7:53 pm
InvestInLife wrote:
Thu Mar 08, 2018 7:39 pm
I understand it adds diversification--but as far as I can see, it primarily adds volatility to a portfolio.
Plus, when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988. Yes,
I know it did well last year.

I didnt hold any intl until I got a newsletter from Vanguard saying I needed to or I would lose big time over the next decade. So I now have 10% in total ex-US, but am not 100% convinced. Based on current data available to me, which is only based on past data, holding intl will only reduce CAGR. As I understand it, the industry talk seems to be based on comparing present valuations, and concluding that intl is potentially a better value right now.
You have it backwards (as often is the case in these threads). Holding market weight is the null position. You must convince us that your crystal ball is accurate. Why should you move away from international and weight more heavily towards US stocks. So far you have presented two arguments towards moving away from market weight. You say:
  • it [international] primarily adds volatility to a portfolio.
  • when I run Portfolio Visualizer comparing US vs Ex-US, the ONLY years Intl wins are 1986-1988
Personally, I don't find these two reasons convincing enough for me to move away from the default position of holding market weight. Your crystal ball still looks fuzzy to me :)
Worse yet, both of those reasons are inaccurate, as I've shown above. To reiterate: (1) historically, adding up to 60% international (i.e. more than basically anyone recommends) has actually reduced volatility, and (2) international has done better than US over various years in this century, not just for a few years during the mid-1980s. Regardless, I agree that the default is a neutral global weighting. Deviations require justification.
yes, and in case you want to know where we get the notion that ADDING international actually DECREASES volatility, it's here:

https://personal.vanguard.com/pdf/ISGGEB.pdf

Image

There may be a more recent version of that article by Vanguard, but I believe the findings have not changed. You see that adding international (most notably between 20%-40% actually DECREASED the volatility of a portfolio). Which is one reason why it's often recommended to hold this amount (the other reason is that around 30% was on the efficient frontier, highest return per unit of risk). The future may be different from the past.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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MossySF
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Re: Why International again?

Post by MossySF » Sun Mar 11, 2018 10:33 pm

When you pick more than 1 asset class, you will ALWAYS underperform the person who happened to pick only the best class for that period. It's pure mathematics.

The purpose of choosing International (or anything else) as an additional class to hold is to avoid putting all your money into the worst performing asset class for your investing timeline.

What's more important? Avoiding the worst class (and being average) in the future .. or picking the best class but have the chance of also picking the worst?

Ari
Posts: 538
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Re: Why International again?

Post by Ari » Mon Mar 12, 2018 4:58 am

cfs wrote:
Sat Mar 10, 2018 12:38 pm
"Past results are no guarantee for future returns"
It depends. Sometimes our investment decisions are based on the past. The number one reason given for using "passive" instead of "active" is that only a few [actively managed funds] have managed to beat their index counterpart. So, based on past performance, what would you pick, active or passive? Something to think about.
I don't agree that this is a good argument for choosing passive over active. Or rather, it's not sufficient. The reason is mathematical: It's impossible for the average active dollar to beat the average passive dollar before costs, and as long as active is more expensive than passive, they will necessarily underperform. We can look at past data to confirm this, but we need a good explanation that makes sense, not just looking at the past data.

Same thing with stocks vs. bonds. Stocks have no guarantee of future payment and are last in line when a company goes under. Because of this, they are more risky investments than bonds. We expect that risk to be rewarded. Again, we can look at past data to confirm that this has been the case, but we need that explanation.

Now, looking at the US, we need an explanation as to why it would outperform the rest of the world. we can then look at past performance to confirm this, but we need an explanation. I've seen a few explanations about things like investor protection, culture, institutions and corruption. But these all sound like post-hoc explanations to me. If you do think that, for example, countries with less corruption or better institutions perform better, then we can then look at past data to see if this is the case. But then we need to see that as a general trend. I haven't seen any study that looks at this, so feel free to share if you want. But I know a few things:

* The US is far from number one in these measures. There are many countries that are better in these measures than the US.
* Countries like Switzerland and Japan, with great work ethics, low corruption and stable institutions, have been poor investments, while many less stable and more corrupt countries like South Africa have been great investments.

Of course, these are anecdotes, not data. Feel free to point me to studies if they exist.

But there's more: Let's say there is a specific factor that makes the US a better investment. Let's say this is the reason it has outperformed in the past. You STILL have a significant problem. The two examples I mentioned above (active vs. passive and stocks vs. bonds) are things that cannot be arbitraged away. In active vs. passive, it's simply mathematics, and nobody can arbitrage that. In the stocks vs. bonds, it's already arbitraged. It's because of the risk. But if we look at the US vs. International, I don't see any reason why this US advantage cannot be arbitraged. In the past, this was not the case. It was not easy in the 1960s for a French investor to move their capital to US stocks if they thought the US would outperform. There were many roadblocks preventing capital to flow freely and the world market could not be efficient. It makes sense that the US could outperform without people buying US and selling France until that advantage was cancelled. But today a French investor can move their investments to US stocks with the click of a button. The barriers are significantly lower than in the past.

So not only do you need to find a good explanation as to why the US is a better investment than the rest of the world, you also need to find a reason as to why this difference will not be arbitraged away in a world with few barriers for capital. Once you have that, I will admit that the past results are a good guide. We have these things for active vs. passive investments and for stocks vs. bonds. I have not seen anything like this for US vs. international.
All in, all the time.

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