Any value investor buying a Russia fund?

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Lauretta
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Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 11:31 am

According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
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Re: Any value investor buying a Russia fund?

Post by VictoriaF » Mon Apr 09, 2018 11:39 am

The answer is always the same: What do you know that the market does not know?

Having said that, there are some people for whom investment in Russia is a form of diversification. For example, if you are a political or economic or military Russian expert, the need for your services goes up at about the same times when Russian markets fall down. And vice versa.

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A good time [price wise] to buy Russian Stocks?

Post by BuyAndHoldOn » Mon Apr 09, 2018 11:41 am

[Thread merged into here, see below. --admin LadyGeek]

Cheap Russian stocks are now even cheaper.

So cheap; yet I worry I am being lied to and stolen from. Is that "priced in" - and now, with more negativity priced in, does that make Russian stocks more attractive?

https://www.bloomberg.com/news/articles ... a-tensions

https://www.starcapital.de/en/research/ ... valuation/

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Re: A good time [price wise] to buy Russian Stocks?

Post by Oddibe McDowell » Mon Apr 09, 2018 12:02 pm

Not trying to be smart, but I personally wouldn’t find any time a good time to buy invidual Russian stocks. Mutual funds either.

I’m not sure how anybody can be sure of what they own in Russia or otherwise feel confident whatever they “own” can’t just be taken at any moment by the Russian government.

I’d be sure I had an asset allocation I was comfortable with and would buy equities elsewhere .... like the S&P 500.

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Re: A good time [price wise] to buy Russian Stocks?

Post by Day9 » Mon Apr 09, 2018 12:03 pm

VWO, Vanguard Emerging Market Stock Index by country:

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Re: A good time [price wise] to buy Russian Stocks?

Post by Valuethinker » Mon Apr 09, 2018 12:03 pm

BuyAndHoldOn wrote:
Mon Apr 09, 2018 11:41 am
Cheap Russian stocks are now even cheaper.

So cheap; yet I worry I am being lied to and stolen from. Is that "priced in" - and now, with more negativity priced in, does that make Russian stocks more attractive?

https://www.bloomberg.com/news/articles ... a-tensions

https://www.starcapital.de/en/research/ ... valuation/
Yes they are incredibly cheap. Particularly given that the oil price has risen from its lows.

Yes Russian managements and controlling shareholders steal from minority shareholders and foreigners. Read Bill Browder's book Red Notice on the death of Serge Magnitsky (his lawyer in Moscow, Browder was a hedge fund manager).

https://www.goodreads.com/book/show/22609522-red-notice

On the other hand, Russia needs a shop window to the world-- a functioning stock market that can access international capital at some point. The people in charge of corporate Russia have made their peace with the Kremlin. Armand Hammer of Occidental Petroleum always argued communists (it's the same setup even if the ideology has changed) made good business partners (Exxon and BP might disagree).

So my conclusion?

- Russian stocks are incredibly cheap, and well represented in an Emerging Market Dividend ETF that I bought (European listed, but ishares)

- the cheapness reflects the risks

If I contrasted them to Chinese companies, having seen the movie "The China Hussle" recently, I'd suggest that the risks in China re governance are there (if not to the same degree), and the valuation risks are much greater.

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Re: A good time [price wise] to buy Russian Stocks?

Post by asif408 » Mon Apr 09, 2018 12:26 pm

I don't think Russian stocks are any more attractive today than they were 2,3,4, or 5 years ago. So if you were willing to invest in them then you should still now. Now, they are certainly more attractive than they were in 2007 and 2008, when the Russian CAPE ratio was higher than the US. But that's been true for a number of years, and hasn't panned out.

It just depends on how much risk you are willing to take and long you are willing to wait until things pan out (if they do at all).

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Re: A good time [price wise] to buy Russian Stocks?

Post by KSActuary » Mon Apr 09, 2018 12:28 pm

I would buy Chinese all day, every day over Russian stocks.

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 12:33 pm

VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?
As you know value stocks over the long haul have generated higher returns than the market. Research (e.g. by Research Affiliates or StarCapital) seems to show that this is the case also when you compare whole countries and sort them by CAPE.
As with value investing in individual stocks, I think the reason why not everyone does it is that the strategy can underperform the benchmark (say the acwi index) for a long time, and for some countries there's always the danger of the 'value trap'.
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Re: A good time [price wise] to buy Russian Stocks?

Post by Pinkllama » Mon Apr 09, 2018 12:42 pm

The only fund I own and pay into monthly is Vanguard UK FTSE Global All-Cap. 5200 stocks, Russia making up 0.4%.
If I’ve learnt anything from this forum, it’s that I hold exactly the correct amount of Russian stocks.

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Re: Any value investor buying a Russia fund?

Post by Taylor Larimore » Mon Apr 09, 2018 12:44 pm

Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
Lauretta:

Vanguard Total International Stock Market Index Fund holds the world market weight (ex-US) in it's portfolio. Russian stocks represent about 1% of the Fund. Therefore, I would consider any holding of more than 1% in Russian stocks to be a speculation not suitable for investments designed to reach a needed goal.

Best wishes.
Taylor
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Re: Any value investor buying a Russia fund?

Post by Valuethinker » Mon Apr 09, 2018 12:52 pm

VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?

Having said that, there are some people for whom investment in Russia is a form of diversification. For example, if you are a political or economic or military Russian expert, the need for your services goes up at about the same times when Russian markets fall down. And vice versa.

Victoria
;-)

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Re: A good time [price wise] to buy Russian Stocks?

Post by Valuethinker » Mon Apr 09, 2018 12:54 pm

asif408 wrote:
Mon Apr 09, 2018 12:26 pm
I don't think Russian stocks are any more attractive today than they were 2,3,4, or 5 years ago. So if you were willing to invest in them then you should still now. Now, they are certainly more attractive than they were in 2007 and 2008, when the Russian CAPE ratio was higher than the US. But that's been true for a number of years, and hasn't panned out.

It just depends on how much risk you are willing to take and long you are willing to wait until things pan out (if they do at all).
The real delta is perhaps the oil price?

Oil prices are up a lot from about 2 years ago. That's the underpinning of corporate Russia & the Russian economy.

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Re: Any value investor buying a Russia fund?

Post by azanon » Mon Apr 09, 2018 1:14 pm

Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
It's a potentially viable strategy to use to invest in, however investing in just one country like Russia could be really risky. Probably the best ETF that I'm aware of that uses CAPE as a global investing strategy is Cambria's Global Value ETF (GVAL), and it happens to own ~ 10% Russian stock. I believe the strategy is actually to buy stocks in the 10 cheapest countries, sorted primarily by CAPE.

But for me, the biggest negative for this strategy in general, or GVAL specifically, is that there's no low cost (read: boglehead) way to do it. Cambria wants a whopping 68 basis points for GVAL, despite the fact that it's only using an indexing/screening strategy to pick its stocks. Now if I could get GVAL for index-like fees, say no more than 20 basis points, then I might own it myself. But at 68 basis points, Cambria's going to be the one walking away with a huge chuck of the alpha, even if it is able to generate some. Taylor mentioned VG total international for example. So GVAL would have to make an extra 0.57% annually over VXUS just to break even, and it's definitely going to be taking quite a bit more risk in that endeavor.
Last edited by azanon on Mon Apr 09, 2018 1:18 pm, edited 2 times in total.

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 1:17 pm

azanon wrote:
Mon Apr 09, 2018 1:14 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
It's a potentially viable strategy to use to invest in, however investing in just one country like Russia could be really risky. Probably the best ETF that I'm aware of that uses CAPE as a global investing strategy is Cambria's Global Value ETF (GVAL), and it happens to own ~ 10% Russian stock. I believe the strategy is actually to buy stocks in the 10 cheapest countries, sorted primarily by CAPE.

But for me, the biggest negative for this strategy in general, or GVAL specifically, is that there's no low cost (read: boglehead) way to do it. Cambria wants a whopping 68 basis points for GVAL, despite the fact that it's only using an indexing/screening strategy to pick its stocks. Now if I could get GVAL for index-like fees, say no more than 20 basis points, then I might own it myself. But at 68 basis points, Cambria's going to be the one walking away with a huge chuck of the alpha, even if it is able to generate some.
Thanks for the feedback. May I ask why you don't use a DIY approach and buy e.g. the 10 ETFs for the 10 cheapest countries directly?
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Re: Any value investor buying a Russia fund?

Post by azanon » Mon Apr 09, 2018 1:19 pm

Lauretta wrote:
Mon Apr 09, 2018 1:17 pm
azanon wrote:
Mon Apr 09, 2018 1:14 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
It's a potentially viable strategy to use to invest in, however investing in just one country like Russia could be really risky. Probably the best ETF that I'm aware of that uses CAPE as a global investing strategy is Cambria's Global Value ETF (GVAL), and it happens to own ~ 10% Russian stock. I believe the strategy is actually to buy stocks in the 10 cheapest countries, sorted primarily by CAPE.

But for me, the biggest negative for this strategy in general, or GVAL specifically, is that there's no low cost (read: boglehead) way to do it. Cambria wants a whopping 68 basis points for GVAL, despite the fact that it's only using an indexing/screening strategy to pick its stocks. Now if I could get GVAL for index-like fees, say no more than 20 basis points, then I might own it myself. But at 68 basis points, Cambria's going to be the one walking away with a huge chuck of the alpha, even if it is able to generate some.
Thanks for the feedback. May I ask why you don't use a DIY approach and buy e.g. the 10 ETFs for the 10 cheapest countries directly?
Mainly because the individual ETFs aren't much cheaper, if at all, so for virtually no extra fee, GVAL will consistently keep you in the 10 cheapest countries, and also rebalance for you. RSX, for example, is 0.65% ER.

GVAL's kind of neat though in that it doesn't actually just buy 10 ETFs for each country. If I recall correctly, it actually screens for value within the countries as well, so you're getting cheap stock in a cheap country. So bottom of the heap, "dog" stocks.

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Re: A good time [price wise] to buy Russian Stocks?

Post by asif408 » Mon Apr 09, 2018 1:21 pm

Valuethinker wrote:
Mon Apr 09, 2018 12:54 pm
The real delta is perhaps the oil price?

Oil prices are up a lot from about 2 years ago. That's the underpinning of corporate Russia & the Russian economy.
Definitely a big chunk, as energy makes up almost 40% of investable Russia: http://portfolios.morningstar.com/fund/summary?t=ERUS. Sort of similar to how Italy, Spain and some other European countries are dominated by financial services.

But at least based on fund comparison, it doesn't appear the returns of the Russian stock market are entirely correlated with energy, as there has been some divergence between the Russian funds and energy funds in performance from the data I've seen. And the Russian stock market does have a decent amount of financial services and basic materials companies. But I would agree oil prices will likely have a significant influence on their future returns.

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 1:27 pm

Taylor Larimore wrote:
Mon Apr 09, 2018 12:44 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
Lauretta:

Vanguard Total International Stock Market Index Fund holds the world market weight (ex-US) in it's portfolio. Russian stocks represent about 1% of the Fund. Therefore, I would consider any holding of more than 1% in Russian stocks to be a speculation not suitable for investments designed to reach a needed goal.

Best wishes.
Taylor
Thank you for your feedback. May I ask if you consider tilting one's portfolio towards value (I am considering overweighting Russia because of its low valuations) or small caps (as is often discussed on this Forum) speculation?
In this sense then would the Larry Swedroe portfolio, which only holds SCV stocks and no LC, and is thus totally different from the market, also be speculation?
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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 1:28 pm

azanon wrote:
Mon Apr 09, 2018 1:19 pm
Lauretta wrote:
Mon Apr 09, 2018 1:17 pm
azanon wrote:
Mon Apr 09, 2018 1:14 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
It's a potentially viable strategy to use to invest in, however investing in just one country like Russia could be really risky. Probably the best ETF that I'm aware of that uses CAPE as a global investing strategy is Cambria's Global Value ETF (GVAL), and it happens to own ~ 10% Russian stock. I believe the strategy is actually to buy stocks in the 10 cheapest countries, sorted primarily by CAPE.

But for me, the biggest negative for this strategy in general, or GVAL specifically, is that there's no low cost (read: boglehead) way to do it. Cambria wants a whopping 68 basis points for GVAL, despite the fact that it's only using an indexing/screening strategy to pick its stocks. Now if I could get GVAL for index-like fees, say no more than 20 basis points, then I might own it myself. But at 68 basis points, Cambria's going to be the one walking away with a huge chuck of the alpha, even if it is able to generate some.
Thanks for the feedback. May I ask why you don't use a DIY approach and buy e.g. the 10 ETFs for the 10 cheapest countries directly?
Mainly because the individual ETFs aren't much cheaper, if at all, so for virtually no extra fee, GVAL will consistently keep you in the 10 cheapest countries, and also rebalance for you. RSX, for example, is 0.65% ER.

GVAL's kind of neat though in that it doesn't actually just buy 10 ETFs for each country. If I recall correctly, it actually screens for value within the countries as well, so you're getting cheap stock in a cheap country. So bottom of the heap, "dog" stocks.
ah ok thanks; I think RA does the same with the RAFI Emerging Markets ETF
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Re: Any value investor buying a Russia fund?

Post by triceratop » Mon Apr 09, 2018 1:29 pm

Taylor Larimore wrote:
Mon Apr 09, 2018 12:44 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
Lauretta:

Vanguard Total International Stock Market Index Fund holds the world market weight (ex-US) in it's portfolio. Russian stocks represent about 1% of the Fund. Therefore, I would consider any holding of more than 1% in Russian stocks to be a speculation not suitable for investments designed to reach a needed goal.

Best wishes.
Taylor
"Vanguard Total World Stock Market Index Fund holds the world market weight in its portfolio. US stocks represent about 52% of the Fund. Therefore, I would consider any holding of more than 52% in US stocks to be a speculation not suitable for investments designed to reach a needed goal."

:twisted:
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Re: Any value investor buying a Russia fund?

Post by azanon » Mon Apr 09, 2018 1:36 pm

triceratop wrote:
Mon Apr 09, 2018 1:29 pm
Taylor Larimore wrote:
Mon Apr 09, 2018 12:44 pm
Lauretta wrote:
Mon Apr 09, 2018 11:31 am
According to StarCapital it's the country with lowest CAPE and P/B ratio and thus with highest long time expected results. Today the index lost more than 10% in Euro terms. If one wants to tilt to value, do you think this is an opportunity to overweight Russia in one's AA? (and what maximal proportion of one's total assets in stocks would you allocate to Russia?)
Lauretta:

Vanguard Total International Stock Market Index Fund holds the world market weight (ex-US) in it's portfolio. Russian stocks represent about 1% of the Fund. Therefore, I would consider any holding of more than 1% in Russian stocks to be a speculation not suitable for investments designed to reach a needed goal.

Best wishes.
Taylor
"Vanguard Total World Stock Market Index Fund holds the world market weight in its portfolio. US stocks represent about 52% of the Fund. Therefore, I would consider any holding of more than 52% in US stocks to be a speculation not suitable for investments designed to reach a needed goal."

:twisted:
Taylor, you walked right into that one. :mrgreen:

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Re: A good time [price wise] to buy Russian Stocks?

Post by oslocal » Mon Apr 09, 2018 2:21 pm

FNDE is 13% in Russia. (also it is 20% is South Korea which is not in EM according to FTSE/Vanguard)
It is also 23% in Energy and 11% in Materials.

It's the Schwab Emerging Market Fundamental Index ETF
https://www.schwabfunds.com/public/csim ... ymbol=FNDE

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Re: A good time [price wise] to buy Russian Stocks?

Post by 3funder » Mon Apr 09, 2018 2:23 pm

They're super cheap; however, the Russian government is also super shady. I'll pass.

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Re: Any value investor buying a Russia fund?

Post by nisiprius » Mon Apr 09, 2018 2:31 pm

Lauretta wrote:
Mon Apr 09, 2018 12:33 pm
VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?
...As you know value stocks over the long haul have generated higher returns than the market....
I don't think I "know" this, if you take risk into account and look at risk-adjusted return as measured by the Sharpe ratio.

1927-2016:

Fama French large blend: return 12.23, standard deviation 20.78, Sharpe ratio 0.424.
Fama French large value: return 14.91, standard deviation 27.03, Sharpe ratio 0.425.

Over this time period, in large stocks, there were higher returns but they were almost precisely commensurate with the higher risk.

For small-caps, there was a difference, but most of the extra return was simply commensurate with the higher risk.
small blend, return 16.50, standard deviation 28.41, Sharpe ratio 0.460.
small value, return 18.79, standard deviation 31.92, Sharpe ratio 0.481.

Since publication of the original Fama-French three-factor papers, small-cap value has actually had a lower Sharpe ration than small-cap blend.
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Re: Any value investor buying a Russia fund?

Post by tigerdoc93 » Mon Apr 09, 2018 2:54 pm

Read Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice by Bill Browder. Then I’m willing to bet you’ll reconsider investing in Russia. Good luck

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Re: A good time [price wise] to buy Russian Stocks?

Post by nisiprius » Mon Apr 09, 2018 2:57 pm

I can't say whether or not the market has properly priced in the risks of Russian corruption. But I certainly remember that in 1997 issues with Russian bonds brought down Long-Term Capital Management and nearly brought down the US financial system with it. If the Nobel laureates at Long-Term Capital Management couldn't accurately assess the risk of Russian financial assets, I doubt that I can.
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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 3:13 pm

nisiprius wrote:
Mon Apr 09, 2018 2:31 pm
Lauretta wrote:
Mon Apr 09, 2018 12:33 pm
VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?
...As you know value stocks over the long haul have generated higher returns than the market....
I don't think I "know" this, if you take risk into account and look at risk-adjusted return as measured by the Sharpe ratio.

Well if you don't 'know' this you can learn about it by reading the 1992 Fama French paper; they actually show (as you'll realise if you read at least the Conclusion, on page 450) that stock returns are not positively correlated to market beta. That's why they proposed a 3 factor model, to explain the superior returns of SCV which cannot be explained by volatility.
Also, value stocks have positive skweness, as a paper by Bouchaud I referred to in another post shows.
It's also interesting that Buffett, Klarman etc speak of the absurdity of volatility and the Sharpe ratio as a measure of risk, though many people continue to use this. It seems to me that CAPM, the Sharpe ratio etc were developed simply because they allowed academics (I know a bit about academics since I confess that I am one of them) to use some elegant models, even though these models have little to do with reality.
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Re: Any value investor buying a Russia fund?

Post by ksualum » Mon Apr 09, 2018 3:21 pm

Lauretta wrote:
Mon Apr 09, 2018 12:33 pm
VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?
As you know value stocks over the long haul have generated higher returns than the market. Research (e.g. by Research Affiliates or StarCapital) seems to show that this is the case also when you compare whole countries and sort them by CAPE.
As with value investing in individual stocks, I think the reason why not everyone does it is that the strategy can underperform the benchmark (say the acwi index) for a long time, and for some countries there's always the danger of the 'value trap'.
Past performance is no guarantee of future results. I don't think anyone knows if value investing will continue to outperform in the future. As you are asking the question and tend to argue with anyone who says you shouldn't, why don't you just buy some? There is RSX and ERUS. Both of these have doubled in value since Jan 2016. So the main question is are you catching a falling knife and should you have invested in these 2 years ago and sold everything in Jan 2018 thus cashing in your 100% return? Who knows? It sounds like you want to find out, so why not put a small amount in?

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 3:34 pm

ksualum wrote:
Mon Apr 09, 2018 3:21 pm
As you are asking the question and tend to argue with anyone who says you shouldn't, why don't you just buy some?
I am not really arguing, I was just explaining my reasoning to Victoria. The main reason I asked the question in the OP is that I want to see what the intelligent arguments against this are. On the other hand, if the arguments are flawed, I think it is of interest to point this out. For example the argument that the value premium is due to beta is not a valid one, as pointed out by Fama and French (1992), so I mentioned that above, not for the sake of argument but for the sake of truth.
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Re: A good time [price wise] to buy Russian Stocks?

Post by Hockey10 » Mon Apr 09, 2018 3:35 pm

If you want some international exposure, just buy the entire international market - ticker VXUS.

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Re: A good time [price wise] to buy Russian Stocks?

Post by cfs » Mon Apr 09, 2018 3:44 pm

What's up with all the Russia, Russia, Russia?

Good luck y gracias por leer / cfs

p.s. You just don't want to be out of this market for ONE day (we are not talking about the Russian market)
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Re: A good time [price wise] to buy Russian Stocks?

Post by triceratop » Mon Apr 09, 2018 3:46 pm

nisiprius wrote:
Mon Apr 09, 2018 2:57 pm
I can't say whether or not the market has properly priced in the risks of Russian corruption. But I certainly remember that in 1997 issues with Russian bonds brought down Long-Term Capital Management and nearly brought down the US financial system with it. If the Nobel laureates at Long-Term Capital Management couldn't accurately assess the risk of Russian financial assets, I doubt that I can.
The same could be said about US bonds and the US financial system in 2008. I agree it's hard to assess the risks.

disclosure: I own Russia stocks in my international index funds, same as most Bogleheads.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Any value investor buying a Russia fund?

Post by asif408 » Mon Apr 09, 2018 3:51 pm

VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?

Victoria
I don't think it's a question of smarter, the better question is: who is on the other side of the trade? Successful investing doesn't require a particularly high IQ, as Warren Bufffett notes. But you can't outperform with a winning bet unless you have more people willing to make the losing bet.

I think its a legitimate strategy, the question is are you willing to hold it long enough to benefit and would you be ok if "expected" is not "realized"? I personally do tilt using a low CAPE strategy, which includes Russia, but I also include other low CAPE countries both developed and emerging in my tilt, such as Brazil, Poland, Italy, and Spain. I did the math and my tilt adds approximately 10-12 bps to my expenses. That is a trade-off I can live with. So I think it's ok if it is part of a basket of countries you are tilting with, and done as cheaply as possible and with broad based index funds. That way if it doesn't pan out at least you have minimized your expenses doing it, which is one aspect which you can control.

I personally would feel uncomfortable with more than 1/2 of my assets in any one country during the accumulation phase, and probably wouldn't put more than 10% in any single country fund, to avoid the risk of the stock market going to 0, which has happened to both Russia (1917) and China (1949). As I implement it, my tilted basket is about 10-15% of my portfolio, with the rest primarily in broad based total market index funds. For Russia alone, I would probably never exceed 10% as a single country fund in my stock allocation. But that's my personal comfort level.

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Lauretta
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Re: Any value investor buying a Russia fund?

Post by Lauretta » Mon Apr 09, 2018 4:02 pm

asif408 wrote:
Mon Apr 09, 2018 3:51 pm
VictoriaF wrote:
Mon Apr 09, 2018 11:39 am
The answer is always the same: What do you know that the market does not know?

Victoria
I don't think it's a question of smarter, the better question is: who is on the other side of the trade? Successful investing doesn't require a particularly high IQ, as Warren Bufffett notes. But you can't outperform with a winning bet unless you have more people willing to make the losing bet.

I think its a legitimate strategy, the question is are you willing to hold it long enough to benefit and would you be ok if "expected" is not "realized"? I personally do tilt using a low CAPE strategy, which includes Russia, but I also include other low CAPE countries both developed and emerging in my tilt, such as Brazil, Poland, Italy, and Spain.
Thanks for your feedback! :happy I also have overweighted all the countries you mention (for Poland it's within an Emerging Europe ETF, which includes Hungary and the Czech Republic in lower quantities). One last question: do you also have Turkey?
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Re: A good time [price wise] to buy Russian Stocks?

Post by cfs » Mon Apr 09, 2018 4:13 pm

We have another Russia, Russia, Russia thread going, both should be merged. Good luck, y gracias por leer ~cfs~

p.s. You just don't want to be out of this market for ONE day !!!
p.p.s. Not the Russian market !!!
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Re: Any value investor buying a Russia fund?

Post by ksualum » Mon Apr 09, 2018 4:44 pm

Lauretta wrote:
Mon Apr 09, 2018 3:34 pm
ksualum wrote:
Mon Apr 09, 2018 3:21 pm
As you are asking the question and tend to argue with anyone who says you shouldn't, why don't you just buy some?
I am not really arguing, I was just explaining my reasoning to Victoria. The main reason I asked the question in the OP is that I want to see what the intelligent arguments against this are. On the other hand, if the arguments are flawed, I think it is of interest to point this out. For example the argument that the value premium is due to beta is not a valid one, as pointed out by Fama and French (1992), so I mentioned that above, not for the sake of argument but for the sake of truth.
It just appeared to me that you were looking for confirmation bias, and I was just trying to give it you :wink:

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Re: Any value investor buying a Russia fund?

Post by golfCaddy » Mon Apr 09, 2018 5:52 pm

I don't believe in factor investing, but that topic's been beat to death elsewhere. If you believe in value investing, you should want to invest in the cheapest stocks on a global basis, and that would imply having the majority of your equities in emerging/frontier markets.

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Re: A good time [price wise] to buy Russian Stocks?

Post by VaR » Mon Apr 09, 2018 6:49 pm

BuyAndHoldOn wrote:
Mon Apr 09, 2018 11:41 am
So cheap; yet I worry I am being lied to and stolen from. Is that "priced in" - and now, with more negativity priced in, does that make Russian stocks more attractive?
The boglehead argument is that everything is priced in to current market prices.

Standard advice: buy the equity market in proportion to market cap weighting via a world equity index fund or a domestic fund + an international fund.

Advice for factor tilters: If you think emerging markets is a factor like "value" or "capitalization" are factors, you can consider overweighting emerging market equities a bit like you might overweight "value" or "small cap value".

I think almost everyone would say that single-country investing is speculation (unless that country is the U.S. or your home country).

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Re: Any value investor buying a Russia fund?

Post by asif408 » Mon Apr 09, 2018 8:21 pm

Lauretta wrote:
Mon Apr 09, 2018 4:02 pm
Thanks for your feedback! :happy I also have overweighted all the countries you mention (for Poland it's within an Emerging Europe ETF, which includes Hungary and the Czech Republic in lower quantities). One last question: do you also have Turkey?
Not a separate fund for it, only what is contained in the total market index funds I own. When I started the tilt the other funds I am using were cheaper and commission free, so since I had cheaper options I didn't include it.

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Tue Apr 10, 2018 10:47 am

ksualum wrote:
Mon Apr 09, 2018 4:44 pm
Lauretta wrote:
Mon Apr 09, 2018 3:34 pm
ksualum wrote:
Mon Apr 09, 2018 3:21 pm
As you are asking the question and tend to argue with anyone who says you shouldn't, why don't you just buy some?
I am not really arguing, I was just explaining my reasoning to Victoria. The main reason I asked the question in the OP is that I want to see what the intelligent arguments against this are. On the other hand, if the arguments are flawed, I think it is of interest to point this out. For example the argument that the value premium is due to beta is not a valid one, as pointed out by Fama and French (1992), so I mentioned that above, not for the sake of argument but for the sake of truth.
It just appeared to me that you were looking for confirmation bias, and I was just trying to give it you :wink:
haha :D thanks for the thought :wink: I've got plenty of confirmation bias, including from people on the panel of the Bogleheads 2017 conference: Jonathan Clements and Bill Bernstein both spoke very favourably of EM at the Bogleheads 2017 conference, basically because they are cheap, and Clements overweights EM and has about 20% of his AA in them, according to his blog. So I am looking instead to understand if there are valid reasons for NOT overweighting EM or Italy and Spain. I haven't understood yet the reason why one should allocate following what the market does. As I mentioned in a post above for example, the Larry Swedroe portfolio too has nothing to do with the market (the equity portion is only invested in SCV).
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Re: Any value investor buying a Russia fund?

Post by Tallis » Tue Apr 10, 2018 3:05 pm

The principal difficulty I'd have with investing in Russia is its less than optimal legal system and political system. Overweighting Italy and Spain, both of which are members of the EU, seems qualitatively different than investing more in Russia. In the latter case the issues seem to be political or diplomatic, neither of which are amenable to economic analysis.

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Re: Any value investor buying a Russia fund?

Post by asif408 » Tue Apr 10, 2018 3:38 pm

Lauretta wrote:
Tue Apr 10, 2018 10:47 am
So I am looking instead to understand if there are valid reasons for NOT overweighting EM or Italy and Spain. I haven't understood yet the reason why one should allocate following what the market does. As I mentioned in a post above for example, the Larry Swedroe portfolio too has nothing to do with the market (the equity portion is only invested in SCV).
I think the reason so many advocate for following the overall market weightings is that it is easy to do and generally the cheapest way to invest, as you can simply buy a handful of index funds for almost nothing, or even a target date type fund that rebalances for you. It gives you the market returns, good or bad. When the overall stock markets you are investing in do well, so do you. The index funds include the majority of fads and trends in the market as well (such as the heavy weighting of tech stocks in the US pre-2000). So in a sense it is a type of momentum investing.

What you are implementing is a value strategy, which is different but can achieve similar (and possibly) superior results, depending on implementation. It's just a different way of investing. When the overall market is performing well, you may lag or even have negative returns (say US vs. developed ex-US and EM from 2011-2016). So you have to endure years where you are lagging (until last year), which is difficult for most people to do. And it's really difficult for people who invest not to weigh the most recent performance more heavily than any other metric.

I imagine a value type strategy would be more difficult for someone who likes being part of the crowd, as they would feel they were missing out during a bull run. Value investing would have more appeal to an independent minded person or contrarian, who doesn't mind being left behind during the bull run and the euphoria that sometimes grips markets.

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Re: Any value investor buying a Russia fund?

Post by Lauretta » Wed Apr 11, 2018 2:28 am

asif408 wrote:
Tue Apr 10, 2018 3:38 pm
Lauretta wrote:
Tue Apr 10, 2018 10:47 am
So I am looking instead to understand if there are valid reasons for NOT overweighting EM or Italy and Spain. I haven't understood yet the reason why one should allocate following what the market does. As I mentioned in a post above for example, the Larry Swedroe portfolio too has nothing to do with the market (the equity portion is only invested in SCV).
I think the reason so many advocate for following the overall market weightings is that it is easy to do and generally the cheapest way to invest, as you can simply buy a handful of index funds for almost nothing, or even a target date type fund that rebalances for you. It gives you the market returns, good or bad. When the overall stock markets you are investing in do well, so do you. The index funds include the majority of fads and trends in the market as well (such as the heavy weighting of tech stocks in the US pre-2000). So in a sense it is a type of momentum investing.

What you are implementing is a value strategy, which is different but can achieve similar (and possibly) superior results, depending on implementation. It's just a different way of investing. When the overall market is performing well, you may lag or even have negative returns (say US vs. developed ex-US and EM from 2011-2016). So you have to endure years where you are lagging (until last year), which is difficult for most people to do. And it's really difficult for people who invest not to weigh the most recent performance more heavily than any other metric.

I imagine a value type strategy would be more difficult for someone who likes being part of the crowd, as they would feel they were missing out during a bull run. Value investing would have more appeal to an independent minded person or contrarian, who doesn't mind being left behind during the bull run and the euphoria that sometimes grips markets.
Thank you for your feedback :happy this all makes sense to me, including the idea of indexing being a kind of momentum investing (as one overweights the winners). I like your descroption of indexing as
easy to do and generally the cheapest way to invest
I remember reading a book by o'Shaughnessy in which he describes indexing as just a strategy of selecting stocks amongst many other possible strategies, i.e. it conveyed the idea that it should not be viewed as having some inherent preeminence.
I also understand the possibility of tracking error if you deviate from the index.
Btw one additional reason I thought overweighiting EM and low CAPE countries made sense for me (I have been investing since last year after selling real estate properties) is that also momentum seems to have turned in their favour precisely in recent times, so now not only do they seem cheap but they no longer have negative momentum (or lower relative momentum).
I also found your comments on fund expense useful: in Europe where I live I can get an Emerging Europe ETF for a total cost of 0.2%/yr, and ETFs for Italy and Spain for slightly more; but other countries like South Korea (where I novertheless was lucky to invest last summer) are more expensive so I it's worth to watch out for costs.
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Re: Any value investor buying a Russia fund?

Post by asif408 » Wed Apr 11, 2018 7:36 am

Lauretta wrote:
Wed Apr 11, 2018 2:28 am
I also found your comments on fund expense useful: in Europe where I live I can get an Emerging Europe ETF for a total cost of 0.2%/yr, and ETFs for Italy and Spain for slightly more; but other countries like South Korea (where I novertheless was lucky to invest last summer) are more expensive so I it's worth to watch out for costs.
Yes, here in the USA, the cheapest index funds I can get (all commission free) are a US fund for 0.03-0.05%, developed ex-US at 0.04-0.07%, and EM funds at 0.11-0.14%. About 80% of my investments are in these.

Single country ETFs in the developed ex-US tend to run close to 0.5%, and EM country ETFs around 0.6-0.7%, and not all of those are commission free, though it is becoming more common. I've also considered using EM and developed ex-US value funds, as they approximate a low CAPE strategy with slightly lower costs (0.3-0.4%), and no commissions are becoming more common in this space.

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Re: A good time [price wise] to buy Russian Stocks?

Post by BuyAndHoldOn » Wed Apr 11, 2018 8:48 am

nisiprius wrote:
Mon Apr 09, 2018 2:57 pm
I can't say whether or not the market has properly priced in the risks of Russian corruption. But I certainly remember that in 1997 issues with Russian bonds brought down Long-Term Capital Management and nearly brought down the US financial system with it. If the Nobel laureates at Long-Term Capital Management couldn't accurately assess the risk of Russian financial assets, I doubt that I can.
They were using sophisticated models, reams of data, and a team of experts for analysis. I won't be doing any of that, so I expect I will not run into the same problems that they did :D :greedy

....

I will stay out of the "blast zone" with Russia. Might satisfy my urge to be an active market participant with EAFE Value (EFV) or something else. (Not as a core holding, just as something peripheral and that looks [more] appropriate to buy at the moment).

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Re: A good time [price wise] to buy Russian Stocks?

Post by HongKonger » Wed Apr 11, 2018 9:52 am

3funder wrote:
Mon Apr 09, 2018 2:23 pm
They're super cheap; however, the Russian government is also super shady. I'll pass.
Can I say that about the US government and not get jumped on?

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Re: A good time [price wise] to buy Russian Stocks?

Post by 3funder » Wed Apr 11, 2018 10:45 am

HongKonger wrote:
Wed Apr 11, 2018 9:52 am
3funder wrote:
Mon Apr 09, 2018 2:23 pm
They're super cheap; however, the Russian government is also super shady. I'll pass.
Can I say that about the US government and not get jumped on?
Sure; they're just not nearly as shady as Putin and company.

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Re: A good time [price wise] to buy Russian Stocks?

Post by harmony » Wed Apr 11, 2018 10:23 pm

Valuethinker wrote: ↑
Yes Russian managements and controlling shareholders steal from minority shareholders and foreigners. Read Bill Browder's book Red Notice on the death of Serge Magnitsky (his lawyer in Moscow, Browder was a hedge fund manager).
+1

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Re: A good time [price wise] to buy Russian Stocks?

Post by golfCaddy » Wed Apr 11, 2018 10:38 pm

Valuethinker wrote:
Mon Apr 09, 2018 12:03 pm
If I contrasted them to Chinese companies, having seen the movie "The China Hussle" recently, I'd suggest that the risks in China re governance are there (if not to the same degree), and the valuation risks are much greater.
Xi Jinping seems to be making a serious effort to cleanup corruption in China. While SOEs may pursue China's geopolitical goals at the expense of its minority shareholders, I would be less concerned about embezzlement and bribes detracting from performance than say Russia.

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Re: A good time [price wise] to buy Russian Stocks?

Post by magneto » Thu Apr 12, 2018 1:09 pm

Topped up Russia this week on the sharp decline.
Levelled at long-term target circa 2 to 2.5% of Stocks.
Will add if price weakens further, or reduce if see significant gains.
Called 'rebalancing'.
Trying to focus on fundamentals rather than narrative - but that's far from easy!
The Rouble may damage valuations.
Sorry no special insights - clueless as always.
But quite a big country; Russia (at least in geographical terms)!
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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