The value of international stocks, in pictures

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siamond
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Re: The value of international stocks, in pictures

Post by siamond » Fri Jul 13, 2018 4:30 pm

Valuethinker wrote:
Fri Jul 13, 2018 4:19 pm
Are the Vanguard numbers per cent of total portfolio or just of equities?

30 per cent of 60 per cent equities would be 18 per cent of total portfolio. If the 40 per cent is in US bonds then overall currency risk would probably be bearable.
Vanguard's advice is 20% to 40% of equities. As to currency risk, don't forget it goes both ways...

jeffh19
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Re: The value of international stocks, in pictures

Post by jeffh19 » Fri Jul 13, 2018 7:12 pm

So lets say I want to get to say 20ish percent, and I'm about 11% now. I auto invest a bunch every month as I said at 75/25 for VTSAX/VTIAX

I'm always preaching nobody has a freaking clue what the market is going to do and I know this BUT considering how the US maybe a little high, certainly due for a correction/crash at some point and many predictions of not the strongest next few years, and maybe the International stuff has just been ok lately, and maybe more of a value......should I maybe do 50/50 us/international auto investments until I get closer to around an 80/20 portfolio?

There's no perfect or right or wrong, nobody knows the future....but I'd love to hear people's thoughts on this :)

drk
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Re: The value of international stocks, in pictures

Post by drk » Fri Jul 13, 2018 7:58 pm

jeffh19 wrote:
Fri Jul 13, 2018 7:12 pm
So lets say I want to get to say 20ish percent, and I'm about 11% now. I auto invest a bunch every month as I said at 75/25 for VTSAX/VTIAX

I'm always preaching nobody has a freaking clue what the market is going to do and I know this BUT considering how the US maybe a little high, certainly due for a correction/crash at some point and many predictions of not the strongest next few years, and maybe the International stuff has just been ok lately, and maybe more of a value......should I maybe do 50/50 us/international auto investments until I get closer to around an 80/20 portfolio?

There's no perfect or right or wrong, nobody knows the future....but I'd love to hear people's thoughts on this :)
That seems like a perfectly reasonable plan, although mentally I would base it on trying to get to your target allocations rather than on relative performance.

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unclescrooge
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Re: The value of international stocks, in pictures

Post by unclescrooge » Sat Jul 14, 2018 12:07 am

fennewaldaj wrote:
Wed Jul 11, 2018 10:41 pm
siamond wrote:
Wed Jul 11, 2018 10:20 pm
SimpleGift wrote:
Wed Jul 11, 2018 10:07 am
To my mind, the dissection of past returns in this case has only limited information value about possible futures. About all we can say is that international and domestic stocks behaved differently in the past. Future returns are unknown.

Instead of the "past returns" argument, I'd like to highlight another one: "buy the haystack." The chart below shows the growth in the number of listed companies worldwide since 1975. While listed companies in the U.S. have been shrinking (in blue), the number of listed companies outside the U.S. has exploded in recent decades, especially in East Asia (in red).
[...]
But if one is investing for the future, say the next 30-50 years, it might pay to notice where it is in the world today that entrepreneurial dynamism is greatest. The haystack is only growing larger beyond the shores of the United States.
Exactly. Forget backtesting in this case, it doesn't help. Therefore hedge your bets for the future. Why is that complicated to understand? Beats me.
Yeah it seems like there is a divide between those of us with the attitude that we can't know the future and therefore should invest with a split kinda close to market weight and those that use look at the not huge difference in returns and say it doesn't matter. To me it seem like the burden of proof is should be on the side that tries to justify not having significant international holdings. There is a significant contingent here who take the opposite position that the burden of proof should be on international to justify itself. So of course we look at the same data and come to opposite conclusions.
Non-US markets account for 48% of the world's stocks.

Is you're going to ignore this significant portion, at least admit you're an ACTIVE INVESTOR, and not a passive one.

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unclescrooge
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Re: The value of international stocks, in pictures

Post by unclescrooge » Sat Jul 14, 2018 12:08 am

jhawktx wrote:
Thu Jul 12, 2018 1:24 am
JoMoney wrote:
Wed Jul 11, 2018 7:14 pm
International stocks...
Higher volatility
More explicit risks, in terms of sovereignty issues, currency risk etc..
Higher costs and tax implications
For better or worse, it isn't going to track with U.S. benchmark
If you recognize all that, and feel compelled that you need some allocation to it for the sake of "diversification"... go for it.
+1. You are paying more for the diversity you seek.
... Said everyone who owned more than one stock. 😁

airelleofmusic
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Re: The value of international stocks, in pictures

Post by airelleofmusic » Sat Jul 14, 2018 5:32 am

Don't you think that we can "exploit" these different 10-year working periods between US and World ex-US by allocating only US or only ex-US (based on 12 month momentum performance for example) ?
LBYM and enjoy life ! Thanks BH !

Valuethinker
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Re: The value of international stocks, in pictures

Post by Valuethinker » Sat Jul 14, 2018 6:13 am

siamond wrote:
Fri Jul 13, 2018 4:30 pm
Valuethinker wrote:
Fri Jul 13, 2018 4:19 pm
Are the Vanguard numbers per cent of total portfolio or just of equities?

30 per cent of 60 per cent equities would be 18 per cent of total portfolio. If the 40 per cent is in US bonds then overall currency risk would probably be bearable.
Vanguard's advice is 20% to 40% of equities. As to currency risk, don't forget it goes both ways...
Thank you.

To be very precise I should have said volatility not risk. For a US investor, given the US is relatively less trade dependent than other large economic blocs, USD volatility is probably to be avoided, generally.

Taking that 20 to 40 then 12 to 24 per cent foreign equity exposure for a 60 40 portfolio. If that is the only foreign currency exposure that's probably not too much volatility to undertake due to currency. The equity return volatility will dominate.

asif408
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Re: The value of international stocks, in pictures

Post by asif408 » Sat Jul 14, 2018 7:15 am

airelleofmusic wrote:
Sat Jul 14, 2018 5:32 am
Don't you think that we can "exploit" these different 10-year working periods between US and World ex-US by allocating only US or only ex-US (based on 12 month momentum performance for example) ?
Possibly, but how many people have the patience and emotional makeup to do that? And what if the underperformance lasts longer, or the outperformance is shorter? We are probably in a period of longer term international outperformance, yet they have underperformed for 6 months, and there are already posts questioning international diversification. And how many pension plan and institutional investors would be able to implement a strategy that may underperform for several years before it outperforms? They would likely be fired or replaced.

So in theory, yes you could, but in practice, it typically doesn't work. Just look at fund flows out of EM now. Human behavior hasn't changed much, most investing is focused on short horizons and prone to large swings in emotion. So if you have the patience and emotional makeup you might be able to....

PaulF
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Re: The value of international stocks, in pictures

Post by PaulF » Sat Jul 14, 2018 10:47 pm

airelleofmusic wrote:
Sat Jul 14, 2018 5:32 am
Don't you think that we can "exploit" these different 10-year working periods between US and World ex-US by allocating only US or only ex-US (based on 12 month momentum performance for example) ?
I am honestly trying to judge: Is that meant to be satire?

If it is a real question, I would suggest that, no, we cannot use trends to help us in the way you suggest.

CurlyDave
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Re: The value of international stocks, in pictures

Post by CurlyDave » Sun Jul 15, 2018 12:41 am

PaulF wrote:
Sat Jul 14, 2018 10:47 pm
airelleofmusic wrote:
Sat Jul 14, 2018 5:32 am
Don't you think that we can "exploit" these different 10-year working periods between US and World ex-US by allocating only US or only ex-US (based on 12 month momentum performance for example) ?
I am honestly trying to judge: Is that meant to be satire?

If it is a real question, I would suggest that, no, we cannot use trends to help us in the way you suggest.
I don't know about that. I am not one to believe that if something hasn't been done before it can't be done.

Certainly it would seem that if the periodicity of the outperformance cycle is several times longer than an observation period, one might be able to exploit the difference. There is probably a lot of data on this, but if it really provides an advantage it is very closely held data.

jalbert
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Re: The value of international stocks, in pictures

Post by jalbert » Sun Jul 15, 2018 12:59 am

As to currency risk, don't forget it goes both ways...
That is a specious argument actually. By definition any risk can go both ways. A "risk" that could not cut both ways is called a liability, not a risk.

The question is whether the risk either is rewarded or diversifies other risks. The long-term expected return of currency exposure is zero. By itself, currency risk is not rewarded. However, currency exposure diversifies inflation risk. I'm not sure there is any reason to believe the world market portfolio is (or for that matter isn't) the optimal mix to minimize the combined exposure to currency and inflation. Hence discussions about the optimal mix of US and non-US equities for US investors usually go in circles.
Index fund investor since 1987.

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fortyofforty
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Re: The value of international stocks, in pictures

Post by fortyofforty » Sun Jul 15, 2018 6:59 am

I'm curious as to why a logarithmic scale would be more beneficial than a linear one (unless nisi was making a joke, which is possible). It seems that it would only magnify the appearance of variance, while the actual difference might be slight.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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siamond
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Re: The value of international stocks, in pictures

Post by siamond » Sun Jul 15, 2018 1:28 pm

jalbert wrote:
Sun Jul 15, 2018 12:59 am
As to currency risk, don't forget it goes both ways...
By definition any risk can go both ways. A "risk" that could not cut both ways is called a liability, not a risk.
You are absolutely right. And this was PRECISELY the point I was trying to make. Currency risk is not a liability. Sometimes it goes in your favor, sometimes it does not.
jalbert wrote:
Sun Jul 15, 2018 12:59 am
The question is whether the risk either is rewarded or diversifies other risks. The long-term expected return of currency exposure is zero. By itself, currency risk is not rewarded.
Your point is valid when looking at a specific asset class (e.g. an international fund vs. a domestic fund). But the essence of diversification is at the portfolio level. Whether the diversity comes from currency fluctuations or distinct economic trajectory or local inflation or whatever is not that important, it's the combination of diverse asset trajectories that makes for a successful portfolio.
jalbert wrote:
Sun Jul 15, 2018 12:59 am
However, currency exposure diversifies inflation risk. I'm not sure there is any reason to believe the world market portfolio is (or for that matter isn't) the optimal mix to minimize the combined exposure to currency and inflation. Hence discussions about the optimal mix of US and non-US equities for US investors usually go in circles.
Yup, that I tend to agree. It is one of those cases where no hard data can help decide. Hence we all fall back to a bunch of preconceived biases... Heck, me too. :shock:

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