It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

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willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 2:37 pm

visualguy wrote:
Thu Aug 16, 2018 2:29 pm
Riley15 wrote:
Thu Aug 16, 2018 2:22 pm
International stocks having 20 or 30 year underperformance compared to the US means nothing at all for the future. They are both diversified set of stocks and International more so than US because it's a basket of countries and a greater percentage. The US is only about 35-40% of world cap.

Just because International underperformed in the past does not predict it will underperform in the future nor does US overperforming in the past predict it will continue to so in the future. If you believe in valuations it's more likely International has a chance of higher returns in the future. If you don't believe in valuations, it's 50-50 shot at best.

Have we not learned past performance does not indicate anything about the future when applied to a well diversified portfolio of stocks.
Ex-US didn't just under-perform the US. It performed poorly. Period. The return was poor, particularly when considering the high volatility. It was a bad investment in the long run, not just the short run.

Regarding past performance... The whole Boglehead strategy extrapolates from past performance of the strategy. Similarly, SWR arguments are based on past performance. Past performance is the foundation of the whole thing.
:thumbsup

A theory formed apart from data is meaningless. History is far from meaningless, or else we need to revise our schools' curriculum from kindergarten through college.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 2:40 pm

gmaynardkrebs wrote:
Thu Aug 16, 2018 2:34 pm
nisiprius wrote:
Thu Aug 16, 2018 10:14 am
No matter how efficient the market is, it cannot change the fact that a European investor buying European stocks with euros experiences less risk than a US investor buying those identical European stocks with dollars, and that a US investor buying US stocks in dollars experiences less risk and the European investor buying those identical US stocks with euros.
Not quite sure of the point. If the valuations are compelling enough, it's worth taking on the fx risk.
If you truly believe that valuations are that predictive, then you should be buying a lot of Russian and Turkish stocks these days.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Vulcan » Thu Aug 16, 2018 2:45 pm

willthrill81 wrote:
Thu Aug 16, 2018 2:40 pm
gmaynardkrebs wrote:
Thu Aug 16, 2018 2:34 pm
nisiprius wrote:
Thu Aug 16, 2018 10:14 am
No matter how efficient the market is, it cannot change the fact that a European investor buying European stocks with euros experiences less risk than a US investor buying those identical European stocks with dollars, and that a US investor buying US stocks in dollars experiences less risk and the European investor buying those identical US stocks with euros.
Not quite sure of the point. If the valuations are compelling enough, it's worth taking on the fx risk.
If you truly believe that valuations are that predictive, then you should be buying a lot of Russian and Turkish stocks these days.
I am. In market weights.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Vulcan
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Vulcan » Thu Aug 16, 2018 2:45 pm

[duplicate message deleted]
Last edited by Vulcan on Thu Aug 16, 2018 3:10 pm, edited 1 time in total.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Riley15
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Riley15 » Thu Aug 16, 2018 2:45 pm

visualguy wrote:
Thu Aug 16, 2018 2:29 pm
Riley15 wrote:
Thu Aug 16, 2018 2:22 pm
International stocks having 20 or 30 year underperformance compared to the US means nothing at all for the future. They are both diversified set of stocks and International more so than US because it's a basket of countries and a greater percentage. The US is only about 35-40% of world cap.

Just because International underperformed in the past does not predict it will underperform in the future nor does US overperforming in the past predict it will continue to so in the future. If you believe in valuations it's more likely International has a chance of higher returns in the future. If you don't believe in valuations, it's 50-50 shot at best.

Have we not learned past performance does not indicate anything about the future when applied to a well diversified portfolio of stocks.
Ex-US didn't just under-perform the US. It performed poorly. Period. The return was poor, particularly when considering the high volatility. It was a bad investment in the long run, not just the short run.

Regarding past performance... The whole Boglehead strategy extrapolates from past performance of the strategy. Similarly, SWR arguments are based on past performance. Past performance is the foundation of the whole thing.

The Boglehead Strategy is not at all based on past performance. It's based on Minimizing Cost,
Minimizing Risk by Diversifying, Minimizing Taxes, Staying the Course so you can get the Average Market Return.

The average does not mean it will be positive but we all hope it is. It will certainly not beat every less diversified strategy, that's what makes it average.

Now you can divert from this strategy in a variety of ways one of which is less diversification and hope you're on right side of the average. As far as volatility, that's a short term phenomenon and does not take anything away from the diversification.
Last edited by Riley15 on Thu Aug 16, 2018 3:19 pm, edited 10 times in total.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by vineviz » Thu Aug 16, 2018 2:46 pm

willthrill81 wrote:
Thu Aug 16, 2018 1:56 pm
Vulcan wrote:
Thu Aug 16, 2018 1:53 pm
willthrill81 wrote:
Thu Aug 16, 2018 1:51 pm
The problem with using valuations to predict future returns is that valuations are not reliably mean reverting. Valuations can remain relatively high for a long time (since 1992 for U.S.) or low for a long time.
Past performance, however, is a sure bet!
Of course not, and I've never said that it was. But if 30 years of underperformance of an asset class isn't enough to convince people that they should at least question its place in their portfolio, I have no idea what would.
If you want to build a portfolio consisting of assets that happened to have performed the best in the most recent time period, you're free to do that obviously.

Me? I'm pretty convinced that buying yesterday's winners and selling yesterday's losers is a recipe for investment disaster.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by JackoC » Thu Aug 16, 2018 2:59 pm

nisiprius wrote:
Thu Aug 16, 2018 12:45 pm
Currency risk is related to fluctuations in exchange rates. It only exists across borders, i.e. when investing internationally. There is no currency risk involved if you use dollars to invest in dollar-denominated assets.
I think your series of statements generally has a significant element of truth. You can definitely show that empirically speaking there has been more volatility in the USD value of foreign domiciled* company stocks than the USD value or US domiciled* company stocks, each taken as a standalone. It's not necessarily true when taken as a portfolio of X% foreign and 100-X US, that depends more on which example in which period, the reasoning behind Vanguard's position of selecting a particular non-market-weight % for non-US stocks in their all in funds like Lifestrategy, etc. One can quibble with the exact analysis, the % chosen and doctrine of changing the % periodically, and the actual results in recent years. But the basic principal is that whole portfolio's have not actually necessarily had minimum volatility (or volatility relative to return) for USD based investors if entirely composed of stocks of US domiciled countries and there is no way of knowing which portfolio will have more volatility, or what it's return will be, in the future. In a realistic comparison of moderate v zero % X foreign and 100-X US that is. For X=100% foreign it's probably a safe empirical bet it will more USD volatile than X=0 but that's not at issue for most people.

Your statement I quoted is too absolute, as it relates to stocks, I believe. What you said would be true of a financial asset which promised to pay a fixed amount of USD v one which promises to pay a fixed number of foreign currency units. Which is common in the real world: regular fixed rate bonds denominated in USD or a given foreign currency. But it's not necessarily true of stocks, which are not promises to pay fixed amounts of currency. There is definitely foreign currency risk in the value of big cap US stocks: their USD earnings may visibly react to changes in the rates at which the local currency profits of extensive foreign operations are converted to USD, besides the prospects for export business from the US. Likewise there is a visible tendency for non-US developed market stocks of export dependent companies to fall/rise in local currency value as their currencies rise/fall v the USD. That's particularly true of Japanese ones, but visible elsewhere. Although again portfolio effects for moderate X is what really matters, not an absolute ranking of risk by asset as standalone.

The practical question can't be usefully simplified down to the level you've attempted to, IMO.

*there is not even a clear meaning to the term 'denominated' when it comes to stocks. American Depository Receipts of foreign companies which are traded in the US are quoted in USD but have exactly the same risk characteristics as the shares of the same companies quoted in foreign currencies on the home exchange.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by gmaynardkrebs » Thu Aug 16, 2018 3:06 pm

willthrill81 wrote:
Thu Aug 16, 2018 2:40 pm
gmaynardkrebs wrote:
Thu Aug 16, 2018 2:34 pm
nisiprius wrote:
Thu Aug 16, 2018 10:14 am
No matter how efficient the market is, it cannot change the fact that a European investor buying European stocks with euros experiences less risk than a US investor buying those identical European stocks with dollars, and that a US investor buying US stocks in dollars experiences less risk and the European investor buying those identical US stocks with euros.
Not quite sure of the point. If the valuations are compelling enough, it's worth taking on the fx risk.
If you truly believe that valuations are that predictive, then you should be buying a lot of Russian and Turkish stocks these days.
I said "compelling enough." We're not close to that point on R&T IMO. But, is there a price at which it would be? Of course there is.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bligh » Thu Aug 16, 2018 3:20 pm

Riley15 wrote:
Thu Aug 16, 2018 2:45 pm
visualguy wrote:
Thu Aug 16, 2018 2:29 pm

Ex-US didn't just under-perform the US. It performed poorly. Period. The return was poor, particularly when considering the high volatility. It was a bad investment in the long run, not just the short run.

Regarding past performance... The whole Boglehead strategy extrapolates from past performance of the strategy. Similarly, SWR arguments are based on past performance. Past performance is the foundation of the whole thing.

The Boglehead Strategy is not at all based on past performance. It's based on Minimizing Cost, Minimizing Risk by diversifying, Minimizing Taxes and Staying the Course so you can get the Average Market Return.

The average does not mean it will be positive but we all hope it is. It will certainly not beat every less diversified strategy, that's what makes it average.

Now you can divert from this strategy in a variety of ways one of which is less diversification and hope you're on right side of the average. As far as volatility, that's a short term phenomenon and does not take anything away from the diversification.
This!

Performance has nothing to do with the Bogleheads strategy. It says, buy and hold your asset allocation and dont mess with it. Be content that you are going to get the market returns. It is highly unlikely that you will be able to beat the market in the long run, so diversify, keep your costs low, and stay the course. So, In fact, the Bogleheads strategy specifically says NOT to do what you are doing. ie. Shifting asset allocations and chasing returns based on past performance.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by permport » Thu Aug 16, 2018 3:23 pm

If international investing truly has been disaster then that's all the more reason to stay invested in it.

Reversion to the mean rings loudly here. In addition, why would you want to divest from international and move into domestic if domestic has done well? (i.e. the price level of domestic has moved up.) :confused :confused :confused
Buy right and hold tight.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Aug 16, 2018 3:28 pm

bligh wrote:
Thu Aug 16, 2018 3:20 pm
This!

Performance has nothing to do with the Bogleheads strategy. It says, buy and hold your asset allocation and dont mess with it. Be content that you are going to get the market returns. It is highly unlikely that you will be able to beat the market in the long run, so diversify, keep your costs low, and stay the course. So, In fact, the Bogleheads strategy specifically says NOT to do what you are doing. ie. Shifting asset allocations and chasing returns based on past performance.
I think there's confusion here. The strategy doesn't say that you change asset allocation based on performance, but the motivation for the whole strategy is past performance. The motivation for the strategy is that it worked well in the past. It's not some theory which is detached from data. It's based on back testing with past performance data that we have. Similarly, SWR is derived from past performance.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 3:30 pm

visualguy wrote:
Thu Aug 16, 2018 3:28 pm
bligh wrote:
Thu Aug 16, 2018 3:20 pm
This!

Performance has nothing to do with the Bogleheads strategy. It says, buy and hold your asset allocation and dont mess with it. Be content that you are going to get the market returns. It is highly unlikely that you will be able to beat the market in the long run, so diversify, keep your costs low, and stay the course. So, In fact, the Bogleheads strategy specifically says NOT to do what you are doing. ie. Shifting asset allocations and chasing returns based on past performance.
I think there's confusion here. The strategy doesn't say that you change asset allocation based on performance, but the motivation for the whole strategy is past performance. The motivation for the strategy is that it worked well in the past. It's not some theory which is detached from data. It's based on back testing with past performance data that we have. Similarly, SWR is derived from past performance.
Virtually nobody would be invested in such volatile asset classes as stocks if it weren't for past performance.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Aug 16, 2018 3:34 pm

permport wrote:
Thu Aug 16, 2018 3:23 pm
If international investing truly has been disaster then that's all the more reason to stay invested in it.

Reversion to the mean rings loudly here. In addition, why would you want to divest from international and move into domestic if domestic has done well? (i.e. the price level of domestic has moved up.) :confused :confused :confused
Because US indexing has been able to provide good returns for people who stayed invested in the long run (such as 30 years), and do so consistently, while ex-US indexing hasn't been able to do that.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by permport » Thu Aug 16, 2018 3:36 pm

visualguy wrote:
Thu Aug 16, 2018 3:34 pm
permport wrote:
Thu Aug 16, 2018 3:23 pm
If international investing truly has been disaster then that's all the more reason to stay invested in it.

Reversion to the mean rings loudly here. In addition, why would you want to divest from international and move into domestic if domestic has done well? (i.e. the price level of domestic has moved up.) :confused :confused :confused
Because US indexing has been able to provide good returns for people who stayed invested in the long run (such as 30 years), and do so consistently, while ex-US indexing hasn't been able to do that.
Exactly. An extended period of outperformance by U.S... should we expect that in the future? Is past prologue? Reversion to the mean strongly suggests this will not continue indefinitely.
Buy right and hold tight.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by vineviz » Thu Aug 16, 2018 3:40 pm

visualguy wrote:
Thu Aug 16, 2018 3:34 pm
permport wrote:
Thu Aug 16, 2018 3:23 pm
If international investing truly has been disaster then that's all the more reason to stay invested in it.

Reversion to the mean rings loudly here. In addition, why would you want to divest from international and move into domestic if domestic has done well? (i.e. the price level of domestic has moved up.) :confused :confused :confused
Because US indexing has been able to provide good returns for people who stayed invested in the long run (such as 30 years), and do so consistently, while ex-US indexing hasn't been able to do that.
Except for all the times when ex-US stocks consistently provided good returns and US stocks didn't, of course. Let's ignore THOSE time periods.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by gmaynardkrebs » Thu Aug 16, 2018 3:42 pm

visualguy wrote:
Thu Aug 16, 2018 3:28 pm
bligh wrote:
Thu Aug 16, 2018 3:20 pm
This!

Performance has nothing to do with the Bogleheads strategy. It says, buy and hold your asset allocation and dont mess with it. Be content that you are going to get the market returns. It is highly unlikely that you will be able to beat the market in the long run, so diversify, keep your costs low, and stay the course. So, In fact, the Bogleheads strategy specifically says NOT to do what you are doing. ie. Shifting asset allocations and chasing returns based on past performance.
I think there's confusion here. The strategy doesn't say that you change asset allocation based on performance, but the motivation for the whole strategy is past performance. The motivation for the strategy is that it worked well in the past. It's not some theory which is detached from data. It's based on back testing with past performance data that we have. Similarly, SWR is derived from past performance.
Meaning what? You should or should not make changes bases on valuations?

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Aug 16, 2018 3:44 pm

vineviz wrote:
Thu Aug 16, 2018 3:40 pm
Except for all the times when ex-US stocks consistently provided good returns and US stocks didn't, of course. Let's ignore THOSE time periods.
What is an example of a 30-year period when US indexing provided a poor return, but ex-US provided a good return?

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by TomCat96 » Thu Aug 16, 2018 3:46 pm

patrick wrote:
Wed Aug 15, 2018 9:37 pm
Australian stocks have dramatically outperformed US stocks over the period from 1900 to present. That's much longer term than a mere 30 years! Since including US stocks would have dragged down returns compared to an all-Australia portfolio, why are we still considering investing in the US when the long term data proves it is better to buy only Australian stocks?

Do you have any evidence to back this claim up? I checked at the SP/AUS 200 yesterday based on this claim and I could not find results.
I don't know much about the australian market, so I would like to know what metrics were used to compile this information.

But suppose it is true. We should all invest in australian securities then. 118 years is a hell of a long time. It is empirical evidence of a superior market. There's no ifs and or buts about it. I'm not here to dig my heels in the sand over schools of thought.

I'm here to make money. If the Australian stock market has produced a superior return for so long a period of time, then it is worth looking into. Everyone should be doing the same.

But I cannot find such data supporting this claim. And most decisively, I can't find data supporting this claim in recent years. What I did find was a number of articles lamenting what a terrible investment choice investing in the S&P/ASX200 has been lately.

*Edit. I found one article making the claim. It does not have much data however.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by swaption » Thu Aug 16, 2018 4:05 pm

Let me introduce you to Robert Sanborn, the esteemed manager of the Oakmark Fund from 1991 until the date of the below article, March 2000:

https://www.wsj.com/articles/SB953681829305722131

For those thinking of giving up on international, here's your chance to not fire Robert Sanborn.

Just one other thing to add. The comment that the strategy is based on evidence from past performance. Besides all the other valid comments about costs, etc., this comment is also completely wrong from an investment strategy standpoint. The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.

Tracking error risk is real my friends.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 4:13 pm

swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by patrick » Thu Aug 16, 2018 4:24 pm

TomCat96 wrote:
Thu Aug 16, 2018 3:46 pm
patrick wrote:
Wed Aug 15, 2018 9:37 pm
Australian stocks have dramatically outperformed US stocks over the period from 1900 to present. That's much longer term than a mere 30 years! Since including US stocks would have dragged down returns compared to an all-Australia portfolio, why are we still considering investing in the US when the long term data proves it is better to buy only Australian stocks?

Do you have any evidence to back this claim up? I checked at the SP/AUS 200 yesterday based on this claim and I could not find results.
I don't know much about the australian market, so I would like to know what metrics were used to compile this information.

But suppose it is true. We should all invest in australian securities then. 118 years is a hell of a long time. It is empirical evidence of a superior market. There's no ifs and or buts about it. I'm not here to dig my heels in the sand over schools of thought.

I'm here to make money. If the Australian stock market has produced a superior return for so long a period of time, then it is worth looking into. Everyone should be doing the same.

But I cannot find such data supporting this claim. And most decisively, I can't find data supporting this claim in recent years. What I did find was a number of articles lamenting what a terrible investment choice investing in the S&P/ASX200 has been lately.

*Edit. I found one article making the claim. It does not have much data however.
The source is the Credit Suisse yearbook. For the current year they only have a summary version publicly available (comparative returns by country at the bottom of page 11):

https://www.credit-suisse.com/media/ass ... y-2018.pdf

The 2016 version is more extensive, with charts for each country:

http://publications.credit-suisse.com/t ... 5D3A968D73

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bmritz » Thu Aug 16, 2018 4:58 pm

Vulcan wrote:
Thu Aug 16, 2018 1:59 pm
willthrill81 wrote:
Thu Aug 16, 2018 1:55 pm
Vulcan wrote:
Thu Aug 16, 2018 1:48 pm
willthrill81 wrote:
Thu Aug 16, 2018 1:44 pm
If folks are truly worried about U.S. currency or markets tanking, precious metals may well be a better diversifier than international equities, which history has shown are at least moderately correlated with U.S. equities. They certainly have been over the last 30+ years.
Precious metals are not productive assets.
Shell, Nestle, and Samsung are.

Just got a new Galaxy S8 last night. It's very nice.
That's true but beside the point. I said that precious metals were a better diversifier, which is distinct from their returns. That being said, a 50/50 portfolio of U.S. stocks and gold slightly outperformed a 50/50 portfolio of U.S. and international stocks. And the volatility, maximum drawdown, and Sharpe ratio of the former were all much better than the latter.

Assets need not be 'productive' to be good diversifiers.
They do need to be productive to be considered "investments" though.
Past performance is irrelevant.
Future performance is unknowable.
So I just buy the world.

Remember: ***it's all is priced in***
I 100% agree that it would usually all be priced in, and that is why I own foreign stocks. But, I'm interested in potential stories one could tell about why it wouldn't all be priced in.

"It all being priced in" is a good default assumption, but it also relies on the more fundamental assumptions of no barriers to trade, free flow of capital, good information, etc. If there are some concrete stories out there with some evidence behind them about how these don't apply to foreign markets, I'd be willing to reconsider my allocation. Cross-country markets I think would be as good a candidate as any market for these assumptions to break down--regulatory regimes, protectionism, in-country sweetheart deals, corruption and FX exchange I think all could potentially prevent cross-country arbitrage, which is necessary to "price it all in."
Last edited by bmritz on Thu Aug 16, 2018 5:03 pm, edited 2 times in total.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by MJW » Thu Aug 16, 2018 4:58 pm

permport wrote:
Thu Aug 16, 2018 3:36 pm
Exactly. An extended period of outperformance by U.S... should we expect that in the future? Is past prologue? Reversion to the mean strongly suggests this will not continue indefinitely.
What mean are we talking about here, exactly?

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by swaption » Thu Aug 16, 2018 4:59 pm

willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.
If EMH were false, it would be because some set of investors could effectively look at fundamentals, the future, and systemically beat the market. Nothing you have said reflects any of that, it only reflects the ways in which EMH is way more true than false, due to investors' insatiable tendency to rationalize doing all the wrong things at precisely the wrong times. In 2000, people really thought value investing was dead.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by lukestuckenhymer » Thu Aug 16, 2018 5:08 pm

One man's disaster is another man's buying opportunity. It's only a disaster if you sell at the bottom.

And nobody's mumbling "stay the course," if you're visiting this message board, they're screaming it at the top of their lungs! And for good reason.

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willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:10 pm

swaption wrote:
Thu Aug 16, 2018 4:59 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.
If EMH were false, it would be because some set of investors could effectively look at fundamentals, the future, and systemically beat the market. Nothing you have said reflects any of that, it only reflects the ways in which EMH is way more true than false, due to investors' insatiable tendency to rationalize doing all the wrong things at precisely the wrong times. In 2000, people really thought value investing was dead.
I'm not saying that the EMH is completely false. I am saying is that the data indicate that it is likely not completely true, and not many financial academics who study this for a living believe it is completely true either. But just because it isn't completely true doesn't mean that it's easy to systematically beat the market.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by fennewaldaj » Thu Aug 16, 2018 5:12 pm

willthrill81 wrote:
Thu Aug 16, 2018 1:51 pm
gmaynardkrebs wrote:
Thu Aug 16, 2018 1:45 pm
jrbdmb wrote:
Thu Aug 16, 2018 10:05 am
gmaynardkrebs wrote:
Thu Aug 16, 2018 7:20 am
If you prefer the safety of US, that's fine, but your returns will likely be greater if you up your international allocation. The market has already priced in everything you have observed. That's why international has lower valuations than US, and why, therefore, the expected returns of international are better than US going forward.
If the markets are efficient and have priced in all available information, then they would also see a situation where "the expected returns of international are better than US going forward" and adjust accordingly. ...
But that's the point. Valuations have adjusted. The int. PEs are significantly lower, as is CAPE10. That's why the expected returns are higher. You are being paid to take risk. Of course, taking risk means that you may not come out ahead, and that your potential losses are greater than with safer assets such as US equities. So, potentially, is the upside.
The problem with using valuations to predict future returns is that valuations are not reliably mean reverting. Valuations can remain relatively high for a long time (since 1992 for U.S.) or low for a long time.
right but they don't have to mean revert for the country with lower valuations to have better returns. If valuations stay the same and earnings per share are the same the lower valuations are going to give you better returns even with no mean reversion.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Riley15 » Thu Aug 16, 2018 5:18 pm

willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Last edited by Riley15 on Thu Aug 16, 2018 5:19 pm, edited 1 time in total.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:19 pm

fennewaldaj wrote:
Thu Aug 16, 2018 5:12 pm
willthrill81 wrote:
Thu Aug 16, 2018 1:51 pm
gmaynardkrebs wrote:
Thu Aug 16, 2018 1:45 pm
jrbdmb wrote:
Thu Aug 16, 2018 10:05 am
gmaynardkrebs wrote:
Thu Aug 16, 2018 7:20 am
If you prefer the safety of US, that's fine, but your returns will likely be greater if you up your international allocation. The market has already priced in everything you have observed. That's why international has lower valuations than US, and why, therefore, the expected returns of international are better than US going forward.
If the markets are efficient and have priced in all available information, then they would also see a situation where "the expected returns of international are better than US going forward" and adjust accordingly. ...
But that's the point. Valuations have adjusted. The int. PEs are significantly lower, as is CAPE10. That's why the expected returns are higher. You are being paid to take risk. Of course, taking risk means that you may not come out ahead, and that your potential losses are greater than with safer assets such as US equities. So, potentially, is the upside.
The problem with using valuations to predict future returns is that valuations are not reliably mean reverting. Valuations can remain relatively high for a long time (since 1992 for U.S.) or low for a long time.
right but they don't have to mean revert for the country with lower valuations to have better returns. If valuations stay the same and earnings per share are the same the lower valuations are going to give you better returns even with no mean reversion.
Yes. And highly valued markets can have higher returns than lower valued markets for a long time too. The moral of the story is that valuations aren't very predictive of future returns.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:22 pm

Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bligh » Thu Aug 16, 2018 5:26 pm

visualguy wrote:
Thu Aug 16, 2018 3:28 pm
bligh wrote:
Thu Aug 16, 2018 3:20 pm
This!

Performance has nothing to do with the Bogleheads strategy. It says, buy and hold your asset allocation and dont mess with it. Be content that you are going to get the market returns. It is highly unlikely that you will be able to beat the market in the long run, so diversify, keep your costs low, and stay the course. So, In fact, the Bogleheads strategy specifically says NOT to do what you are doing. ie. Shifting asset allocations and chasing returns based on past performance.
I think there's confusion here. The strategy doesn't say that you change asset allocation based on performance, but the motivation for the whole strategy is past performance. The motivation for the strategy is that it worked well in the past. It's not some theory which is detached from data. It's based on back testing with past performance data that we have. Similarly, SWR is derived from past performance.
I may be splitting hairs here, but to me the Bogleheads strategy is simply saying invest in productive asset classes instead of non productive ones such as cash under the mattress, bars of gold or Bitcoin. Also, because you have no choice but to invest, lest you lose to inflation. If it was based on past performance, it would say "Go 100% VTSAX" and do not waste your time with Bonds... Instead what I believe it says is that invest in the proportion of stocks AND bonds that you are comfortable with, and most importantly stay invested and stick to it. Don't try to outsmart it. I do agree though that the SWR is definitely based on past performance.

I think the fundamental problem is that some investors are grouping US listed companies into one asset class, and then bundling every listed company not in the US in another asset class. Some of us are looking at all the listed companies in the world and seeing the US as just one part of it. To us, Bundling the US listed companies as separate from the rest of the world as its own asset class is like Bundling the Technology companies in the S&P 500 as separate from the non tech companies in the S&P 500. It is as if you were refusing to acknowledge the Total Stock market and instead seeing only Technology companies and Non technology companies ... and then treating them as separate asset classes and comparing their returns. I am quite certain that if you checked the performance of the Technology companies over the last 30 years they will have greatly outperformed the non-technology companies. If you are still insisting on separating an asset class into sub groups based on geographic regions, perhaps you could compare companies based on the coats of the US with those based in land? Then talk about how past performance shows that companies based on the East and West Coats out perform those in the inland states.. You see how you are slipping into active management? If you are satisfied with "I will own the entire stock market, and if Technology companies outperform, they will make up a bigger and bigger slice of the index, and I am happy with that" .. why can't you be satisfied with "I will own the entire world stock market and if the US listed companies outperform, they will make up a bigger and bigger slice of the index and I am happy with that".

Some investors are carving out a sub group of publicly listed companies (ie. US listed) and saying they are somehow special. Ask yourself this... If the last 30 years had shown "ex-US" to have out performed the US substantially would you then under weight the US? Maybe... but, Would you go all the way to holding 0% US?
Last edited by bligh on Thu Aug 16, 2018 5:30 pm, edited 2 times in total.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by vitaflo » Thu Aug 16, 2018 5:27 pm

willthrill81 wrote:
Thu Aug 16, 2018 11:14 am
One must ask how the rest of the world's stocks would perform if the U.S. did a repeat of Japan. That's a matter of conjecture, but I doubt that most believe that a 20% allocation to international stocks would 'save the day'.
A while back someone posted research of safe withdrawal rates of different countries (invested 100% in said country). Then compared it to world cap-weighted portfolio.

If I remember correctly, if you had 100% invested in Japan the 30 year SWR would have been 0.2%. If you were world market weight instead the SWR would have been 2.2%.

The US was of course one of the few outliers where world market weight did not improve SWR. But 75% of countries had increased SWR with world market weight.

Keep in mind that Japan used to have a higher market cap than the US, until it didn't. Because of all this, I'm not really willing to bet my future on one country, even if it is my outperforming home country.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by fennewaldaj » Thu Aug 16, 2018 5:30 pm

willthrill81 wrote:
Thu Aug 16, 2018 5:22 pm
Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.
right but the high correlation of US and international since 2009 with fairly different results indicates we should not expect exactly the same performance even with high correlation. We could repeat the relative performance of the last 30 years between the two or positions could be reversed. They could still have high correlations through all of this.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:32 pm

vitaflo wrote:
Thu Aug 16, 2018 5:27 pm
willthrill81 wrote:
Thu Aug 16, 2018 11:14 am
One must ask how the rest of the world's stocks would perform if the U.S. did a repeat of Japan. That's a matter of conjecture, but I doubt that most believe that a 20% allocation to international stocks would 'save the day'.
A while back someone posted research of safe withdrawal rates of different countries (invested 100% in said country). Then compared it to world cap-weighted portfolio.

If I remember correctly, if you had 100% invested in Japan the 30 year SWR would have been 0.2%. If you were world market weight instead the SWR would have been 2.2%.
I believe that the SWR for a 30 year period using a 50/50 stock/bond split for global market cap weighted equities was actually around 3.5%. It was certainly higher than 2.2% unless you excluded the U.S.
vitaflo wrote:
Thu Aug 16, 2018 5:27 pm
Because of all this, I'm not really willing to bet my future on one country, even if it is my outperforming home country.
If you hold a global market cap weighted index for equities, then you are still putting half your money on one country. Will the other half be enough to support a reasonable SWR if the other half goes nowhere? Historical evidence seems to indicate no. If U.S. stocks fail, you could easily end up being better off with TIPS than international stocks.
vitaflo wrote:
Thu Aug 16, 2018 5:27 pm
Keep in mind that Japan used to have a higher market cap than the US, until it didn't.
IMHO, this is by far the strongest evidence for holding international equities. It isn't because international equities have more attractive valuations, mean reversion, or anything else. What if the one country your in does a repeat of Japan? But as I noted above, that problem doesn't disappear with a global market cap weighted stock allocation since 50% of your money is still in one country, and not many of us would come out well if half of our stocks did nothing for decades on end.
Last edited by willthrill81 on Thu Aug 16, 2018 5:39 pm, edited 2 times in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Aug 16, 2018 5:34 pm

Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Right, but you have to realize that countries differ in terms of how much public stock market shareholders benefit from the success of their companies. The US is at one extreme of this, but things aren't quite the same to varying degrees in other major economies.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:36 pm

fennewaldaj wrote:
Thu Aug 16, 2018 5:30 pm
willthrill81 wrote:
Thu Aug 16, 2018 5:22 pm
Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.
right but the high correlation of US and international since 2009 with fairly different results indicates we should not expect exactly the same performance even with high correlation. We could repeat the relative performance of the last 30 years between the two or positions could be reversed. They could still have high correlations through all of this.
But the point is that if U.S. and international markets are strongly correlated, a downturn in the U.S. could easily lead to a downturn in international stocks as well (keeping in mind that correlation does not necessarily equal causation). If that's the case, you might not benefit from holding international at all.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bligh » Thu Aug 16, 2018 5:37 pm

visualguy wrote:
Thu Aug 16, 2018 5:34 pm
Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Right, but you have to realize that countries differ in terms of how much public stock market shareholders benefit from the success of their companies. The US is at one extreme of this, but things aren't quite the same to varying degrees in other major economies.

True, but if you believe in the EMH, then that disparity (and additional risk) should be priced into the stocks of that country already.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by tadamsmar » Thu Aug 16, 2018 5:37 pm

It's different this time. Future returns will not revert to the mean. :wink:

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by vitaflo » Thu Aug 16, 2018 5:38 pm

willthrill81 wrote:
Thu Aug 16, 2018 5:32 pm
I believe that the SWR for a 30 year period using a 50/50 stock/bond split for global market cap weighted equities was actually around 3.5%. It was certainly higher than 2.2% unless you excluded the U.S.
It was 2.2% in Japan. Remember, global cap weight does not produce similar returns for every country because of currency differences.

Either way, I found the research. It was done by Wade Pfau:

https://www.advisorperspectives.com/art ... awal-rates

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Riley15 » Thu Aug 16, 2018 5:40 pm

willthrill81 wrote:
Thu Aug 16, 2018 5:22 pm
Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.

I completely agree but Diversification and Correlation are two different things. It's well understood if any of the developed economies sink it's gonna affect the rest of the world because they are so interconnected. They may have varying correlations.

But consider a case where we reach perfect 1:1 Correlation with the world markets. The Diversification benefit does not get eliminated. We diversify because it's a small percentage of earnings that will drive returns and that could be from anywhere.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 5:44 pm

vitaflo wrote:
Thu Aug 16, 2018 5:38 pm
willthrill81 wrote:
Thu Aug 16, 2018 5:32 pm
I believe that the SWR for a 30 year period using a 50/50 stock/bond split for global market cap weighted equities was actually around 3.5%. It was certainly higher than 2.2% unless you excluded the U.S.
It was 2.2% in Japan. Remember, global cap weight does not produce similar returns for every country because of currency differences.
I was referring to the SWR for a U.S. based investor.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bligh » Thu Aug 16, 2018 5:46 pm

Riley15 wrote:
Thu Aug 16, 2018 5:40 pm
willthrill81 wrote:
Thu Aug 16, 2018 5:22 pm
Riley15 wrote:
Thu Aug 16, 2018 5:18 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
swaption wrote:
Thu Aug 16, 2018 4:05 pm
The approach is based on the notion that the market does an effective job of pricing securities. There is absolutely no reason to think that rationale would fail beyond the US borders.
Then why have risk adjusted returns for U.S. equities been dramatically higher than international equities for 30 years and counting?

Home country bias is very present among the world's investors. Fins tend to invest in Finland, South Africans in South Africa, etc. Opportunities in one nation are often not taken advantage of by investors in other nations. The EMH doesn't account for this, and it could well be part of the reason for international's cumulative underperformance compared to the U.S.

Americans actually invest more in international than do most investors in other nations, despite U.S. equities representing half of the global market.

If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.

International market funds just as US market funds are based on market cap and most are dominated by Large Global companies with huge export businesses. A good portion of US earnings come from outside the country and vice versa for other Global companies. To limit your investment to just a select few that happen to be based in US is silly.

We have made great progress in transport and by Sea and Air in the past century of both of goods and people. This combined with the Internet has made Borders meaningless to business. Globalization is real and it's not going back whether we like it or not.
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.
I completely agree but Diversification and Correlation are two different things. It's well understood if
any of the developed economies sink it's gonna affect the rest of the world because it's so interconnected. They may have varying correlations.

But consider a case where we reach perfect 1:1 correlation with the world markets. The Diversification benefit does not get eliminated. We diversify because it's a small percentage of earnings that will drive returns and that could be from anywhere.
Exactly, Just like vast majority of the the gains in the US stock market over the last 10 years have been driven by a handful of companies.. Basically Facebook, Apple, Amazon, Netflix, Google and Microsoft (AKA FAMANG!). You take those guys out and the S&P 500 probably performed quite in line with international stocks... (I *personally* believe that companies like those occur in the US because the American Culture and business environment is uniquely positioned to create them)... but isn't it also possible that the next FAMANG stocks show up in Australia? or the UK? Or Japan? Or China? or India? That is the benefit of diversification... Does someone really believe that could never happen? Never?

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oldzey
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by oldzey » Thu Aug 16, 2018 5:50 pm

I've been quite happy with the U.S. companies I exclusively invest in (that derive 50% of their revenues from other countries).

It works for Jack, and it works for me as well.

Cheers! :beer
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visualguy
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Aug 16, 2018 6:01 pm

bligh wrote:
Thu Aug 16, 2018 5:46 pm
Exactly, Just like vast majority of the the gains in the US stock market over the last 10 years have been driven by a handful of companies.. Basically Facebook, Apple, Amazon, Netflix, Google and Microsoft (AKA FAMANG!). You take those guys out and the S&P 500 probably performed quite in line with international stocks... (I *personally* believe that companies like those occur in the US because the American Culture and business environment is uniquely positioned to create them)... but isn't it also possible that the next FAMANG stocks show up in Australia? or the UK? Or Japan? Or China? or India? That is the benefit of diversification... Does someone really believe that could never happen? Never?
It is possible, and in fact it has happened, but this doesn't mean that you will benefit much as an investor in the ex-US index, particularly in the case of companies in China. You can't really generalize that much from how things are done in the US.

https://www.cnbc.com/2018/08/15/chinese ... tocks.html

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permport
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by permport » Thu Aug 16, 2018 6:06 pm

MJW wrote:
Thu Aug 16, 2018 4:58 pm
permport wrote:
Thu Aug 16, 2018 3:36 pm
Exactly. An extended period of outperformance by U.S... should we expect that in the future? Is past prologue? Reversion to the mean strongly suggests this will not continue indefinitely.
What mean are we talking about here, exactly?
I meant 'mean' as in being callous or rude, obviously. :D
Buy right and hold tight.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Thu Aug 16, 2018 6:12 pm

bligh wrote:
Thu Aug 16, 2018 5:46 pm
Does someone really believe that could never happen? Never?
Never is an awfully long time. Being a trend follower, I'm actually ambivalent to U.S. versus international stocks. That being said, we're not talking about forever, even for buy-and-hold investors. As Jack Bogle has said, the majority of international stock cap is in a handful of countries (China, Japan, Hong Kong, France, Canada, and U.K.), and he doesn't believe it likely that any of those are going to surpass the U.S. in terms of returns anytime soon.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by swaption » Thu Aug 16, 2018 6:21 pm

willthrill81 wrote:
Thu Aug 16, 2018 5:10 pm
swaption wrote:
Thu Aug 16, 2018 4:59 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.
If EMH were false, it would be because some set of investors could effectively look at fundamentals, the future, and systemically beat the market. Nothing you have said reflects any of that, it only reflects the ways in which EMH is way more true than false, due to investors' insatiable tendency to rationalize doing all the wrong things at precisely the wrong times. In 2000, people really thought value investing was dead.
I'm not saying that the EMH is completely false. I am saying is that the data indicate that it is likely not completely true, and not many financial academics who study this for a living believe it is completely true either. But just because it isn't completely true doesn't mean that it's easy to systematically beat the market.
Yeah, but the respected folks like Andrew Lo that think EMH isn’t quite true are more like to be aligned with the value investor in 2000 or the steadfast international investor now. Their thesis relies almost entirely on a tendency of folks to all crowd in the same corner of the same room at the same time. Right now that corner is the US market.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by permport » Thu Aug 16, 2018 6:26 pm

swaption wrote:
Thu Aug 16, 2018 6:21 pm
willthrill81 wrote:
Thu Aug 16, 2018 5:10 pm
swaption wrote:
Thu Aug 16, 2018 4:59 pm
willthrill81 wrote:
Thu Aug 16, 2018 4:13 pm
If we assumed for a moment that the EMH was false, I wonder how many would still be beating the global market cap drum.
If EMH were false, it would be because some set of investors could effectively look at fundamentals, the future, and systemically beat the market. Nothing you have said reflects any of that, it only reflects the ways in which EMH is way more true than false, due to investors' insatiable tendency to rationalize doing all the wrong things at precisely the wrong times. In 2000, people really thought value investing was dead.
I'm not saying that the EMH is completely false. I am saying is that the data indicate that it is likely not completely true, and not many financial academics who study this for a living believe it is completely true either. But just because it isn't completely true doesn't mean that it's easy to systematically beat the market.
Yeah, but the respected folks like Andrew Lo that think EMH isn’t quite true are more like to be aligned with the value investor in 2000 or the steadfast international investor now. Their thesis relies almost entirely on a tendency of folks to all crowd in the same corner of the same room at the same time. Right now that corner is the US market.
+1
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by cj2018 » Thu Aug 16, 2018 6:27 pm

Wow, 8-page response so far and is still going strong..amazing.

FWIW, here's the AA for MIT's endowment as of 2016, and it illustrates why it's important to diversify across MULTIPLE asset classes to preserve your fortune. I'm currently 100% in US-equity during accumulation stage, but will 100% morph into certain % of international, bonds, RE, and cash during preservation stage - it's just the name of the game.

MIT endowment's rough AA as of 2016, enjoy:
  • Cash: 5.66%
  • Bonds: 9.34%
  • Equity: 60.77% (within Equity, further breakdown by asset classes: HF =18.00%, US = 15.47%, International = 34.90%, PE = 31.62%)
  • Real estate: 20.14%
  • Real assets: 4.10%
Source: http://vpf.mit.edu/sites/default/files/ ... rt2016.pdf

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by cj2018 » Thu Aug 16, 2018 6:31 pm

cj2018 wrote:
Thu Aug 16, 2018 6:27 pm
Wow, 8-page response so far and is still going strong..amazing.

FWIW, here's the AA for MIT's endowment as of 2016, and it illustrates why it's important to diversify across MULTIPLE asset classes to preserve your fortune. I'm currently 100% in US-equity during accumulation stage, but will 100% morph into certain % of international, bonds, RE, and cash during preservation stage - it's just the name of the game.

MIT endowment's rough AA as of 2016, enjoy:
  • Cash: 5.66%
  • Bonds: 9.34%
  • Equity: 60.77% (within Equity, further breakdown by asset classes: HF =18.00%, US = 15.47%, International = 34.90%, PE = 31.62%)
  • Real estate: 20.14%
  • Real assets: 4.10%
Source: http://vpf.mit.edu/sites/default/files/ ... rt2016.pdf
There you go, a large institution thinks having at least 35% of equity in international is the way to go :sharebeer

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