Perhaps, but it might be akin to being in a lifeboat 400 miles away from shore instead of 500 miles. You're 'better off', but you're still hosed.vineviz wrote: ↑Thu Aug 16, 2018 11:18 am20% probably wouldn't save the day, but it'd almost certainly be better than 0%.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'.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
From memory Japan was something like 40% of the world index in 1989? I am not sure where I'd check, but it was huge.willthrill81 wrote: ↑Thu Aug 16, 2018 11:14 am
That's very true of most world markets. Australia, for instance, has a market capitalization of about $1.5 trillion. But the U.S. is roughly 50% of the world's market capitalization, over $30 trillion. The U.S. only investor is buying a stake in 50% of the world's stock; no other home-country-only investor can come close to that.
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'.
So you can have overall growth in markets even as a major component underperforms.
On no measure that I am aware of does the US market look so outlandishly valued relative to world markets, as Japan did in 1989. So it's not likely that circumstance will reoccur.
Good news or bad news depends on your view, but if the US goes down, we all likely go down together .
Exception would be another tech crash - the tech sector is such a large portion of the US market (or: the tech sector is such a small proportion of other markets).
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I'm not sure I follow the logic. So how does that diversify future risks and return potentials? Here is world market cap by year since 1900: http://ritholtz.com/wp-content/uploads/ ... .22-AM.png. Was it less risky for UK, German, and French investors in the early 1900s, when they represented nearly as much or more of the world market cap than the US, to invest only in their home countries? Or, as already mentioned several times, Japan in the late 1980s/early 1990s? Even Canada had a decent chunk of world market cap in the 1950s.willthrill81 wrote: ↑Thu Aug 16, 2018 11:14 amBut the U.S. is roughly 50% of the world's market capitalization, over $30 trillion. The U.S. only investor is buying a stake in 50% of the world's stock; no other home-country-only investor can come close to that.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I will be the first to admit I do not understand the "currency risk" mantra.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.
Why is holding foreign currency-denominated assets inherently riskier than holding USD-denominated ones, all other things being equal?
Doesn't that assume there is no risk if USD ends up on the wrong side of the trade?
I personally view currency diversification as another reason to invest internationally - but that may be because I witnessed hyperinflation first-hand in my formative years.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
A person buying only the U.S. is buying 50% of the world's market cap. That offers far greater diversification than someone in another country who is only buying 1% of the world's market cap.asif408 wrote: ↑Thu Aug 16, 2018 11:32 amI'm not sure I follow the logic. So how does that diversify future risks and return potentials? Here is world market cap by year since 1900: http://ritholtz.com/wp-content/uploads/ ... .22-AM.png. Was it less risky for UK, German, and French investors in the early 1900s, when they represented nearly as much or more of the world market cap than the US, to invest only in their home countries? Or, as already mentioned several times, Japan in the late 1980s/early 1990s? Even Canada had a decent chunk of world market cap in the 1950s.willthrill81 wrote: ↑Thu Aug 16, 2018 11:14 amBut the U.S. is roughly 50% of the world's market capitalization, over $30 trillion. The U.S. only investor is buying a stake in 50% of the world's stock; no other home-country-only investor can come close to that.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
If you are a U.S. investor, you're probably doing most of your spending with U.S. dollars. With buying US stocks, there is no currency risk because it's all done in dollars. But by buying international equities, you are adding currency risk to the equation because you are dealing with multiple currencies (e.g. you need dollars to spend but your holdings are in euros, pesos, etc.). Yes, exchange rates may swing in your favor, but they may also swing against you. Hence the risk.Vulcan wrote: ↑Thu Aug 16, 2018 11:37 amI will be the first to admit I do not understand the "currency risk" mantra.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.
Why is holding foreign currency-denominated assets inherently riskier than holding USD-denominated ones, all other things being equal?
Doesn't that assume there is no risk if USD ends up on the wrong side of the trade?
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I strongly suspect that that is indeed the case. To the extent that it is, there is little diversification benefit to be had with international stocks.Valuethinker wrote: ↑Thu Aug 16, 2018 11:28 amGood news or bad news depends on your view, but if the US goes down, we all likely go down together .
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Blue is 60% VTSMX = Vanguard Total [US] Stock Market index, 40% VBMFX = Vanguard Total [US] Bond Market Index.vineviz wrote: ↑Thu Aug 16, 2018 11:18 am20% probably wouldn't save the day, but it'd almost certainly be better than 0%.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'.
Red is 48% VTSMX, 12% VGTSX (Vanguard Total International Stock Market Index, 40% VBMFX; i.e. 20% of stocks international
Was 20% international better than 0% international during the worst financial crisis of my lifetime so far?
Source
How about during 2011, now almost forgotten, but bad enough to throw a scare into a lot of folks at the time?
Why would the result be terribly different the next time? Are we assuming deglobalization (my computer is telling me that isn't a word, but you know what I mean)?
During the time I've held international stocks, roughly since 2002 or so, international stock investing has neither been a disaster nor a savior.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I hear the mantra we will all go down together if US does. I understand it over the next decade or so, but I am not sure over a longer time frame. That is why I am interested in international. What am I missing? Where is my logic off?Valuethinker wrote: ↑Thu Aug 16, 2018 11:28 amFrom memory Japan was something like 40% of the world index in 1989? I am not sure where I'd check, but it was huge.willthrill81 wrote: ↑Thu Aug 16, 2018 11:14 am
That's very true of most world markets. Australia, for instance, has a market capitalization of about $1.5 trillion. But the U.S. is roughly 50% of the world's market capitalization, over $30 trillion. The U.S. only investor is buying a stake in 50% of the world's stock; no other home-country-only investor can come close to that.
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'.
So you can have overall growth in markets even as a major component underperforms.
On no measure that I am aware of does the US market look so outlandishly valued relative to world markets, as Japan did in 1989. So it's not likely that circumstance will reoccur.
Good news or bad news depends on your view, but if the US goes down, we all likely go down together .
Exception would be another tech crash - the tech sector is such a large portion of the US market (or: the tech sector is such a small proportion of other markets).
Thank you
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I think this use of "risk" means volatility. There is more volatility in foreign stocks because of the currency fluctuations, that can go either way.willthrill81 wrote: ↑Thu Aug 16, 2018 11:56 amIf you are a U.S. investor, you're probably doing most of your spending with U.S. dollars. With buying US stocks, there is no currency risk because it's all done in dollars. But by buying international equities, you are adding currency risk to the equation because you are dealing with multiple currencies (e.g. you need dollars to spend but your holdings are in euros, pesos, etc.). Yes, exchange rates may swing in your favor, but they may also swing against you. Hence the risk.Vulcan wrote: ↑Thu Aug 16, 2018 11:37 amI will be the first to admit I do not understand the "currency risk" mantra.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.
Why is holding foreign currency-denominated assets inherently riskier than holding USD-denominated ones, all other things being equal?
Doesn't that assume there is no risk if USD ends up on the wrong side of the trade?
But what about the risk of owning only dollar based assets?
In effect, what most investors don't seem to understand is you're taking currency risk if you don't invest internationally. The risk is that the dollar will fall in value, deteriorating your cost of living. A falling dollar will not only lead to rising import costs, but also to rising prices from domestic competitors who are no longer faced with competing with cheap imports.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Funny (“Australia is not an island”) but I prefer the more common meaning of insular:oldzey wrote: ↑Wed Aug 15, 2018 10:33 pmI'm guessing just the Tasmanian people's heads.gmaynardkrebs wrote: ↑Wed Aug 15, 2018 9:53 pmTechnically, Australia is not an island, but I'm still sorry their heads exploded.ThePrince wrote: ↑Wed Aug 15, 2018 9:46 pmAll the insular people’s heads just exploded.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?
Insular
ignorant of or uninterested in cultures, ideas, or peoples outside one's own experience.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Sounds like you’ve identified the benefit of holding market weight of 50ish percent in international equitywillthrill81 wrote: ↑Thu Aug 16, 2018 11:22 amPerhaps, but it might be akin to being in a lifeboat 400 miles away from shore instead of 500 miles. You're 'better off', but you're still hosed.vineviz wrote: ↑Thu Aug 16, 2018 11:18 am20% probably wouldn't save the day, but it'd almost certainly be better than 0%.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'.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
everyone is taking currency risk by definition. to be invested, you must be invested in some currency, to the exclusion of others. the only way to get around this is to hedge with options, which incurs other costs.willthrill81 wrote: ↑Thu Aug 16, 2018 11:56 amIf you are a U.S. investor, you're probably doing most of your spending with U.S. dollars. With buying US stocks, there is no currency risk because it's all done in dollars. But by buying international equities, you are adding currency risk to the equation because you are dealing with multiple currencies (e.g. you need dollars to spend but your holdings are in euros, pesos, etc.). Yes, exchange rates may swing in your favor, but they may also swing against you. Hence the risk.Vulcan wrote: ↑Thu Aug 16, 2018 11:37 amI will be the first to admit I do not understand the "currency risk" mantra.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.
Why is holding foreign currency-denominated assets inherently riskier than holding USD-denominated ones, all other things being equal?
Doesn't that assume there is no risk if USD ends up on the wrong side of the trade?
investing in dollars because you intend to make future purchases with dollars does not eliminate currency risk. its pretty easy to see why. if you are invested in yen, live in japan, invest in japanese companies, and the yen collapses, you think you aren't going to see the effects? you think you are isolated from all currency risk?
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
That assumes that international currency fluctuations do not affect local prices. In an increasingly global economy that is not the case.willthrill81 wrote: ↑Thu Aug 16, 2018 11:56 amIf you are a U.S. investor, you're probably doing most of your spending with U.S. dollars. With buying US stocks, there is no currency risk because it's all done in dollars. But by buying international equities, you are adding currency risk to the equation because you are dealing with multiple currencies (e.g. you need dollars to spend but your holdings are in euros, pesos, etc.). Yes, exchange rates may swing in your favor, but they may also swing against you. Hence the risk.Vulcan wrote: ↑Thu Aug 16, 2018 11:37 am I will be the first to admit I do not understand the "currency risk" mantra.
Why is holding foreign currency-denominated assets inherently riskier than holding USD-denominated ones, all other things being equal?
Doesn't that assume there is no risk if USD ends up on the wrong side of the trade?
Currency risk cuts both ways. If all your assets are dollar-denominated, then you have concentrated your currency risk where you could have easily diversified it instead.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Using fundamental indexes would have solved this particular problem (as japan would have been massively underweight at the beginning. They do bring up the separate problem of over allocating to a failing market so might suffer a bigger blow in a total market closure type of situation.jeffyscott wrote: ↑Thu Aug 16, 2018 9:28 amThis sort of thing is one reason that I am not a fan of cap weighted indexing, particularly when lumping all foreign stocks in one fund. Here's a chart showing returns by region using M* category averages that demonstrates your point. Start date is the earliest possible for including the Asia ex-Japan average. I used Wellington to create the chart because I knew it had a long history and would allow me to make longest possible chart, but this does show that diversified portfolio via 100% Wellington would've worked out well
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
That is not the definition of currency risk, so if you are going to use a phrase like "currency risk by definition" I think it's reasonable to nit-pick about it.
One definition, from Wikipedia, is:
You can look up others but they all agree.Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a financial risk that exists when a financial transaction is denominated in a currency other than that of the base currency of the company.
I can't find any definition of currency risk that doesn't mention "exchange rates" or "foreign exchange."
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. The risk of a local currency collapse is not "currency risk." Venezuelans trying to buy things with bolivars are not experiencing currency risk.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
then what do you call that risk? it IS a risk. it exists. it is clear to see. it may or may not fall within the definition of "currency risk," but that doesn't make it any less real.nisiprius wrote: ↑Thu Aug 16, 2018 12:45 pmThat is not the definition of currency risk, so if you are going to use a phrase like "currency risk by definition" I think it's reasonable to nit-pick about it.
One definition, from Wikipedia, is:You can look up others but they all agree.Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a financial risk that exists when a financial transaction is denominated in a currency other than that of the base currency of the company.
I can't find any definition of currency risk that doesn't mention "exchange rates" or "foreign exchange."
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. The risk of a local currency collapse is not "currency risk." Venezuelans trying to buy things with bolivars are not experiencing currency risk.
so, what is it then?
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Ok, great. I will take currency risk 24/7 to hedge against local currency collapse risk once in a lifetime. But I may have been permanently scarred, so never mind me:-)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. The risk of a local currency collapse is not "currency risk." Venezuelans trying to buy things with bolivars are not experiencing currency risk.
...But then again, I also have a second passport.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I kind of agree with you. It is true that in the normal course of events, currency risk adds an additional level of risk and volatility that you don't immediately get compensated for however, it could serve as a hedge against a scenario where the US tanks vs the rest of the world, resulting in a relative currency collapse. That is Theoretically a very valuable hedge, but that is not reflected in historical data, because that is a rare event and has really never happened before.Vulcan wrote: ↑Thu Aug 16, 2018 12:50 pmOk, great. I will take currency risk 24/7 to hedge against local currency collapse risk once in a lifetime. But I may have been permanently scarred, so never mind me:-)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. The risk of a local currency collapse is not "currency risk." Venezuelans trying to buy things with bolivars are not experiencing currency risk.
...But then again, I also have a second passport.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
So now one of the arguments for international is that the US dollar might collapse, while the rest of the world hums along....surely no one actually believes that.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
The Dollar doesn't have to collapse, just weaken. Even Weaken is a misleading term. More like a "less favorable exchange rate". Which funnily enough might even have benefits for the US.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Folks are working hard to find some reason to hold ex-US... The normal Boglehead argument that it does well if you keep it for the long run can't be used after the poor performance over the last 30 years.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Perhaps. But again, that assumes that international equity and U.S. equity are not strongly correlated. After the 2008 debacle, I'm not so sure that that's a reasonable assumption.vineviz wrote: ↑Thu Aug 16, 2018 12:30 pmSounds like you’ve identified the benefit of holding market weight of 50ish percent in international equitywillthrill81 wrote: ↑Thu Aug 16, 2018 11:22 amPerhaps, but it might be akin to being in a lifeboat 400 miles away from shore instead of 500 miles. You're 'better off', but you're still hosed.vineviz wrote: ↑Thu Aug 16, 2018 11:18 am20% probably wouldn't save the day, but it'd almost certainly be better than 0%.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'.
As noted above, if the U.S. markets tank, the other international markets may tank as well. But we won't know unless it happens.
For better or worse, investing in international comes down to conjecture and person opinion. There is no single objective 'truth' on either side of the fence.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Not very many people believed Soviet Union could collapse. And then, one night, it did.
Yet things do not have to be that dramatic for foreign currency denominated part of the portfolio to experience an exchange-rate related tailwind.
Ditto
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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.jrbdmb wrote: ↑Thu Aug 16, 2018 10:05 amIf 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. ...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.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
The truth is, a domestic-only portfolio is a concentrated bet. So far it has paid out. As to why, and, more importantly, whether it will continue to do so, opinions do differ.willthrill81 wrote: ↑Thu Aug 16, 2018 1:42 pm For better or worse, investing in international comes down to conjecture and person opinion. There is no single objective 'truth' on either side of the fence.
The world is a large place. Ignore that reality at your own peril.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Precious metals are not productive assets.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.
Shell, Nestle, and Samsung are.
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If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Yet the people holding non-Australian stocks don't seem to be working hard to find reasons ... it's almost as if they think that no reason is even needed to invest in worse-performing countries like the US.
Last edited by patrick on Thu Aug 16, 2018 1:53 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!
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.gmaynardkrebs wrote: ↑Thu Aug 16, 2018 1:45 pmBut 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.jrbdmb wrote: ↑Thu Aug 16, 2018 10:05 amIf 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. ...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.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Past performance, however, is a sure bet!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.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
That is actually a recent addition to my strategy .fennewaldaj wrote: ↑Thu Aug 16, 2018 12:41 pm Using fundamental indexes would have solved this particular problem (as japan would have been massively underweight at the beginning. They do bring up the separate problem of over allocating to a failing market so might suffer a bigger blow in a total market closure type of situation.
I'll continue to use low cost managed funds as well. Maybe I am just lucky, but most of the managed international funds used have been quite a bit less painful than the index.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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.Vulcan wrote: ↑Thu Aug 16, 2018 1:48 pmPrecious metals are not productive assets.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.
Shell, Nestle, and Samsung are.
Just got a new Galaxy S8 last night. It's very nice.
Assets need not be 'productive' to be good diversifiers.
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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!
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.Vulcan wrote: ↑Thu Aug 16, 2018 1:53 pmPast performance, however, is a sure bet!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.
Some here place great emphasis on theory (e.g. international and U.S. equity risk-adjusted returns shouldn't differ over the long-term), while others emphasize history (e.g. U.S. stocks have outperformed the rest of the world collectively by a significant margin). Most of us are somewhere in the middle but lean toward one of the two extremes. I lean toward the latter, and you lean toward the former. And that's fine.
The Sensible Steward
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
that's not true. it is easy to explain why i invest in ex-Us.
i want to be invested in foreign companies based in foreign markets.
so... i am.
the point i was making was that domestic investors are not somehow magically shielded from currency risk/fluctuation/exchange simply because they expect their future liabilities to be in the same currency. it doesn't work that way.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
They do need to be productive to be considered "investments" though.willthrill81 wrote: ↑Thu Aug 16, 2018 1:55 pmThat'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.Vulcan wrote: ↑Thu Aug 16, 2018 1:48 pmPrecious metals are not productive assets.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.
Shell, Nestle, and Samsung are.
Just got a new Galaxy S8 last night. It's very nice.
Assets need not be 'productive' to be good diversifiers.
Past performance is irrelevant.
Future performance is unknowable.
So I just buy the world.
Remember: ***it's all is priced in***
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Nothing.willthrill81 wrote: ↑Thu Aug 16, 2018 1:56 pmOf 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.Vulcan wrote: ↑Thu Aug 16, 2018 1:53 pmPast performance, however, is a sure bet!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.
/mumbles/ Stay the course!
I'm just not a big believer in any kind of exceptionalism.willthrill81 wrote: ↑Thu Aug 16, 2018 1:51 pm Some here place great emphasis on theory (e.g. international and U.S. equity risk-adjusted returns shouldn't differ over the long-term), while others emphasize history (e.g. U.S. stocks have outperformed the rest of the world collectively by a significant margin). Most of us are somewhere in the middle but lean toward one of the two extremes. I lean toward the latter, and you lean toward the former. And that's fine.
I've been there when a superpower fell.
I'll keep my eggs globally diversified, thankyouverymuch.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
- willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
That's only a matter of semantics. I don't care what label anyone places on an asset. I care about what that asset can do for me. And it doesn't have to be 'productive' in order to do something for me.Vulcan wrote: ↑Thu Aug 16, 2018 1:59 pmThey do need to be productive to be considered "investments" though.willthrill81 wrote: ↑Thu Aug 16, 2018 1:55 pmThat'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.Vulcan wrote: ↑Thu Aug 16, 2018 1:48 pmPrecious metals are not productive assets.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.
Shell, Nestle, and Samsung are.
Just got a new Galaxy S8 last night. It's very nice.
Assets need not be 'productive' to be good diversifiers.
That's a big stretch. Few Bogleheads would agree with that.
True enough.
Only to the extent that the efficient market hypothesis is true. Not many financial academics believe that it's strictly accurate anymore.
The Sensible Steward
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
I don't believe that the market is necessarily efficient, only that it tries its best to equalize expected risk adjusted returns between assets.
Do you (or those mentioned financial academics) have reason to believe that the market isn't trying its best in the case of international equities? Say, by international governments propping up the prices somehow, or by droves of uneducated investors investing internationally and overwhelming the power of real price discoverers to correct it?
- willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
There's a potentially big gulf between attempting to instantly price in all relevant information in the markets and actually doing so.Tamalak wrote: ↑Thu Aug 16, 2018 2:12 pmI don't believe that the market is necessarily efficient, only that it tries its best to equalize expected risk adjusted returns between assets.
Do you (or those mentioned financial academics) have reason to believe that the market isn't trying its best in the case of international equities? Say, by international governments propping up the prices somehow, or by droves of uneducated investors investing internationally and overwhelming the power of real price discoverers to correct it?
In the case of international equities, using all available data in Portfolio Visualizer (1986 until last month), the Sharpe ratio (i.e. risk-adjusted return) for U.S. equities was .53 and for international was .30. That's a big difference, and a strict interpretation of the EMH would say that that should not be.
The Sensible Steward
- willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Interesting. You base your argument on global investing on your own past experiences, but you will not deviate from that strategy based on historic data.Vulcan wrote: ↑Thu Aug 16, 2018 2:02 pmNothing.willthrill81 wrote: ↑Thu Aug 16, 2018 1:56 pmOf 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.Vulcan wrote: ↑Thu Aug 16, 2018 1:53 pmPast performance, however, is a sure bet!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.
/mumbles/ Stay the course!
I'm just not a big believer in any kind of exceptionalism.willthrill81 wrote: ↑Thu Aug 16, 2018 1:51 pm Some here place great emphasis on theory (e.g. international and U.S. equity risk-adjusted returns shouldn't differ over the long-term), while others emphasize history (e.g. U.S. stocks have outperformed the rest of the world collectively by a significant margin). Most of us are somewhere in the middle but lean toward one of the two extremes. I lean toward the latter, and you lean toward the former. And that's fine.
I've been there when a superpower fell.
I'll keep my eggs globally diversified, thankyouverymuch.
The Sensible Steward
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Doesn't have to be instant in our case.willthrill81 wrote: ↑Thu Aug 16, 2018 2:15 pm There's a potentially big gulf between attempting to instantly price in all relevant information in the markets and actually doing so.
Just over the next 30 years.
I think not knowing what Sharpe ratio is makes me a better investor:-)willthrill81 wrote: ↑Thu Aug 16, 2018 2:15 pm In the case of international equities, using all available data in Portfolio Visualizer (1986 until last month), the Sharpe ratio (i.e. risk-adjusted return) for U.S. equities was .53 and for international was .30. That's a big difference, and a strict interpretation of the EMH would say that that should not be.
Last edited by Vulcan on Thu Aug 16, 2018 2:21 pm, edited 1 time in total.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Indexing the US market did not violate the basic principle of the Boglehead strategy which is that holding a low-cost broad whole market index provides good returns in the long run. Indexing the ex-US market violated this principle - returns have been poor over 30 years, and with high volatility. This is absolute, not just relative to the US.
Last edited by visualguy on Thu Aug 16, 2018 2:22 pm, edited 1 time in total.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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.
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.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Don't confuse strategy and outcome.visualguy wrote: ↑Thu Aug 16, 2018 2:21 pmIndexing the US market did not violate the basic principle of the Boglehead strategy which is that holding a low-cost whole market index provides good returns in the long run. Indexing the ex-US market violated this principle - returns have been poor over 30 years, and with high volatility. This is absolute, not just relative to the US.
The US was a good bet for the past 30 years.
Is it a good bet for the next 30 years?
I hope to be able to tell you in 30 years.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
That lines up with my understanding. The risk of a dollar buying less of a commodity traded in dollars due to the relative strength of other currencies is really more of an inflation risk due to a shift in the demand curve up the P axis (which would be denominated in USD). Inflation risk is fundamentally a currency issue, but it is not currency risk per se.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. The risk of a local currency collapse is not "currency risk." Venezuelans trying to buy things with bolivars are not experiencing currency risk.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
It doesn't have to be instant, and it doesn't even have to price in all relevant information, as long as there is not some kind of systemic and discoverable bias that is a common thread in the information it leaves out.willthrill81 wrote: ↑Thu Aug 16, 2018 2:15 pmThere's a potentially big gulf between attempting to instantly price in all relevant information in the markets and actually doing so.Tamalak wrote: ↑Thu Aug 16, 2018 2:12 pmI don't believe that the market is necessarily efficient, only that it tries its best to equalize expected risk adjusted returns between assets.
Do you (or those mentioned financial academics) have reason to believe that the market isn't trying its best in the case of international equities? Say, by international governments propping up the prices somehow, or by droves of uneducated investors investing internationally and overwhelming the power of real price discoverers to correct it?
In the case of international equities, using all available data in Portfolio Visualizer (1986 until last month), the Sharpe ratio (i.e. risk-adjusted return) for U.S. equities was .53 and for international was .30. That's a big difference, and a strict interpretation of the EMH would say that that should not be.
Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
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.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.
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.
- gmaynardkrebs
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Not quite sure of the point. If the valuations are compelling enough, it's worth taking on the fx risk.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.
Last edited by gmaynardkrebs on Thu Aug 16, 2018 2:36 pm, edited 1 time in total.
- willthrill81
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!
Yes it does. That's the basic gist of the EMH. It says nothing about systematic bias.Tamalak wrote: ↑Thu Aug 16, 2018 2:29 pmIt doesn't have to be instant, and it doesn't even have to price in all relevant information, as long as there is not some kind of systemic and discoverable bias that is a common thread in the information it leaves out.willthrill81 wrote: ↑Thu Aug 16, 2018 2:15 pmThere's a potentially big gulf between attempting to instantly price in all relevant information in the markets and actually doing so.Tamalak wrote: ↑Thu Aug 16, 2018 2:12 pmI don't believe that the market is necessarily efficient, only that it tries its best to equalize expected risk adjusted returns between assets.
Do you (or those mentioned financial academics) have reason to believe that the market isn't trying its best in the case of international equities? Say, by international governments propping up the prices somehow, or by droves of uneducated investors investing internationally and overwhelming the power of real price discoverers to correct it?
In the case of international equities, using all available data in Portfolio Visualizer (1986 until last month), the Sharpe ratio (i.e. risk-adjusted return) for U.S. equities was .53 and for international was .30. That's a big difference, and a strict interpretation of the EMH would say that that should not be.
Last edited by willthrill81 on Thu Aug 16, 2018 2:38 pm, edited 1 time in total.
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