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!

Post by visualguy » Sat Oct 06, 2018 10:36 pm

Dottie57 wrote:
Sat Oct 06, 2018 8:46 pm
I think international has done fairly well over the last 20years.

Callan periodic table

https://www.callan.com/wp-content/uploa ... d_2018.pdf
5.22% CAGR over the last 20 years. That's pretty bad... Only a little higher than the US total bond index (4.55%), but with MUCH more volatility. US stock was 7.68%.

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

Post by MJW » Sun Oct 07, 2018 1:09 am

We need to keep this thread civil so it can live on for another 1,000 posts.

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

Post by Lauretta » Sun Oct 07, 2018 3:30 am

CraigTester wrote:
Sat Oct 06, 2018 8:24 am
Lauretta wrote:
Sat Oct 06, 2018 6:27 am
CraigTester wrote:
Fri Oct 05, 2018 9:48 am
Facts:

SP500 P/E = 25 (Last 12 months)

SP500 PE10=33

Long-term average for both P/E and PE10 is around 15.

This means that $1 dollar of SP500 Earnings today costs between $25 and $33 dollars. (versus long-term average cost = $15)

Similarly,

10 yr US treasuries yield around 3.2%.

This means that $1 dollar of yield costs about $31.

By Contrast,

$1 of Earnings for an International Index today costs between $15 and $17 dollars (PE=15, PE10=17)

If you have a long-term perspective (e.g. 10+ years) Unless you have some special knowledge telling you that International will not continue to pace with US returns over the long-term, there is only one conclusion to be reached (even if you don't "like" it).

P.S. Note that Price and Earnings have a long-term correlation of 96%.

CraigTester
The way I see it, these figures can mean 3 things:
1. The market has grounds to believe that earnings in the US will grow faster than in the rest of the world
2. The market believes that the US is safer, so it's prepared to accept lower returns because of lower risk
3. The market is euphoric about the US
1. To be rational, the market would actually need to believe US earnings will grow twice as fast as its own 100 year average. (An extremely difficult thing to do)

2. This is a possibility, but if the goal is safety, one might be better served by waiting for a better price. Versus risking a 50% loss if market reverts to its historical mean.

3. I think this is the most likely conclusion. Interesting that unlike previous periods of euphoria that ended very badly , International stocks are not caught up in it this time.
I think so too. 3. is the most likely conclusion. Interestingly, even though like you say we haven't seen significant multiples expansions in Int'l large caps, European small caps (which have hugely outperformed European Large caps since 2009) have got relatively expensive now and this year are suffering.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by gvsucavie03 » Sun Oct 07, 2018 7:03 am

visualguy wrote:
Sat Oct 06, 2018 10:36 pm
Dottie57 wrote:
Sat Oct 06, 2018 8:46 pm
I think international has done fairly well over the last 20years.

Callan periodic table

https://www.callan.com/wp-content/uploa ... d_2018.pdf
5.22% CAGR over the last 20 years. That's pretty bad... Only a little higher than the US total bond index (4.55%), but with MUCH more volatility. US stock was 7.68%.
Cool. But where is the definitive proof that this predicts the next 20 years? Political and economic melt-downs happen and the US is not immune.

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

Post by watchnerd » Sun Oct 07, 2018 7:16 am

gvsucavie03 wrote:
Sun Oct 07, 2018 7:03 am
visualguy wrote:
Sat Oct 06, 2018 10:36 pm
Dottie57 wrote:
Sat Oct 06, 2018 8:46 pm
I think international has done fairly well over the last 20years.

Callan periodic table

https://www.callan.com/wp-content/uploa ... d_2018.pdf
5.22% CAGR over the last 20 years. That's pretty bad... Only a little higher than the US total bond index (4.55%), but with MUCH more volatility. US stock was 7.68%.
Cool. But where is the definitive proof that this predicts the next 20 years? Political and economic melt-downs happen and the US is not immune.
It doesn't even have to be that extreme.

It just takes a few product categories in which the leader is domiciled outside the US.

Example: self-driving trucks. Will Tesla and Otto beat Mercedes-Benz in bringing them to market? What will happen to Peterbilt, Mack, etc? I have no idea, but owning the global market means I don't have to pick the winner.
Last edited by watchnerd on Sun Oct 07, 2018 9:55 am, 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 gvsucavie03 » Sun Oct 07, 2018 7:20 am

watchnerd wrote:
Sun Oct 07, 2018 7:16 am
gvsucavie03 wrote:
Sun Oct 07, 2018 7:03 am
visualguy wrote:
Sat Oct 06, 2018 10:36 pm
Dottie57 wrote:
Sat Oct 06, 2018 8:46 pm
I think international has done fairly well over the last 20years.

Callan periodic table

https://www.callan.com/wp-content/uploa ... d_2018.pdf
5.22% CAGR over the last 20 years. That's pretty bad... Only a little higher than the US total bond index (4.55%), but with MUCH more volatility. US stock was 7.68%.
Cool. But where is the definitive proof that this predicts the next 20 years? Political and economic melt-downs happen and the US is not immune.
It doesn't even have to be that extreme.

It just takes a few product categories in which the leader is domiciled outside the US.

Example: self-driving trucks. Will Tesla and Otto beat Mercedes-Benz in bringing them to market? What will happen to Peterbuilt, Mack, etc? I have no idea, but owning the global market means I don't have to pick the winner.
True

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The Callan Tables

Post by Taylor Larimore » Sun Oct 07, 2018 9:52 am

Bogleheads:

The Callan Tables of Investment Returns provide strong evidence supporting the use of Total Market Index Funds.

The Three-Fund Portfolio

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

Post by LadyGeek » Sun Oct 07, 2018 9:59 am

Here are the Callan tables: Callan periodic table of investment returns

MSCI World ex-US and MSCI Emerging Markets are the Int'l sectors tracked.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Sun Oct 07, 2018 10:02 am

I have to admit that I haven‘t read all the 1000+ posts in this interesting discussion, but does anybody know how the actual underlying earnings have developed for INTL over a long time series?

The outperformance of US vs INTL over the last 20 years from my perspective can have 3 reasons

- People are willing to pay more for US earnings compared to INTL earnings (i.e. P/E ratio for US has expanded more than P/E ratio for INTL for the selected period
- Underlying earnings for the US companies grew stronger than INTL earnings
- Impact of currency fluctuations

As I mentioned in my earlier post I can certainly see a stronger growth in dividends in the US for the last 5 years, but that‘s a very short time period.

Thanks

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

Post by watchnerd » Sun Oct 07, 2018 11:38 am

ge1 wrote:
Sun Oct 07, 2018 10:02 am
I have to admit that I haven‘t read all the 1000+ posts in this interesting discussion, but does anybody know how the actual underlying earnings have developed for INTL over a long time series?

The outperformance of US vs INTL over the last 20 years from my perspective can have 3 reasons

- People are willing to pay more for US earnings compared to INTL earnings (i.e. P/E ratio for US has expanded more than P/E ratio for INTL for the selected period
- Underlying earnings for the US companies grew stronger than INTL earnings
- Impact of currency fluctuations

As I mentioned in my earlier post I can certainly see a stronger growth in dividends in the US for the last 5 years, but that‘s a very short time period.

Thanks
I don't think people are more willing to pay for US earnings.

I think people are more willing to pay for earnings from Apple, Google, Facebook, Microsoft, Amazon, and Netflix, which happen to be domiciled in the US stock market.

If they were domiciled in the UK, we'd probably be talking about how high the PE ratio is for the UK stock market / how it has thumped others.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Sun Oct 07, 2018 12:46 pm

watchnerd wrote:
Sun Oct 07, 2018 11:38 am
ge1 wrote:
Sun Oct 07, 2018 10:02 am
I have to admit that I haven‘t read all the 1000+ posts in this interesting discussion, but does anybody know how the actual underlying earnings have developed for INTL over a long time series?

The outperformance of US vs INTL over the last 20 years from my perspective can have 3 reasons

- People are willing to pay more for US earnings compared to INTL earnings (i.e. P/E ratio for US has expanded more than P/E ratio for INTL for the selected period
- Underlying earnings for the US companies grew stronger than INTL earnings
- Impact of currency fluctuations

As I mentioned in my earlier post I can certainly see a stronger growth in dividends in the US for the last 5 years, but that‘s a very short time period.

Thanks
I don't think people are more willing to pay for US earnings.

I think people are more willing to pay for earnings from Apple, Google, Facebook, Microsoft, Amazon, and Netflix, which happen to be domiciled in the US stock market.

If they were domiciled in the UK, we'd probably be talking about how high the PE ratio is for the UK stock market / how it has thumped others.
US GAAP is arguably tighter than IFRS although I am not sure there is much in it.

Maybe Sarbanes Oxley makes US stocks safer again not sure.

I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though

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

Post by Lauretta » Sun Oct 07, 2018 1:04 pm

Valuethinker wrote:
Sun Oct 07, 2018 12:46 pm


I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though
I am wondering, can you tells us more about how you do that? I read some articles according to which the effect of sectors goes some way towards explaining the US higher valuations; but significant differences subsist (relative to Europe too) even after accounting for the effect of sectors. Also, Mr Swedroe wrote to me that valuations are the best predictor of future returns, independently of sectors.

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

Post by ge1 » Sun Oct 07, 2018 1:06 pm

watchnerd wrote:
Sun Oct 07, 2018 11:38 am


I don't think people are more willing to pay for US earnings.

I think people are more willing to pay for earnings from Apple, Google, Facebook, Microsoft, Amazon, and Netflix, which happen to be domiciled in the US stock market.

If they were domiciled in the UK, we'd probably be talking about how high the PE ratio is for the UK stock market / how it has thumped others.
Fair point. I should have been more precise and said "Companies domiciled in the US". As others pointed out, the US stock market has clearly benefited from the extreme price increases in a small number of stocks (but not only).

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

Post by watchnerd » Sun Oct 07, 2018 1:08 pm

Lauretta wrote:
Sun Oct 07, 2018 1:04 pm
Valuethinker wrote:
Sun Oct 07, 2018 12:46 pm


I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though
I am wondering, can you tells us more about how you do that? I read some articles according to which the effect of sectors goes some way towards explaining the US higher valuations; but significant differences subsist (relative to Europe too) even after accounting for the effect of sectors. Also, Mr Swedroe wrote to me that valuations are the best predictor of future returns, independently of sectors.

Image
Do you think PB is a good metric for businesses that are increasingly dominated by technology?

Even automobiles and appliances have IoT built in now.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Lauretta » Sun Oct 07, 2018 1:39 pm

watchnerd wrote:
Sun Oct 07, 2018 1:08 pm

Do you think PB is a good metric for businesses that are increasingly dominated by technology?

Even automobiles and appliances have IoT built in now.
Yes, P/B is probably not ideal; the only reason I used it is that I could not find a link with a table showing PE or CAPE :D
However, these histograms show that the US seem overvalued even using PE
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Lauretta » Sun Oct 07, 2018 1:42 pm

watchnerd wrote:
Sun Oct 07, 2018 1:08 pm


Even automobiles and appliances have IoT built in now.
What is IoT? I googled it and found 'Internet of things'; is that what you meant?
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by KyleAAA » Sun Oct 07, 2018 1:43 pm

Lauretta wrote:
Sun Oct 07, 2018 1:42 pm
watchnerd wrote:
Sun Oct 07, 2018 1:08 pm


Even automobiles and appliances have IoT built in now.
What is IoT? I googled it and found 'Internet of things'; is that what you meant?
Yes. This is the future: https://azure.microsoft.com/en-us/overv ... -of-cloud/

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

Post by visualguy » Sun Oct 07, 2018 4:31 pm

watchnerd wrote:
Sun Oct 07, 2018 7:16 am
It doesn't even have to be that extreme.

It just takes a few product categories in which the leader is domiciled outside the US.

Example: self-driving trucks. Will Tesla and Otto beat Mercedes-Benz in bringing them to market? What will happen to Peterbilt, Mack, etc? I have no idea, but owning the global market means I don't have to pick the winner.
In my view, the US has been by far the winner in attracting talent from all over the world. This constant brain drain removes some of the most capable people from other countries and brings them to the US. No other country has been able to achieve something like this, and it's one of the key factors in innovation in the US, and the birth of great new companies and industries in the US. Many great innovators and entrepreneurs from around the world do their thing in the US and not their home countries.

I don't see this changing over the next 40 years or so that matter to me. The EU, UK, Canada, Australia, Japan, or China aren't suddenly going to become the new talent magnet. Even if this changes at some point, it's way down the road beyond the point when I won't be around. China is definitely a rising competitor, but the nature of their regime limits their ability to attract or even retain top talent. Also, investing in their stock market doesn't really work all that well in terms of participating in the growth and development over there, unfortunately.

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

Post by watchnerd » Sun Oct 07, 2018 4:37 pm

visualguy wrote:
Sun Oct 07, 2018 4:31 pm
watchnerd wrote:
Sun Oct 07, 2018 7:16 am
It doesn't even have to be that extreme.

It just takes a few product categories in which the leader is domiciled outside the US.

Example: self-driving trucks. Will Tesla and Otto beat Mercedes-Benz in bringing them to market? What will happen to Peterbilt, Mack, etc? I have no idea, but owning the global market means I don't have to pick the winner.
In my view, the US has been by far the winner in attracting talent from all over the world. This constant brain drain removes some of the most capable people from other countries and brings them to the US. No other country has been able to achieve something like this, and it's one of the key factors in innovation in the US, and the birth of great new companies and industries in the US. Many great innovators and entrepreneurs from around the world do their thing in the US and not their home countries.

I don't see this changing over the next 40 years or so that matter to me. The EU, UK, Canada, Australia, Japan, or China aren't suddenly going to become the new talent magnet. Even if this changes at some point, it's way down the road beyond the point when I won't be around. China is definitely a rising competitor, but the nature of their regime limits their ability to attract or even retain top talent. Also, investing in their stock market doesn't really work all that well in terms of participating in the growth and development over there, unfortunately.
You're not getting it:

Yes, the US does amazingly well in attracting talent.

Mercedes Benz can come to the USA, set up R&D offices in the USA (like BMW does), hire American software developers to build the technology, heck even have them manufactured in the USA (like BMW does with its SUVs), but the stock is still domiciled in Germany.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by watchnerd » Sun Oct 07, 2018 4:46 pm

Another example:

(from Wikipedia)

"Sony Pictures Entertainment Inc. (known simply as Sony Pictures and abbreviated as SPE) is an American entertainment company that produces, acquires and distributes filmed entertainment (theatrical motion pictures, television programs, and recorded videos) through multiple platforms. Through an intermediate holding company called Sony Film Holding Inc., it is operated as a subsidiary of Sony Entertainment Inc., which is itself a subsidiary of Sony Corporation of America, a wholly owned subsidiary and the US headquarters of the Tokyo-based multinational technology and media conglomerate Sony Corporation."
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Sun Oct 07, 2018 4:56 pm

watchnerd wrote:
Sun Oct 07, 2018 4:37 pm
You're not getting it:

Yes, the US does amazingly well in attracting talent.

Mercedes Benz can come to the USA, set up R&D offices in the USA (like BMW does), hire American software developers to build the technology, heck even have them manufactured in the USA (like BMW does with its SUVs), but the stock is still domiciled in Germany.
It's not about hiring software developers and doing manufacturing. It's about innovation and entreprenuership that leads to the creation of new companies and new industries. Many of the people who can do this (Elon Musk, Sergey Brin, Jensen Huang, etc.) come to the US to do this. They don't do it in their home countries. Where they hire their engineers and do their manufacturing is not the point. The point is that these companies are US companies and trade in US stock markets and not German or South African or Taiwanese or whatever. This is a huge advantage for the US. Also, it's an advantage that is most likely to persist within the time frame that's relevant to me.

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

Post by watchnerd » Sun Oct 07, 2018 5:03 pm

visualguy wrote:
Sun Oct 07, 2018 4:56 pm
watchnerd wrote:
Sun Oct 07, 2018 4:37 pm
You're not getting it:

Yes, the US does amazingly well in attracting talent.

Mercedes Benz can come to the USA, set up R&D offices in the USA (like BMW does), hire American software developers to build the technology, heck even have them manufactured in the USA (like BMW does with its SUVs), but the stock is still domiciled in Germany.
It's not about hiring software developers and doing manufacturing. It's about innovation and entreprenuership that leads to the creation of new companies and new industries. Many of the people who can do this (Elon Musk, Sergey Brin, Jensen Huang, etc.) come to the US to do this. They don't do it in their home countries. Where they hire their engineers and do their manufacturing is not the point. The point is that these companies are US companies and trade in US stock markets and not German or South African or Taiwanese or whatever. This is a huge advantage for the US. Also, it's an advantage that is most likely to persist within the time frame that's relevant to me.
Softbank (Japanese company) invests huge funds in Silicon Valley startups. Some of them may IPO (accruing funds to Softbank, or shares), or Softbank may acquire them wholly. We don't know.

I worked in Silicon Valley VC-backed startups for 13 years. Along with institutional US investors, you also have sovereign wealth funds and the VC arms of multinational corporations, American or not, providing funding and benefitting form the success (or failures).

And it goes the other way around....American VCs and corporate VC arms fund startups in Israel, for example.

The web of interactions and M&A possibilities is waaaaay too diverse to think that if you go all-in on USA-only you're getting all the action in the innovation space.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by watchnerd » Sun Oct 07, 2018 5:08 pm

As another example, how many American biotech/pharma companies has Roche Ventures (Swiss HQ) funded?

Well, look here:

https://www.crunchbase.com/organization ... arketplace

I counted 6 in the USA just on the first set of casual clicks.....
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by columbia » Sun Oct 07, 2018 5:18 pm

watchnerd wrote:
Sun Oct 07, 2018 5:03 pm
visualguy wrote:
Sun Oct 07, 2018 4:56 pm
watchnerd wrote:
Sun Oct 07, 2018 4:37 pm
You're not getting it:

Yes, the US does amazingly well in attracting talent.

Mercedes Benz can come to the USA, set up R&D offices in the USA (like BMW does), hire American software developers to build the technology, heck even have them manufactured in the USA (like BMW does with its SUVs), but the stock is still domiciled in Germany.
It's not about hiring software developers and doing manufacturing. It's about innovation and entreprenuership that leads to the creation of new companies and new industries. Many of the people who can do this (Elon Musk, Sergey Brin, Jensen Huang, etc.) come to the US to do this. They don't do it in their home countries. Where they hire their engineers and do their manufacturing is not the point. The point is that these companies are US companies and trade in US stock markets and not German or South African or Taiwanese or whatever. This is a huge advantage for the US. Also, it's an advantage that is most likely to persist within the time frame that's relevant to me.
Softbank (Japanese company) invests huge funds in Silicon Valley startups. Some of them may IPO (accruing funds to Softbank, or shares), or Softbank may acquire them wholly. We don't know.

I worked in Silicon Valley VC-backed startups for 13 years. Along with institutional US investors, you also have sovereign wealth funds and the VC arms of multinational corporations, American or not, providing funding and benefitting form the success (or failures).

And it goes the other way around....American VCs and corporate VC arms fund startups in Israel, for example.

The web of interactions and M&A possibilities is waaaaay too diverse to think that if you go all-in on USA-only you're getting all the action in the innovation space.
Thanks for this post. Reading something like this helps to keep in the pocket with my 25% allocation abroad. It’s also significantly more convincing than “.....because market cap.” :P

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

Post by Maverick3320 » Tue Oct 09, 2018 10:17 am

Beensabu wrote:
Fri Sep 28, 2018 10:15 pm
Maverick3320 wrote:
Mon Sep 24, 2018 3:05 pm
Beensabu wrote:
Fri Sep 21, 2018 9:32 pm
Maverick3320 wrote:
Fri Sep 21, 2018 9:40 am
Engineer250 wrote:
Sun Sep 09, 2018 4:56 pm


Thanks for saying something. It invoked such a sad response in me I didn't know how to respond. I do know wages, adjusted for inflation, have stayed basically flat for the last 30 years. Gains in productivity/GDP have not gone to median households. I know Bogleheads tend to be from the fortunate side of Americans but I am frustrated when education and housing are increasing so much faster than inflation, wages aren't, and it doesn't get acknowledged.
Gains in productivity have gone to median households, just not in wage form. The massive increase in healthcare costs, borne by employers, has cut into potential wage increases.
If you have the good fortune of having access to a low deductible health care plan where the premium is entirely or substantially covered by your employer, please do not assume that such a situation is universally experienced by most workers. I can assure you that it is not.
I didn't say anything was universally experienced by anyone - no need to be short with people.

According to the Kaiser Foundation, approximately half of all Americans have employer-subsidized healthcare. I'm not a mathematician, but I can assure you that half is pretty significant. Note that this doesn't include retired Americans, who generally shift to government healthcare coverage. So the percentage of working-age Americans covered by employer healthcare coverage is actually much higher than 50%.

Even if it was 10%, it would still be significantly significant in terms of affecting productivity gains.
My apologies. Believe it or not, that was me toning it down. My initial reaction was more along the lines of "What!? Want to see my disastrous health care coverage that I pay a hefty premium for and literally only have in case I get run over by a car or bitten by a rattlesnake?" HDHP and not a HSA. It's barely subsidized by my employer, but I guess I'm counted in that ~50%. Anyway, that was a terrible apology. Let's try again. I'm sorry that I was snarky. I had an emotional reaction to your statement, and I should have sat on it instead of posting.
No worries at all!

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

Post by Kevin8696 » Tue Oct 09, 2018 10:20 am

gvsucavie03 wrote:
Sun Oct 07, 2018 7:03 am
visualguy wrote:
Sat Oct 06, 2018 10:36 pm
Dottie57 wrote:
Sat Oct 06, 2018 8:46 pm
I think international has done fairly well over the last 20years.

Callan periodic table

https://www.callan.com/wp-content/uploa ... d_2018.pdf
5.22% CAGR over the last 20 years. That's pretty bad... Only a little higher than the US total bond index (4.55%), but with MUCH more volatility. US stock was 7.68%.
Cool. But where is the definitive proof that this predicts the next 20 years? Political and economic melt-downs happen and the US is not immune.
True, the US is not immune from melt-downs. However, the correlation of International stocks to US stocks has been 0.90 over the past 10-yrs, 0.87 over the past 20-yrs. This would indicate that as we saw in 2008-09 when the US melts down, the world melts down.

Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?

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

Post by vineviz » Tue Oct 09, 2018 10:39 am

Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
"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 Kevin8696 » Tue Oct 09, 2018 10:57 am

vineviz wrote:
Tue Oct 09, 2018 10:39 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?

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

Post by HEDGEFUNDIE » Tue Oct 09, 2018 11:02 am

Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
vineviz wrote:
Tue Oct 09, 2018 10:39 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?
Lower returns - not true
Closely correlated with US stocks - not true

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

Post by jeffyscott » Tue Oct 09, 2018 11:07 am

HEDGEFUNDIE wrote:
Tue Oct 09, 2018 11:02 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
vineviz wrote:
Tue Oct 09, 2018 10:39 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?
Lower returns - not true
Closely correlated with US stocks - not true
Even if closely correlated with the US, that would obviously not mean that the returns can not differ greatly, since they have done so over the past decade. The next decade could see a similar, but opposite, divergence of returns, even if just has highly correlated as the past decade.
press on, regardless - John C. Bogle

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

Post by vineviz » Tue Oct 09, 2018 11:08 am

Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
Which of the four do you believe are not objectively true statements ?
The statements "closely correlated" and "loaded with currency exchange risk" are both subjective judgements.
"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 Kevin8696 » Tue Oct 09, 2018 11:21 am

HEDGEFUNDIE wrote:
Tue Oct 09, 2018 11:02 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
vineviz wrote:
Tue Oct 09, 2018 10:39 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?
Lower returns - not true
Closely correlated with US stocks - not true
Vineviz...

Attached are links to the data I used in my analysis.

Last 10-yrs:
US Stock Market CAGR 8.60%, Std Dev 15.57%
Global Ex-US CAGR 1.87%, Std Dev 19.21%
Correlation 0.90

Last 20-yrs:
US Stock Market CAGR 7.42%, Std Dev 15.36%
Global Ex-US CAGR 5.58%, Std Dev 17.32%
Correlation 0.87

Last 30-yrs:
US Stock Market CAGR 10.55%, Std Dev 14.25%
Global Ex-US CAGR 5.18%, Std Dev 17.43%
Correlation 0.73

Is there something I am missing here ? If so, what is it ?

Thanks.

Last 10-yrs
https://www.portfoliovisualizer.com/bac ... arket2=100

Last 20-yrs
https://www.portfoliovisualizer.com/bac ... arket2=100

Last 30-yrs
https://www.portfoliovisualizer.com/bac ... arket2=100
Last edited by Kevin8696 on Tue Oct 09, 2018 11:45 am, 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 vineviz » Tue Oct 09, 2018 11:38 am

Kevin8696 wrote:
Tue Oct 09, 2018 11:21 am


Is there something I am missing here ? If so, what is it ?
For one thing, there is no objective definition for what is "closely" correlated and what is not. You might say a correlation of 0.66 is "close" and someone else might say "not close".

For a second thing, Global Ex-US isn't the only international asset class we have available. Taylor's three-fund portfolio favors these large cap stocks from developed nations, but there are other choices: emerging markets, for instance, are typically less correlated with US stocks than Global Ex-US.
"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 aj76er » Tue Oct 09, 2018 11:57 am

vineviz wrote:
Tue Oct 09, 2018 11:38 am
Kevin8696 wrote:
Tue Oct 09, 2018 11:21 am


Is there something I am missing here ? If so, what is it ?
For one thing, there is no objective definition for what is "closely" correlated and what is not. You might say a correlation of 0.66 is "close" and someone else might say "not close".

For a second thing, Global Ex-US isn't the only international asset class we have available. Taylor's three-fund portfolio favors these large cap stocks from developed nations, but there are other choices: emerging markets, for instance, are typically less correlated with US stocks than Global Ex-US.
I believe global ex-US includes emerging markets. Vanguard's total international fund, VTIAX, contains something like 20% Emerging markets; and this is the fund most commonly recommended for a 3-fund portfolio
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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

Post by vineviz » Tue Oct 09, 2018 12:34 pm

aj76er wrote:
Tue Oct 09, 2018 11:57 am
vineviz wrote:
Tue Oct 09, 2018 11:38 am
Kevin8696 wrote:
Tue Oct 09, 2018 11:21 am


Is there something I am missing here ? If so, what is it ?
For one thing, there is no objective definition for what is "closely" correlated and what is not. You might say a correlation of 0.66 is "close" and someone else might say "not close".

For a second thing, Global Ex-US isn't the only international asset class we have available. Taylor's three-fund portfolio favors these large cap stocks from developed nations, but there are other choices: emerging markets, for instance, are typically less correlated with US stocks than Global Ex-US.
I believe global ex-US includes emerging markets. Vanguard's total international fund, VTIAX, contains something like 20% Emerging markets; and this is the fund most commonly recommended for a 3-fund portfolio
You can buy the emerging markets without buying the rest, was my point.
"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 willthrill81 » Tue Oct 09, 2018 1:17 pm

vineviz wrote:
Tue Oct 09, 2018 11:38 am
Kevin8696 wrote:
Tue Oct 09, 2018 11:21 am

Is there something I am missing here ? If so, what is it ?
For one thing, there is no objective definition for what is "closely" correlated and what is not. You might say a correlation of 0.66 is "close" and someone else might say "not close".

For a second thing, Global Ex-US isn't the only international asset class we have available. Taylor's three-fund portfolio favors these large cap stocks from developed nations, but there are other choices: emerging markets, for instance, are typically less correlated with US stocks than Global Ex-US.
Stating that a correlation is high or low is indeed a subjective assessment, but let's get real about this. A .90 correlation is very high by virtually any scientist's standard. The same goes for a .87 correlation. With a .90 correlation, 81% of the variance in one of the variables is explained by the other. That's huge.

A .73 correlation is a different matter. A little over half of the variation between the variables is explained by such a correlation, but that's still the majority, which isn't a subjective assessment.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Tue Oct 09, 2018 1:18 pm

jeffyscott wrote:
Tue Oct 09, 2018 11:07 am
HEDGEFUNDIE wrote:
Tue Oct 09, 2018 11:02 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
vineviz wrote:
Tue Oct 09, 2018 10:39 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:20 am
Why invest in an asset class that when compared to the US stock market has lower returns, higher volatility, is closely correlated to the US market, and is loaded with currency exchange risk ?
Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?
Lower returns - not true
Closely correlated with US stocks - not true
Even if closely correlated with the US, that would obviously not mean that the returns can not differ greatly, since they have done so over the past decade. The next decade could see a similar, but opposite, divergence of returns, even if just has highly correlated as the past decade.
False. A 30/70 portfolio has historically been strongly correlated with an 80/20 portfolio over the long-term, but that doesn't mean that there is no divergence in the returns. Correlation does not capture magnitude, only direction.
“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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Correlation

Post by Taylor Larimore » Tue Oct 09, 2018 2:32 pm

Correlation does not capture magnitude, only direction.
This may be a mistake according to this definition:
The Pearson correlation coefficient is a number between -1 and +1 that measures both the strength and direction of the linear relationship between two variables. The magnitude of the number represents the strength of the correlation.
https://www.google.com/search?ei=SQC9W- ... DdvFldqrnM

Best wishes.
Taylor
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Re: Correlation

Post by vineviz » Tue Oct 09, 2018 2:47 pm

Taylor Larimore wrote:
Tue Oct 09, 2018 2:32 pm
Correlation does not capture magnitude, only direction.
This may be a mistake according to this definition:
The Pearson correlation coefficient is a number between -1 and +1 that measures both the strength and direction of the linear relationship between two variables. The magnitude of the number represents the strength of the correlation.
https://www.google.com/search?ei=SQC9W- ... DdvFldqrnM

Best wishes.
Taylor
That definition is vague enough to be reasonably misinterpreted.

willthrill81 was right.
"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: Correlation

Post by R2D2 » Tue Oct 09, 2018 2:49 pm

Taylor Larimore wrote:
Tue Oct 09, 2018 2:32 pm
Correlation does not capture magnitude, only direction.
This may be a mistake according to this definition:
The Pearson correlation coefficient is a number between -1 and +1 that measures both the strength and direction of the linear relationship between two variables. The magnitude of the number represents the strength of the correlation.
No, willthrill81 had it right (though I can see why this definition was confusing).

The correlation of two random variables is invariant if you scale one or both of them (or adding a constant to one or both of them).

The reason the google result reads the way it does is that when they said "strength", they meant "how strongly linked are the two variables". And by "direction", they meant "is the relationship positive or negative". Nothing to do with magnitude of the numbers.

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Re: Correlation

Post by chisey » Tue Oct 09, 2018 2:53 pm

Taylor Larimore wrote:
Tue Oct 09, 2018 2:32 pm
Correlation does not capture magnitude, only direction.
This may be a mistake according to this definition:
The Pearson correlation coefficient is a number between -1 and +1 that measures both the strength and direction of the linear relationship between two variables. The magnitude of the number represents the strength of the correlation.
https://www.google.com/search?ei=SQC9W- ... DdvFldqrnM

Best wishes.
Taylor
That definition is correct, but strength of the association between two data series and magnitude of the change in the numbers in two data series are two entirely different things.

The correlation coefficient measures only the direction and strength of the association, not how much either data series changes.

For example:

Code: Select all

Series 1	Series 2
1		1013
2		1026
3		1039
4		1052
5		1065
6		1078
7		1091
8		1104
9		1117
The correlation between these is a perfect 1.0, but the magnitude of the numbers and (especially) the magnitude of the change are quite different. Series 2 shows an increase of 10.3%, while Series 1 shows an increase of 800%.

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Re: Correlation

Post by willthrill81 » Tue Oct 09, 2018 3:00 pm

Taylor Larimore wrote:
Tue Oct 09, 2018 2:32 pm
Correlation does not capture magnitude, only direction.
This may be a mistake according to this definition:
The Pearson correlation coefficient is a number between -1 and +1 that measures both the strength and direction of the linear relationship between two variables. The magnitude of the number represents the strength of the correlation.
https://www.google.com/search?ei=SQC9W- ... DdvFldqrnM

Best wishes.
Taylor
Magnitude is distinct from strength. In this context, the strength of the correlation between two variables is measured on the -1 to +1 scale, with correlations approaching either end typically described as being 'strong'. But that does not mean that the two variables are equivalent to each other with regard to mean, standard deviation, etc.

The correlation between portfolios illustrates this point very well. As I said before, a 20% stock / 80% bond portfolio has had both lower volatility and lower returns than an 80/20 portfolio. But the two have a fairly strong correlation with each other. Why is this? Because bonds don't have nearly as much volatility as stocks. Even with a 20/80 portfolio, most of the swings in its value are due to changes in stocks, not bonds. The same is obviously true of the 80/20 portfolio. They tend to move together (i.e. correlated) but just at different rates (i.e. returns).
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by jeffyscott » Tue Oct 09, 2018 3:10 pm

willthrill81 wrote:
Tue Oct 09, 2018 1:18 pm
jeffyscott wrote:
Tue Oct 09, 2018 11:07 am
Even if closely correlated with the US, that would obviously not mean that the returns can not differ greatly, since they have done so over the past decade. The next decade could see a similar, but opposite, divergence of returns, even if just has highly correlated as the past decade.
False. A 30/70 portfolio has historically been strongly correlated with an 80/20 portfolio over the long-term, but that doesn't mean that there is no divergence in the returns. Correlation does not capture magnitude, only direction.
Did you mean "true"?

Since we both said the same thing.

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

Post by willthrill81 » Tue Oct 09, 2018 3:17 pm

jeffyscott wrote:
Tue Oct 09, 2018 3:10 pm
willthrill81 wrote:
Tue Oct 09, 2018 1:18 pm
jeffyscott wrote:
Tue Oct 09, 2018 11:07 am
Even if closely correlated with the US, that would obviously not mean that the returns can not differ greatly, since they have done so over the past decade. The next decade could see a similar, but opposite, divergence of returns, even if just has highly correlated as the past decade.
False. A 30/70 portfolio has historically been strongly correlated with an 80/20 portfolio over the long-term, but that doesn't mean that there is no divergence in the returns. Correlation does not capture magnitude, only direction.
Did you mean "true"?

Since we both said the same thing.

:confused
Yes, I see that now. The double negative "can not mean that the returns can not differ" threw me. My apologies.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by unclescrooge » Tue Oct 09, 2018 8:39 pm

Lauretta wrote:
Sun Oct 07, 2018 1:04 pm
Valuethinker wrote:
Sun Oct 07, 2018 12:46 pm


I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though
I am wondering, can you tells us more about how you do that? I read some articles according to which the effect of sectors goes some way towards explaining the US higher valuations; but significant differences subsist (relative to Europe too) even after accounting for the effect of sectors. Also, Mr Swedroe wrote to me that valuations are the best predictor of future returns, independently of sectors.

Image
I wonder how a strategy of shorting the red counties and going long the blue ones would've worked over the past 10 years.

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

Post by unclescrooge » Tue Oct 09, 2018 8:44 pm

willthrill81 wrote:
Tue Oct 09, 2018 1:18 pm
jeffyscott wrote:
Tue Oct 09, 2018 11:07 am
HEDGEFUNDIE wrote:
Tue Oct 09, 2018 11:02 am
Kevin8696 wrote:
Tue Oct 09, 2018 10:57 am
vineviz wrote:
Tue Oct 09, 2018 10:39 am


Why?

Because only one of those four descriptions is relevant, only two of the four descriptions are objectively true, and all four descriptions concern the past and not the future.
Which of the four do you believe are not objectively true descriptions ?
Lower returns - not true
Closely correlated with US stocks - not true
Even if closely correlated with the US, that would obviously not mean that the returns can not differ greatly, since they have done so over the past decade. The next decade could see a similar, but opposite, divergence of returns, even if just has highly correlated as the past decade.
False. A 30/70 portfolio has historically been strongly correlated with an 80/20 portfolio over the long-term, but that doesn't mean that there is no divergence in the returns. Correlation does not capture magnitude, only direction.
Talking about correlation without mentioning dispersion of results is meaningless.

Thank you for bringing this up.

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

Post by LadyGeek » Tue Oct 09, 2018 9:00 pm

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

Post by Lauretta » Wed Oct 10, 2018 4:28 am

unclescrooge wrote:
Tue Oct 09, 2018 8:39 pm
Lauretta wrote:
Sun Oct 07, 2018 1:04 pm
Valuethinker wrote:
Sun Oct 07, 2018 12:46 pm


I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though
I am wondering, can you tells us more about how you do that? I read some articles according to which the effect of sectors goes some way towards explaining the US higher valuations; but significant differences subsist (relative to Europe too) even after accounting for the effect of sectors. Also, Mr Swedroe wrote to me that valuations are the best predictor of future returns, independently of sectors.

Image
I wonder how a strategy of shorting the red counties and going long the blue ones would've worked over the past 10 years.
10 years ago the red countries were not red. As a matter of fact the US would have looked very blue...
When everyone is thinking the same, no one is thinking at all

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

Post by parsi1 » Wed Oct 10, 2018 12:26 pm

For the time being international is dropping more than US stocks.

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

Post by roymeo » Wed Oct 10, 2018 12:34 pm

It's only a disaster if I buy high and sell low.
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