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

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

Post by oldcomputerguy » Tue Sep 04, 2018 7:18 am

willthrill81 wrote:
Thu Aug 16, 2018 5:22 pm
Actually, the increasingly global aspect of major economies could, arguably, make international investing less attractive because it means that U.S. and international markets would be more strongly correlated with each other than they were in the past. We may now be in a world where all of the equity markets by and large sink or swim together. That was certainly the case in the 2008-2009 debacle.
This to my mind is certainly a valid point. However, I do continue to invest in international companies simply because it increases the total number of companies I hold. In the same way holding more US companies is more diversified than holding just a few US companies, holding 10,000 companies in the global economy is more diversified than holding 3,000 companies in that same economy.

Of course I could be wrong, I'm not infallible. But I try to make the best decisions I can. This one seems sound to me, so I'm sticking with my international allocation.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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

Post by asif408 » Tue Sep 04, 2018 7:58 am

MJW wrote:
Sun Sep 02, 2018 11:38 pm
No denial here. But I am skeptical that my international equity allocation will be a savior to me during whatever time frame US stocks take a beating. Or, for that matter, that in another thirty years I will even be grateful to have held them, period. Hopefully I am wrong and will be pleasantly surprised.
Another way to look at the risk of an investment is not how it does when things go bad over a year or two, but how it does over multiple years and decades, including those time periods when everything is down. See, for example, the 10 years from 1999-2009: https://www.portfoliovisualizer.com/bac ... ion3_3=100

When you compare US, Total Int'l, and emerging markets, yes, Total Int'l and emerging markets fell just as much, if not more, during the dot-com bubble and the financial crisis. But at the end of 10 years, returns were 13.7% in EM, 4.5% in Total Int'l, and 1.7% in the US. So what investment was "riskiest" during that decade? One that returned 13.7% or one that returned 1.7%?

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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 Sep 04, 2018 8:13 am

Kevin8696 wrote:
Mon Sep 03, 2018 8:41 pm
gvsucavie03..... So, I guess you are still not buying that the correlation of returns between US and Ex-US changed dramatically from just under 0.50 in the early years of those Nationwide and Wiki charts, to now being 0.90 for the period 1998-2017 ? Or do you not accept the concept that correlation of returns is a primary driver in the construction of an efficient frontier ? I used the data available on Portfolio Visualizer for as far back as it would go, 1987-2017, to construct an efficient frontier using US stock market, US bond market, and Ex-US stock market. None of the portfolios on the efficient frontier contained even a smidgen of Ex-US stock exposure.

https://www.portfoliovisualizer.com/eff ... =TotalBond

Am I missing something here ?
If you are missing anything, it's probably that the correlation between US and non-US stocks has not been steadily marching upward.

Correlations have indeed been higher over the past 10 years than they were, say, during the 1970s but they've actually been DECLINING since 2011 or so.

Image

For instance, the correlation for the past two years (Sept 2016 to Aug 2018) is just 0.81. Over that period of time, the combination of VTI (Vanguard Total Stock Market ETF) and VXUS (Vanguard Total International Stock ETF) with the lowest variance was 64% VTI and 36% VXUS. https://www.portfoliovisualizer.com/opt ... mbol2=VXUS
"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 asif408 » Tue Sep 04, 2018 8:35 am

vineviz wrote:
Tue Sep 04, 2018 8:13 am
If you are missing anything, it's probably that the correlation between US and non-US stocks has not been steadily marching upward.

Correlations have indeed been higher over the past 10 years than they were, say, during the 1970s but they've actually been DECLINING since 2011 or so.

Image

For instance, the correlation for the past two years (Sept 2016 to Aug 2018) is just 0.81. Over that period of time, the combination of VTI (Vanguard Total Stock Market ETF) and VXUS (Vanguard Total International Stock ETF) with the lowest variance was 64% VTI and 36% VXUS. https://www.portfoliovisualizer.com/opt ... mbol2=VXUS
Just to build on your post, in December of 2017 correlations between US, Total Int'l, and emerging markets stocks hit their lowest points since the early to mid 2000s: https://www.portfoliovisualizer.com/ass ... ingDays=60

But I guess if you repeat a lie often enough it becomes truth.

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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 Sep 04, 2018 9:32 am

zonto wrote:
Tue Sep 04, 2018 6:57 am
Kevin8696 wrote:
Mon Sep 03, 2018 8:41 pm
gvsucavie03..... So, I guess you are still not buying that the correlation of returns between US and Ex-US changed dramatically from just under 0.50 in the early years of those Nationwide and Wiki charts, to now being 0.90 for the period 1998-2017 ? Or do you not accept the concept that correlation of returns is a primary driver in the construction of an efficient frontier ?

Am I missing something here ?
Yes. If correlation were the only metric that mattered, factor investing would not matter. Yet there historically exists a size and value premium.

You’re missing one very important reason for holding international equities. See: https://novelinvestor.com/benefit-inter ... ification/
Then there’s the big knock against international diversification – that U.S. stocks are too correlated with international stocks when diversification is needed most. I have no argument with that . . . .

It’s fairly obvious that U.S. and international stocks are very correlated. They move in the same direction most of the time – 39 of the last 45 years [as of article date, spring 2015].

If volatility is your biggest concern, a global diversification won’t protect you from short term market falls. We saw this in 2000 to 2002 and again in 2008. Owning both US and international stocks offered little protection from either crash. Because of this, many investors questioned the reasoning behind diversifying beyond their borders.

What gets overlooked is, a global allocation is not meant to protect you from short term volatility or market crashes. That is what bonds are for. The point of international diversification is to avoid long term poor performance from a single market.
You’re also discounting recency bias: http://awealthofcommonsense.com/2018/07 ... -globally/
The U.S. has outperformed over this entire period [from 1970 through 2017] but it’s interesting to note that all of this outperformance has occurred since 2010. From 1970-2009, the annual returns were 10.2% annually for the EAFE and 9.9% per year for the U.S.
Zonto... I read your attached articles, and I guess I still don't get it. I'm looking to build a 60/40 portfolio using the 3 Fund approach. So, I used Portfolio Visualizer to create an efficient frontier using those three asset classes, US stocks, Ex-US stocks, and US bonds. I built it to begin as far back as the PV data would support (1987), and to go through the most recent full year (2017).

https://www.portfoliovisualizer.com/eff ... =TotalBond

Data for the period 1987-2017 was as follows:

US stocks: CAGR 10.28%, Std Deviation 14.97%, Sharpe ratio 0.561

Ex-US stocks: CAGR 5.91%, Std Deviation 17.69%, Sharpe ratio 0.251, correlation to US stocks 0.72

US bonds: CAGR 5.97%, Std Deviation 3.83%, Sharpe ratio 0.758, correlation to US stocks 0.07

Results: None of the portfolios on the efficient frontier contained any allocation to Ex-US stocks. My conclusion is that since the Ex-US stocks had lower returns, a higher level of volatility, and were strongly correlated to US stocks, the addition of any Ex-US stock exposure to the mix did not serve to improve the risk adjusted returns on the curve. Are you seeing this differently ?

Regarding your assertion of recency bias, it would seem to me that the 31-yr period from 1987-2017 would be adequate for this analysis.
Last edited by Kevin8696 on Thu Sep 13, 2018 1:56 pm, edited 2 times in total.

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

Post by JBTX » Tue Sep 04, 2018 9:42 am

vineviz wrote:
Tue Sep 04, 2018 8:13 am
Kevin8696 wrote:
Mon Sep 03, 2018 8:41 pm
gvsucavie03..... So, I guess you are still not buying that the correlation of returns between US and Ex-US changed dramatically from just under 0.50 in the early years of those Nationwide and Wiki charts, to now being 0.90 for the period 1998-2017 ? Or do you not accept the concept that correlation of returns is a primary driver in the construction of an efficient frontier ? I used the data available on Portfolio Visualizer for as far back as it would go, 1987-2017, to construct an efficient frontier using US stock market, US bond market, and Ex-US stock market. None of the portfolios on the efficient frontier contained even a smidgen of Ex-US stock exposure.

https://www.portfoliovisualizer.com/eff ... =TotalBond

Am I missing something here ?
If you are missing anything, it's probably that the correlation between US and non-US stocks has not been steadily marching upward.

Correlations have indeed been higher over the past 10 years than they were, say, during the 1970s but they've actually been DECLINING since 2011 or so.

Image

For instance, the correlation for the past two years (Sept 2016 to Aug 2018) is just 0.81. Over that period of time, the combination of VTI (Vanguard Total Stock Market ETF) and VXUS (Vanguard Total International Stock ETF) with the lowest variance was 64% VTI and 36% VXUS. https://www.portfoliovisualizer.com/opt ... mbol2=VXUS
I wonder how much of that historical lack of correlation 85-95 was due to Japan?

Sure, things can march along with high levels of correlation, but one big event like Japan could blow up the correlation for a period.

To the extent the US has been a primary driver of the world economy, rising levels of correlation kind of make sense. It could be the case that 10-20 years down the road that the US role is somewhat diminished, and the correlation deceases.

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

Post by zonto » Tue Sep 04, 2018 2:58 pm

Kevin8696 wrote:
Tue Sep 04, 2018 9:32 am
Zonto... I read your attached articles, and I guess I still don't get it. I'm looking to build a 60/40 portfolio using the 3 Fund approach. So, I used Portfolio Visualizer to create an efficient frontier using those three asset classes, US stocks, Ex-US stocks, and US bonds. I built it to begin as far back as the PV data would support (1987), and to go through the most recent full year (2017).

https://www.portfoliovisualizer.com/eff ... =TotalBond

Data for the period 1987-2017 was as follows:

US stocks: CAGR 10.28%, Std Deviation 14.97%, Sharpe ratio 0.561

Ex-US stocks: CAGR 5.91%, Std Deviation 17.69%, Sharpe ratio 0.251, correlation to US stocks 0.72

US bonds: CAGR 5.97%, Std Deviation 3.83%, Sharpe ratio 0.758, correlation to US stocks 0.07

Results: None of the portfolios on the efficient frontier contained any allocation to Ex-US stocks. My conclusion is that since the Ex-US stocks had lower returns, a higher level of volatility, and were strongly correlated to US stocks, the addition of any Ex-US stock exposure to the mix did not serve to improve the risk adjusted returns on the curve. Are you seeing this differently ?

Regarding your assertion of recency bias, it would seem to me that the 31-yr period from 1987-2017 would be adequate for this analysis.
A couple things:

First, you're comparing different periods than the data set we've discussing that starts in 1970. PV does not include the full set of EAFE data analyzed elsewhere, so of course the efficient frontier plot would look different. U.S. stocks did not do as well from 1970-1990 and your results start with the two-year period leading up to Japan's massive market crash, so your results are "skewed." I'd invite you to look at siamond's longer-term results posted elsewhere in this thread rather than relying on PV for this. I also question the rationale for using such an intricate PV analysis to construct a portfolio anyway.

Edit to add this quote and source:
Anytime you bring up the benefits of being a long-term stock investor, someone will play devil’s advocate by pointing out that Japan has been a terrible long-term investment for some time now. But it really depends on your definition of long-term because the returns are so close over the entire data-set.

Sometimes it comes down to luck and what period you happen to be saving and investing your money in. You have no control over this whatsoever. Pacific shares were an amazing investment for two decades, but have been working off those excesses ever since.

It would be great if we were all guaranteed a smooth ride with no variation in performance, but markets don’t function that way. They’re extremely cyclical and can go from worst to first and back again over any month, quarter, year, decade, etc.

It’s intelligent to utilize diversification so you don’t get stuck with a portfolio that only earns the Pacific returns since 1990. You have to give up the chance for exclusively earning the returns from 1970-1989, but that’s the trade-off.

Diversification is about accepting good enough while missing out on great but avoiding terrible.
(source) The last sentence had such an impact on me, I recently added it to my signature.

Second, I disagree with you re: your recency bias because of the reasons cited above and in my original post (i.e., U.S. outperformance from 2010 onward).
“Diversification is about accepting good enough while missing out on great but avoiding terrible.” - Ben Carlson

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

Post by cheezit » Tue Sep 04, 2018 4:20 pm

oldzey wrote:
Mon Sep 03, 2018 5:08 pm
Kevin8696 wrote:
Mon Sep 03, 2018 4:16 pm
sambb wrote:
Tue Aug 14, 2018 4:24 am
this thread has reminded me to buy international this week
buy low sell high is nice
Could you do just as well by shorting the USD ?
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.” –- Warren Buffett
Ignoring Mr. Buffett's assertion about social security's continued viability in its present form (as that's a political discussion), we should note that the bolded statement is empirically false. We already have a generation with a lower standard of living than their parents; we may have more, depending on whether the 50+ year trend of stagnant real wages, and the other long-term trends of increased health care, housing and social security costs hold.

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

Post by TomCat96 » Tue Sep 04, 2018 4:44 pm

Ari wrote:
Mon Sep 03, 2018 1:37 am
TomCat96 wrote:
Sat Sep 01, 2018 2:30 pm
So perhaps the better argument is to say when WOULD I invest in international.
I would invest in international when those internal barriers are gone, when the international zone is a monolithic entity, and when International starts posting 10% a year CAGR nominal.
This is an incredibly odd way of looking at things. By this logic, it would be ok to invest in any single country, but not in multiple countries at the same time. And the same logic can be applied to individual companies, too, of course. There are a lot fewer barriers within the same company, compared to different companies, so why would you invest in "Market ex Apple", rather than just investing in Apple? Do you really think capital can flow as freely between companies as within the same company? You are basically saying "diversification is bad; it's better to invest in one thing than many different things".

Why would barriers between France and Australia affect the growth of France and Australia, but barriers between France and the US not affect the growth of the US?

And as another poster mentioned, "International" (also known as "the entire stock market minus one (albeit large) subsection") has been posting a CAGR of 10% since 1950. Not long enough a time frame for you? It's all cherry-picking dates.

You raise a good point. I think your inquiry against my logic is really, what does this trade barrier issue really mean?
I'm not saying diversification is bad. I'm not saying that it's better to invest in one thing than many other things.

I'm saying that the foundation of market efficiency depends on the free flow of capital. Capital that is impeded by legal barriers, trade barriers, is capital that is hampered from doing its job of efficiently allocating the best price to the company that can product the best products for the cheapest amount.

Let's suppose you are invested in two companies, A and B, by virtue of their inclusion in stock market indices.
Company A should be the winner, but Company B is protected lets say by large protectionist tariffs. Suppose also they have equal market cap, and both are traded on public markets.

If you really are balanced with the world market cap, you would hold equal dollar amounts of both companies A and B.
The problem is however that A and B aren't equal companies. A should be the winner. At the best least, you should hold more stock of company A than B. Yet you hold both equally, the latter being propped up. Company B, being protected has less incentive to outcompete company A.

Once the trade barrier is erected, capital is impeded from properly allocating company B the market cap it really deserves.

Now for the counter argument. But Tomcat96, the market will see the Company B is being protected and will properly allocate to company B, its proper share.

My counter to that is will it?

Remember adherents of investing internationally, on this website at least, invest by world cap. If a company is being propped up, as long as it is being traded on the public markets, it cannot possibly have a market cap of zero. Let's say company B really ought to be eliminated by Company A in an efficient market. It should go bankrupt. It's proper market cap should be zero. But is it?

Even if every trader sold their stock, as long as the company exists propped up by protectionist policies, and is traded on the public markets, it will be able to attract at least some measure of passive stock investment by virtue of having a market cap. It does not matter that it's market cap exists by virtue of its host sovereign government propping it up. Having a market cap = having passive investments relative to its position in the weighted market.

It's actually a theoretically wonderful way of exploiting passive investors. The higher a market cap that can be engineered by the sovereign nation, the greater the amount of passive investment it will attract. As I said, the state itself is preventing the company from having zero market cap. That means you passive international investors don't have your usual degree of protection by active traders to price bad companies out--if your policy is global market cap.

So let's get back to your contention. Does my argument mean I hate diversification? No.

What it means is that restrictions to the flow of capital, restricts the ability to the market to properly price, and price out companies. If there are trade barriers between countries, the ability of the market to correct is impeded. I'm all for diversification. But a good diversification strategy to me doesn't mean buying up everything with a market cap (following passive market weights)

At the very least, I think its important to use a judgment call on what markets are sufficiently free enough that it can do its work. *

The United States has a large global weight, approximately half. Within that market, the internal trade barriers are small when compared to the internal trade barriers of the similarly sized international market. The allocative efficiency within the US is such that outdated companies within the market are eliminated. I think Blockbuster, Kodak, GE, and Sears are all examples of declines where the internal allocative efficiency of the US market is properly pricing these companies.

On the other hand, you have to think that if you were a smaller nation that had GE for instance as one of its few globally recognized corporations, you would do what you could to keep it afloat if it ran into trouble, instead of letting the market price it into bankruptcy. At the very least, the incentive is there.



*We make those same judgment calls when regulating the free market here. For example:
-over concentration in markets leads to monopolistic practices, hence our antitrust laws.
-we pass laws encouraging the free flow of information about publicly traded companies, heavily punishing companies that fake their financial
statements.
-we pass laws against insider trading, because we make a judgment call that this behavior is not good for the free market.

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

Post by Gort » Tue Sep 04, 2018 5:23 pm

959 posts.
Anxiously waiting for the Executive Summary.

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

Post by fortyofforty » Tue Sep 04, 2018 5:47 pm

Gort wrote:
Tue Sep 04, 2018 5:23 pm
959 posts.
Anxiously waiting for the Executive Summary.
Nobody knows nothin'.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by patrick » Tue Sep 04, 2018 6:30 pm

TomCat96 wrote:
Tue Sep 04, 2018 4:44 pm
You raise a good point. I think your inquiry against my logic is really, what does this trade barrier issue really mean?
I'm not saying diversification is bad. I'm not saying that it's better to invest in one thing than many other things.

I'm saying that the foundation of market efficiency depends on the free flow of capital. Capital that is impeded by legal barriers, trade barriers, is capital that is hampered from doing its job of efficiently allocating the best price to the company that can product the best products for the cheapest amount.
There is a difference between barriers to trade in goods and barriers to capital movement. The index providers already account for capital movement barriers in their country classification. A country that significantly impedes the flow of capital can't be included in the developed markets index, and if the restrictions are severe it won't get into the emerging markets index either.
Let's suppose you are invested in two companies, A and B, by virtue of their inclusion in stock market indices.
Company A should be the winner, but Company B is protected lets say by large protectionist tariffs. Suppose also they have equal market cap, and both are traded on public markets.

If you really are balanced with the world market cap, you would hold equal dollar amounts of both companies A and B.
The problem is however that A and B aren't equal companies. A should be the winner. At the best least, you should hold more stock of company A than B. Yet you hold both equally, the latter being propped up. Company B, being protected has less incentive to outcompete company A.

Once the trade barrier is erected, capital is impeded from properly allocating company B the market cap it really deserves.

Now for the counter argument. But Tomcat96, the market will see the Company B is being protected and will properly allocate to company B, its proper share.

My counter to that is will it?
What do you think the price should be? The fair market price is not the price that the company would have in a hypothetical world with no government support, but rather depends on how well the company is expected to do with government support, adjusted for the risk of that support being removed. The market is functioning well when it gives a high price to a company that prospers as a result of government support (as long as that support is likely to continue). As an example:

Suppose company B pays $10 per share in dividends every year. Without government support, there is a 99% chance it will go bankrupt right away, and a 1% chance it will drag on for one more year and pay one more $10 dividend before failing. The expected total dividend is thus 10 cents. If the price of B is determined without accounting for government support, this should be its price, or perhaps more like 9 cents to account for risk and delay.

But suppose there is a 99% chance the government will keep propping up company B for at least a decade, and a 99% chance it will prosper and keep paying $10 dividends for at least a decade if the support continues. Thus each share of B gives you a near certainty of collecting $100 in dividends over the next decade.

Would 9 or 10 cents a share be a fair price for that? If the market really did price B that way, then anyone who did consider the government support would load up on B, earning abnormal returns that beat the market dramatically. Do you really think it would be better for the market to price B so as to enable that?
Remember adherents of investing internationally, on this website at least, invest by world cap. If a company is being propped up, as long as it is being traded on the public markets, it cannot possibly have a market cap of zero. Let's say company B really ought to be eliminated by Company A in an efficient market. It should go bankrupt. It's proper market cap should be zero. But is it?

Even if every trader sold their stock, as long as the company exists propped up by protectionist policies, and is traded on the public markets, it will be able to attract at least some measure of passive stock investment by virtue of having a market cap. It does not matter that it's market cap exists by virtue of its host sovereign government propping it up. Having a market cap = having passive investments relative to its position in the weighted market.

It's actually a theoretically wonderful way of exploiting passive investors. The higher a market cap that can be engineered by the sovereign nation, the greater the amount of passive investment it will attract. As I said, the state itself is preventing the company from having zero market cap. That means you passive international investors don't have your usual degree of protection by active traders to price bad companies out--if your policy is global market cap.
A cap weighted index is designed to have every stock in the same weight as active investors in the aggregate. If active investors have only 0.0001% in B, passive investors will also have only 0.0001% in B. This works the same for international indexes as for domestic indexes.

Current indexes are float adjusted -- strategic government shareholdings are excluded. If company A has $100 billion in publicly held shares, while company B has $75 billion in government shares and only $25 billion in publicly held shares, then A will have 4 times the weight of B in the index.
So let's get back to your contention. Does my argument mean I hate diversification? No.

What it means is that restrictions to the flow of capital, restricts the ability to the market to properly price, and price out companies. If there are trade barriers between countries, the ability of the market to correct is impeded. I'm all for diversification. But a good diversification strategy to me doesn't mean buying up everything with a market cap (following passive market weights)

At the very least, I think its important to use a judgment call on what markets are sufficiently free enough that it can do its work. *

The United States has a large global weight, approximately half. Within that market, the internal trade barriers are small when compared to the internal trade barriers of the similarly sized international market. The allocative efficiency within the US is such that outdated companies within the market are eliminated. I think Blockbuster, Kodak, GE, and Sears are all examples of declines where the internal allocative efficiency of the US market is properly pricing these companies.

On the other hand, you have to think that if you were a smaller nation that had GE for instance as one of its few globally recognized corporations, you would do what you could to keep it afloat if it ran into trouble, instead of letting the market price it into bankruptcy. At the very least, the incentive is there.

*We make those same judgment calls when regulating the free market here. For example:
-over concentration in markets leads to monopolistic practices, hence our antitrust laws.
-we pass laws encouraging the free flow of information about publicly traded companies, heavily punishing companies that fake their financial
statements.
-we pass laws against insider trading, because we make a judgment call that this behavior is not good for the free market.
What matters to investors is not how a company would do without regulations, but how well the company will actually do with actual regulations. Proper market pricing only requires the market to be able to price them in. That applies both in the US and aboard. The international indexes already exclude countries based on capital movement restrictions (and various other market quality issues).

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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 Sep 04, 2018 9:11 pm

zonto wrote:
Tue Sep 04, 2018 2:58 pm
Kevin8696 wrote:
Tue Sep 04, 2018 9:32 am
Zonto... I read your attached articles, and I guess I still don't get it. I'm looking to build a 60/40 portfolio using the 3 Fund approach. So, I used Portfolio Visualizer to create an efficient frontier using those three asset classes, US stocks, Ex-US stocks, and US bonds. I built it to begin as far back as the PV data would support (1987), and to go through the most recent full year (2017).

https://www.portfoliovisualizer.com/eff ... =TotalBond

Data for the period 1987-2017 was as follows:

US stocks: CAGR 10.28%, Std Deviation 14.97%, Sharpe ratio 0.561

Ex-US stocks: CAGR 5.91%, Std Deviation 17.69%, Sharpe ratio 0.251, correlation to US stocks 0.72

US bonds: CAGR 5.97%, Std Deviation 3.83%, Sharpe ratio 0.758, correlation to US stocks 0.07

Results: None of the portfolios on the efficient frontier contained any allocation to Ex-US stocks. My conclusion is that since the Ex-US stocks had lower returns, a higher level of volatility, and were strongly correlated to US stocks, the addition of any Ex-US stock exposure to the mix did not serve to improve the risk adjusted returns on the curve. Are you seeing this differently ?

Regarding your assertion of recency bias, it would seem to me that the 31-yr period from 1987-2017 would be adequate for this analysis.
A couple things:

First, you're comparing different periods than the data set we've discussing that starts in 1970. PV does not include the full set of EAFE data analyzed elsewhere, so of course the efficient frontier plot would look different. U.S. stocks did not do as well from 1970-1990 and your results start with the two-year period leading up to Japan's massive market crash, so your results are "skewed." I'd invite you to look at siamond's longer-term results posted elsewhere in this thread rather than relying on PV for this. I also question the rationale for using such an intricate PV analysis to construct a portfolio anyway.

Edit to add this quote and source:
Anytime you bring up the benefits of being a long-term stock investor, someone will play devil’s advocate by pointing out that Japan has been a terrible long-term investment for some time now. But it really depends on your definition of long-term because the returns are so close over the entire data-set.

Sometimes it comes down to luck and what period you happen to be saving and investing your money in. You have no control over this whatsoever. Pacific shares were an amazing investment for two decades, but have been working off those excesses ever since.

It would be great if we were all guaranteed a smooth ride with no variation in performance, but markets don’t function that way. They’re extremely cyclical and can go from worst to first and back again over any month, quarter, year, decade, etc.

It’s intelligent to utilize diversification so you don’t get stuck with a portfolio that only earns the Pacific returns since 1990. You have to give up the chance for exclusively earning the returns from 1970-1989, but that’s the trade-off.

Diversification is about accepting good enough while missing out on great but avoiding terrible.
(source) The last sentence had such an impact on me, I recently added it to my signature.

Second, I disagree with you re: your recency bias because of the reasons cited above and in my original post (i.e., U.S. outperformance from 2010 onward).
Zonto... I'm still very interested in creating an efficient frontier analysis regarding the mix of assets for a 3 Fund Portfolio with a 60/40 stock bond split. I do understand the limitations on the data in PV. Any ideas on where to find a complete set of performance data (back to 1970 I guess) for US stocks, Ex-US stocks, and US Bonds and a tool other than PV to use in building an efficient frontier ? Thanks.

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

Post by oldzey » Tue Sep 04, 2018 10:07 pm

cheezit wrote:
Tue Sep 04, 2018 4:20 pm
oldzey wrote:
Mon Sep 03, 2018 5:08 pm
Kevin8696 wrote:
Mon Sep 03, 2018 4:16 pm
sambb wrote:
Tue Aug 14, 2018 4:24 am
this thread has reminded me to buy international this week
buy low sell high is nice
Could you do just as well by shorting the USD ?
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.” –- Warren Buffett
Ignoring Mr. Buffett's assertion about social security's continued viability in its present form (as that's a political discussion), we should note that the bolded statement is empirically false. We already have a generation with a lower standard of living than their parents; we may have more, depending on whether the 50+ year trend of stagnant real wages, and the other long-term trends of increased health care, housing and social security costs hold.
“Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers. You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.” – Warren Buffett
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Noobvestor » Tue Sep 04, 2018 10:22 pm

Kevin8696 wrote:
Tue Sep 04, 2018 9:11 pm

Zonto... I'm still very interested in creating an efficient frontier analysis regarding the mix of assets for a 3 Fund Portfolio with a 60/40 stock bond split. I do understand the limitations on the data in PV. Any ideas on where to find a complete set of performance data (back to 1970 I guess) for US stocks, Ex-US stocks, and US Bonds and a tool other than PV to use in building an efficient frontier ? Thanks.
A backward-looking efficient frontier will only take you so far. Setting that aside for the moment, though, take a look at US versus EAFE efficient frontier by decade since 1970. Notice a pattern? In every decade, different mixes have been more or less optimal:

Image

Note, too, that by breaking out of this 'single period' testing you've been doing, the results change a lot. Focusing too much on one period is problematic for a lot of obvious reasons. Image/data source: https://www.bogleheads.org/wiki/Domestic/International
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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

Post by Ari » Wed Sep 05, 2018 1:04 am

TomCat96 wrote:
Tue Sep 04, 2018 4:44 pm
Remember adherents of investing internationally, on this website at least, invest by world cap. If a company is being propped up, as long as it is being traded on the public markets, it cannot possibly have a market cap of zero. Let's say company B really ought to be eliminated by Company A in an efficient market. It should go bankrupt. It's proper market cap should be zero. But is it?

Even if every trader sold their stock, as long as the company exists propped up by protectionist policies, and is traded on the public markets, it will be able to attract at least some measure of passive stock investment by virtue of having a market cap. It does not matter that it's market cap exists by virtue of its host sovereign government propping it up. Having a market cap = having passive investments relative to its position in the weighted market.
As has been pointed out, if every trader sold their stock, the free-float market cap would be zero, and the company would be excluded from the index, even if it still exists due to government ownership.

Oh, and how come company A is not hurt by company B's protectionism? The unfair competition will likely cause company A's sales to be lower than they would otherwise be. Bottom line, if company B is making money, the market will price those earnings, considering government support, corruption, trade barriers and whatnot. If it's propped up by government support and not handing out money to its shareholders, then the price of its free-float shares will fall.

However, if there are lots of non-governmental investors that are unable to invest in equities outside of their national borders, it's conceivable that there will be an artificially high demand for the free-float shares. In order for that to be the case, you would have to have a significant overrepresentation of these investors compared to international investors so that the international investors cannot move the needle by choosing to place their money elsewhere. I can see this being the case for some frontier markets and maybe some emerging? I haven't seen any data on this. But for any important international market, this is clearly not the case, and as another poster pointed out, I believe the indexes take this into account (capital restrictions) when constructing the index.
All in, all the time.

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

Post by hdas » Wed Sep 05, 2018 4:58 am

jeffyscott wrote:
Tue Aug 14, 2018 8:56 am
I think rather than arbitrarily looking at the most recent 10 years, the sensible way to compare is to look from a market high to another high or from a low to a low. From the high in 2000 to the high in 2007 international won, same for the 2002 low to the 2009 low. All the outperformance of US is only due to the last 5 years or so.

Image
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
When comparing US vs international fund performance, ppl usually point to the difference in this chart. Clearly, since 1996 [1] it's been better to be 100% US. However, another way to look at the information in the chart is to describe both distributions, here we can use daily sampling and get the max number of observations for comparisons.

Image

Just looking at this numbers, we can see that they are not that different. If we just use a standard test [2], we can see that there's a difference, but it's not significant, statistically speaking.

[1] Oldest available data for both fund types in Vanguard. If somebody has other 2 funds with more data where we can do the same comparisons, kindly share.
[2] two-sample t-test for equal means https://www.itl.nist.gov/div898/handboo ... eda353.htm

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

Post by tadamsmar » Wed Sep 05, 2018 12:29 pm

Gort wrote:
Tue Sep 04, 2018 5:23 pm
959 posts.
Anxiously waiting for the Executive Summary.
Buy a target date fund.

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

Post by Kevin8696 » Wed Sep 05, 2018 2:02 pm

Impact of Currency Exchange on International stocks.

After reading several posts that pointed to the years 2010 and beyond as the primary reason that US stocks outperformed Ex-US stocks over the past 20-year period, I took a look at the results of two 10-yr periods (1998 thru 2007, and 2008 thru 2017) to get a better understanding.

I back-tested in PV for these two periods with the following results:

1998 thru 2007
US stocks - CAGR 6.25%, Std Deviation 15.19%
Ex-US stocks - CAGR 9.44%, Std Deviation 15.23%, correlation to US stocks 0.85

2008 thru 2017
US stocks - CAGR 8.60%, Std Deviation 15.57%
Ex-US stocks - CAGR 1.87%, Std Deviation 19.21%, correlation to US stocks 0.90

https://www.portfoliovisualizer.com/bac ... arket2=100

https://www.portfoliovisualizer.com/bac ... arket2=100

To better understand the impact of changes in the currency exchange rate, I looked at the changes to the US dollar index during these time periods. Link to Dollar Index Chart below.

During the period 1998 thru 2007, the US dollar index dropped from 100.79 to 75.23, for an annual decline of -2.88% during this 10-yr period. Applying the -2.88% change to the returns of the Ex-US stocks results in an adjusted return of 6.56%, a figure not far off from the US stocks return of 6.25% for the period.

https://www.tradingview.com/symbols/TVC-DXY/

This leads me to believe that the Ex-US stocks did not actually outperform the US stocks during that period by the margin implied, but instead they benefited from a change in the exchange rate. Am I seeing this correctly ?
Last edited by Kevin8696 on Thu Sep 06, 2018 12:53 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 oldzey » Wed Sep 05, 2018 2:43 pm

Gort wrote:
Tue Sep 04, 2018 5:23 pm
959 posts.
Anxiously waiting for the Executive Summary.
"...a simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated, is an ideal portfolio for most investors." -- The Three-Fund Portfolio
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by columbia » Wed Sep 05, 2018 7:09 pm

Increasingly on sale (especially EM); sometimes sale items are defects, mind you. ;)

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

Post by siamond » Wed Sep 05, 2018 8:39 pm

columbia wrote:
Wed Sep 05, 2018 7:09 pm
Increasingly on sale (especially EM); sometimes sale items are defects, mind you. ;)
And sometimes they are bargains! :wink:

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

Post by finagle » Wed Sep 05, 2018 8:41 pm

columbia wrote:
Wed Sep 05, 2018 7:09 pm
Increasingly on sale (especially EM); sometimes sale items are defects, mind you. ;)
Eh. When ftipx (Fido's Total Intl Stock) drops to $11.50 ($11.87 today), I will plunder in $2k. I have $15k total in Roth IRA waiting for ftipx bigger discounts.

My stock AA is 30-40% Intl only, but I gotta buy cheap Intl now. Every month I'm DCA-ing 50-50% Intl-US stock now. I can wait 30-35 years. Bottom line is, no one here knows and were weaselwording smoke out our asses.

You want a defect? Check out non-index frstx I accidentally found while looking for Fido's REIT index.

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

Post by FlyingMoose » Wed Sep 05, 2018 9:41 pm

It always made me nervous to have all my money in the US markets, especially during times of high inflation, falling dollar, and general worry about an overheating economy. I think people forget what it was like in the early 00’s when we had those conditions. But now international is so far behind, it will need a lot of outperformance to make up for it.

If international was cheap before, it must be really really cheap now.

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

Post by visualguy » Wed Sep 05, 2018 10:55 pm

FlyingMoose wrote:
Wed Sep 05, 2018 9:41 pm
If international was cheap before, it must be really really cheap now.
Unfortunately, it's not... Abysmal growth in some areas like Europe, inability to capture growth using the stock market in high-growth areas (China, India), etc. Same old.

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

Post by pokebowl » Wed Sep 05, 2018 11:14 pm

FlyingMoose wrote:
Wed Sep 05, 2018 9:41 pm

If international was cheap before, it must be really really cheap now.
Its as cheap as August 2017. Good time to buy in from my viewpoint.
There is nothing more expensive than something offered for free.

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

Post by dcabler » Thu Sep 06, 2018 2:46 am

Gort wrote:
Tue Sep 04, 2018 5:23 pm
959 posts.
Anxiously waiting for the Executive Summary.
Why? This topic comes up all the time. Maybe we need to start another small cap value tilt thread or a factors thread so that can be thrashed some more with no consensus but plenty of opinion. :D

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

Post by hdas » Thu Sep 06, 2018 4:49 am

Some interesting facts from Credit Suisse:

Image

Cheers :greedy

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

Post by ge1 » Thu Sep 06, 2018 7:22 am

I have to admit I didn't read the whole thread (which would take about a week!), but I wanted to add another perspective I find interesting. Over 10 years ago when I started paying attention to vanguard funds and ETFs I noted that the dividend yield of the international ETF was a bit higher (probably 3% international and 2% for the US). Now, after 10 years of monumental underperformance of international shares, one would think that the dividend yield differential has grown much wider given that the price of international shares didn't do anything - but the yields are pretty much exactly where they were 10 years ago. In other words, US companies were able to grow profits much more rapidly and raise dividends accordingly where non-US companies saw little growth. So from a valuation perspective, we are pretty much at the some point on relative terms as we were 10 years ago, even though one asset had a tremendous run whereas the other did nothing.

I'm still investing a good portion of my shares in International, but there are clearly different fundamentals at work here.

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

Post by bgf » Thu Sep 06, 2018 8:00 am

visualguy wrote:
Wed Sep 05, 2018 10:55 pm
FlyingMoose wrote:
Wed Sep 05, 2018 9:41 pm
If international was cheap before, it must be really really cheap now.
Unfortunately, it's not... Abysmal growth in some areas like Europe, inability to capture growth using the stock market in high-growth areas (China, India), etc. Same old.
Index Current P/E Forward P/E Historical P/E (10 Year)
S&P 500 Index 20.71 17.69 17.63
MSCI EAFE Net Index 15.47 14.20 20.31
MSCI EM Net Index 12.91 12.06 14.76

source: https://seekingalpha.com/article/420444 ... tion-point

international markets are substantially cheaper than SP500, both in direct relation as well as in relation to historical PE.

all arguments on this thread about the systematic disadvantages of international markets should be baked into their historical PE. in other words, those arguments fall away when you make value comparisons between current PE and historical PE. even then, international markets are cheap.

right now, $100,000 of VOO is providing your portfolio earnings of less than $5000 per year, or about double what you receive in dividends. we can guess what rate these earnings will grow over the next 5, 10, 25 years, but nobody knows.

the same amount of earnings is generated by only $65,000 of VWO. for whatever reason, the market is valuing that $5000 in emerging market earnings at far less than the same $5000 in SP500 earnings.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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

Post by HEDGEFUNDIE » Thu Sep 06, 2018 8:25 am

bgf wrote:
Thu Sep 06, 2018 8:00 am
visualguy wrote:
Wed Sep 05, 2018 10:55 pm
FlyingMoose wrote:
Wed Sep 05, 2018 9:41 pm
If international was cheap before, it must be really really cheap now.
Unfortunately, it's not... Abysmal growth in some areas like Europe, inability to capture growth using the stock market in high-growth areas (China, India), etc. Same old.
Index Current P/E Forward P/E Historical P/E (10 Year)
S&P 500 Index 20.71 17.69 17.63
MSCI EAFE Net Index 15.47 14.20 20.31
MSCI EM Net Index 12.91 12.06 14.76

source: https://seekingalpha.com/article/420444 ... tion-point

international markets are substantially cheaper than SP500, both in direct relation as well as in relation to historical PE.

all arguments on this thread about the systematic disadvantages of international markets should be baked into their historical PE. in other words, those arguments fall away when you make value comparisons between current PE and historical PE. even then, international markets are cheap.

right now, $100,000 of VOO is providing your portfolio earnings of less than $5000 per year, or about double what you receive in dividends. we can guess what rate these earnings will grow over the next 5, 10, 25 years, but nobody knows.

the same amount of earnings is generated by only $65,000 of VWO. for whatever reason, the market is valuing that $5000 in emerging market earnings at far less than the same $5000 in SP500 earnings.
+1.

If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.

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

Post by hdas » Thu Sep 06, 2018 9:33 am

HEDGEFUNDIE wrote:
Thu Sep 06, 2018 8:25 am
If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.
They call it Home Country Bias for a reason. However, even Vanguard acknowledges that:
our framework suggests that U.S. investors may have some quantitative justification for a home bias

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

Post by bgf » Thu Sep 06, 2018 10:30 am

"There may be at least one sign that self-directed investors are more skittish, at least on the margins. While the iShares main EM stock ETF has seen continued strong flows, the Vanguard FTSE Emerging Markets ETF (VWO) has experienced outflows of near-$600 million in this quarter. "Many advisors use iShares core ETFs as building blocks, whereas Vanguard remains very popular among 'do-it-yourself' investors," Mishra said."

https://www.cnbc.com/2018/09/05/investo ... scary.html

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

Post by hdas » Thu Sep 06, 2018 10:36 am

bgf wrote:
Thu Sep 06, 2018 10:30 am
"There may be at least one sign that self-directed investors are more skittish, at least on the margins. While the iShares main EM stock ETF has seen continued strong flows, the Vanguard FTSE Emerging Markets ETF (VWO) has experienced outflows of near-$600 million in this quarter. "Many advisors use iShares core ETFs as building blocks, whereas Vanguard remains very popular among 'do-it-yourself' investors," Mishra said."

https://www.cnbc.com/2018/09/05/investo ... scary.html

interesting comparison between ETF investors.
It could also be the diff index they track and the relative (small) out-performance of late. H

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

Post by jeffyscott » Thu Sep 06, 2018 11:14 am

HEDGEFUNDIE wrote:
Thu Sep 06, 2018 8:25 am
right now, $100,000 of VOO is providing your portfolio earnings of less than $5000 per year, or about double what you receive in dividends. we can guess what rate these earnings will grow over the next 5, 10, 25 years, but nobody knows.

the same amount of earnings is generated by only $65,000 of VWO. for whatever reason, the market is valuing that $5000 in emerging market earnings at far less than the same $5000 in SP500 earnings.
+1.

If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.
[/quote]

Based on that article using trailing figures, for $5000 in earnings you must own $103,550 S&P 500, $77,350 foreign developed, or $64,550 EM.

Using forward P/E it's a bit closer: $88,450 US, $71,000 foreign developed, and $60,300 EM. It would be interesting to know what the difference in growth would need to be in order to justify this difference in valuations.
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 Kevin8696 » Thu Sep 06, 2018 3:21 pm

hdas wrote:
Thu Sep 06, 2018 9:33 am
HEDGEFUNDIE wrote:
Thu Sep 06, 2018 8:25 am
If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.
They call it Home Country Bias for a reason. However, even Vanguard acknowledges that:
our framework suggests that U.S. investors may have some quantitative justification for a home bias
Would you be able to post a link to the piece that contains that Vanguard quote ?

Thanks !!

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

Post by Beensabu » Thu Sep 06, 2018 9:12 pm

Kevin8696 wrote:
Thu Sep 06, 2018 3:21 pm
hdas wrote:
Thu Sep 06, 2018 9:33 am
HEDGEFUNDIE wrote:
Thu Sep 06, 2018 8:25 am
If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.
They call it Home Country Bias for a reason. However, even Vanguard acknowledges that:
our framework suggests that U.S. investors may have some quantitative justification for a home bias
Would you be able to post a link to the piece that contains that Vanguard quote ?

Thanks !!
It's this one from 2012: The role of home bias in global asset allocation decisions.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."

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

Post by Noobvestor » Fri Sep 07, 2018 11:15 am

Beensabu wrote:
Thu Sep 06, 2018 9:12 pm
Kevin8696 wrote:
Thu Sep 06, 2018 3:21 pm
hdas wrote:
Thu Sep 06, 2018 9:33 am
HEDGEFUNDIE wrote:
Thu Sep 06, 2018 8:25 am
If you tilt value in your portfolio I don’t see how you can ignore international at these valuations.
They call it Home Country Bias for a reason. However, even Vanguard acknowledges that:
our framework suggests that U.S. investors may have some quantitative justification for a home bias
Would you be able to post a link to the piece that contains that Vanguard quote ?

Thanks !!
It's this one from 2012: The role of home bias in global asset allocation decisions.
From that link, adding bold ... "we conclude that, in general, U.S. investors may have some justification for marginal home bias" At the same time, though: "Financial theory suggests that investors should hold greater allocations to foreign securities than they do."

For anyone saying adding international adds risk: "For many investors, foreign securities play an important diversification role. Vanguard research ... showed that by adding foreign equities to portfolios comprising U.S. equities and fixed income, average volatility could be reduced."

For anyone saying that US outperformance will persist: "Most important, risk-and-return attributes can change significantly over time, and historical results may not hold going forward for a specific country."

In short: there may be reasons for US investors to tilt US, not avoid international entirely. And most investors should hold more international.

Anyway, the link is definitely worth a read.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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

Post by Culbretd » Fri Sep 07, 2018 2:40 pm

Grt2bOutdoors wrote:
Tue Aug 14, 2018 9:32 am
stemikger wrote:
Tue Aug 14, 2018 8:41 am
I never invested in international, but not because it is not doing well it is because years ago I read Common Sense on Mutual Funds and John Bogle's chapter on that subject resonated with me so much that I felt it wasn't necessary.

Having said that, just when you stop investing in it, it will do better than the U.S. I will not invest in international even if that is the case because I just don't feel it is worth it and also believe the U.S. has a fair amount of built in international without the currency risk, the sovereign risk and the lack of regulation.

Don't chase the market returns, if you are a long term investor, and really thought about why you are doing things, it is easier to stay the course. On the other hand if you don't like international for other reasons, it may be time to do what I did and go all U.S. because that is what helps you stay the course.

For most long term investors there will be times when you will hate one or more of your assets because it is not doing well, but that is the point of a diversified portfolio and not a reason to change your strategy.

For the record, 3 very smart men don't think international is necessary for regular folks saving for the long term. John Bogle, Warren Buffett and Jim Collins.

Good Luck!
Look more closely, Warren owns foreign companies.
You are correct, Warren Buffett does indeed invest internationally. He must have a good reason for not just restricting himself to US investments. He owns a large stake in Teva Pharmaceuticals which is based in Israel. He owns other international stock too.

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

Post by bgf » Fri Sep 07, 2018 3:07 pm

Culbretd wrote:
Fri Sep 07, 2018 2:40 pm
Grt2bOutdoors wrote:
Tue Aug 14, 2018 9:32 am
stemikger wrote:
Tue Aug 14, 2018 8:41 am
I never invested in international, but not because it is not doing well it is because years ago I read Common Sense on Mutual Funds and John Bogle's chapter on that subject resonated with me so much that I felt it wasn't necessary.

Having said that, just when you stop investing in it, it will do better than the U.S. I will not invest in international even if that is the case because I just don't feel it is worth it and also believe the U.S. has a fair amount of built in international without the currency risk, the sovereign risk and the lack of regulation.

Don't chase the market returns, if you are a long term investor, and really thought about why you are doing things, it is easier to stay the course. On the other hand if you don't like international for other reasons, it may be time to do what I did and go all U.S. because that is what helps you stay the course.

For most long term investors there will be times when you will hate one or more of your assets because it is not doing well, but that is the point of a diversified portfolio and not a reason to change your strategy.

For the record, 3 very smart men don't think international is necessary for regular folks saving for the long term. John Bogle, Warren Buffett and Jim Collins.

Good Luck!
Look more closely, Warren owns foreign companies.
You are correct, Warren Buffett does indeed invest internationally. He must have a good reason for not just restricting himself to US investments. He owns a large stake in Teva Pharmaceuticals which is based in Israel. He owns other international stock too.
berkshire just made an investment in Paytm as well. drop in the bucket from berkshire's perspective but interesting nevertheless.

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vu8
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Is international investing necessary at all?

Post by vu8 » Sat Sep 08, 2018 8:42 am

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

Hi there, I am still struggling whether there is a point or necessity to invest in the international stock market or not. As Bogle says, most of the capitalization goes to UK, with a questionable parliament system, France, where people do not work very hard and Japan, a low growth, aging society that will once be hit with some earthquakes and Tsunamis. So, is investing internationally actually jeopardizing your long term return? Because for the investor protection wise, few countries are on par with the United States? Also, currency risk is massive! Just check Turkey, Venezuela and China out! The CNY used to be 6.2 couple of months ago and now it's 6.9 if you want to sell your Chinese investments, you pretty much lost the return generated in the past 2-3 years! Currency risk is not only there but also it's massively risky. So, is investing internationally a loser's game? Is an All US asset allocation sufficient for long term investing? Will the American economy do okay in the next 100 years?

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Carlos Danger
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Re: Is international investing necessary at all?

Post by Carlos Danger » Sat Sep 08, 2018 8:49 am

Likely not necessary, but why take on the risk?

What if the U.S. experiences some "lost decades" during your prime investing/saving years?

I understand where you're coming from. My natural inclination is to mostly avoid international. I loathe putting money into VXUS. It's boring, it has thus far underperformed the domestic market, and I personally believe that over the course of the next couple decades that the S&P 500 or the total U.S. market will outperform International stocks. But I want to be diversified and hedged against every possible risk, and the risk of U.S. underperformance is very real even if I think it unlikely.

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Re: Is international investing necessary at all?

Post by AerialWombat » Sat Sep 08, 2018 8:59 am

vu8 wrote:
Sat Sep 08, 2018 8:42 am
So, is investing internationally a loser's game?
Maybe. Maybe not.
vu8 wrote:
Sat Sep 08, 2018 8:42 am
Is an All US asset allocation sufficient for long term investing?
Maybe. Maybe not.
vu8 wrote:
Sat Sep 08, 2018 8:42 am
Will the American economy do okay in the next 100 years?
Maybe. Maybe not.

Past performance is no guarantee of future results. Nobody knows nothin'. If you have a crystal ball, use it. Stay the course.

I think I covered all the common BH platitudes. :D

But, they're all true.

I despise equities in general. Hate 'em with a passion. Can't stand the roller coaster. Not even the small bumps. Like, last week freaked me out.

But, I allocate 15% of my overall portfolio to broad equity indices because diversification matters.

You might want to read this thread from the start: viewtopic.php?f=10&t=256423

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

Post by LadyGeek » Sat Sep 08, 2018 9:33 am

I merged vu8's thread into the on-going discussion.
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tibbitts
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Re: Is international investing necessary at all?

Post by tibbitts » Sat Sep 08, 2018 9:42 am

vu8 wrote:
Sat Sep 08, 2018 8:42 am
[Thread merged into here, see below. --admin LadyGeek]

Hi there, I am still struggling whether there is a point or necessity to invest in the international stock market or not. As Bogle says, most of the capitalization goes to UK, with a questionable parliament system, France, where people do not work very hard and Japan, a low growth, aging society that will once be hit with some earthquakes and Tsunamis. So, is investing internationally actually jeopardizing your long term return? Because for the investor protection wise, few countries are on par with the United States? Also, currency risk is massive! Just check Turkey, Venezuela and China out! The CNY used to be 6.2 couple of months ago and now it's 6.9 if you want to sell your Chinese investments, you pretty much lost the return generated in the past 2-3 years! Currency risk is not only there but also it's massively risky. So, is investing internationally a loser's game? Is an All US asset allocation sufficient for long term investing? Will the American economy do okay in the next 100 years?
No, equity investing is not necessary. That's actually your question, you just didn't express the question correctly. You can invest exclusively in fixed income.

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

Post by ge1 » Sat Sep 08, 2018 6:16 pm

One positive thing about investing in INTL is the fact that it certainly teaches you patience. To see your investments essentially at the same level as 10+ years ago - not easy. And I’m fairly certain the same will happen to US stocks as well at some point, so will be interesting to see people’s reaction when US stocks don’t go anywhere for a decade.

But yes, it hasn’t been pretty.

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Re: Is international investing necessary at all?

Post by FlyingMoose » Sat Sep 08, 2018 7:03 pm

Carlos Danger wrote:
Sat Sep 08, 2018 8:49 am
What if the U.S. experiences some "lost decades" during your prime investing/saving years?
So far, International has experienced a “lost decade” during my prime saving/investing years. I would have a lot more money now without it.

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Re: Is international investing necessary at all?

Post by HEDGEFUNDIE » Sat Sep 08, 2018 7:25 pm

FlyingMoose wrote:
Sat Sep 08, 2018 7:03 pm
Carlos Danger wrote:
Sat Sep 08, 2018 8:49 am
What if the U.S. experiences some "lost decades" during your prime investing/saving years?
So far, International has experienced a “lost decade” during my prime saving/investing years. I would have a lot more money now without it.
It has already happened in the US, 2001-2011.

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Re: Is international investing necessary at all?

Post by michaeljc70 » Sat Sep 08, 2018 7:28 pm

FlyingMoose wrote:
Sat Sep 08, 2018 7:03 pm
Carlos Danger wrote:
Sat Sep 08, 2018 8:49 am
What if the U.S. experiences some "lost decades" during your prime investing/saving years?
So far, International has experienced a “lost decade” during my prime saving/investing years. I would have a lot more money now without it.
Picking and choosing. If you had no bonds in the financial crisis, you could have said you missed out (up 10% in 2007 and 20% in 2009 for the 10 year). If you held them the last three years, you could say you did horrible. This is completely missing the point of diversification. Some parts of your portfolio are supposed to do poorly while others excel. If you are expecting all parts to do fantastic every period, you don't understand the concept.

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

Post by InvestInPasta » Sun Sep 09, 2018 12:55 pm

asif408 wrote:
Fri Aug 24, 2018 7:40 am
fortyofforty wrote:
Fri Aug 24, 2018 6:20 am
So, is it "riskier" to invest 100% in U.S. stocks, or is it "riskier" to invest some money in non-U.S. equities?
Seems to me it depends on the time frame. From 1999-2008, here are the returns of the S&P 500 vs emerging markets: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Both had about a 44% drop during the dot com bust, and EM did much worse in the financial crisis. Yet at the end of the 10 year period you doubled your money in EM and lost money in the S&P. So which one was riskier?

I would argue S&P was much riskier over that time frame, primarily because the valuation disparity at that time was similar to what it is today, with the US stock market at high valuation levels and EM at depressed levels. No, EM, didn't cushion the blow when the S&P was down, but it did preserve (and increase) your wealth over the decade. The same can't be said for the S&P.

In fact, from 1999-2018 EM has outperformed S&P, even with the recent decade of underperformance: https://www.portfoliovisualizer.com/bac ... ion2_2=100. Of course, if I look at EM beginning a few years earlier, when valuations in EM were much higher, the same cannot be said.

The same held true if you compare the S&P to the Total International Index, but to a lesser extent: https://www.portfoliovisualizer.com/bac ... ion2_2=100
+1

Great thread, still reading...
Thanks to all Bogleheads!
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