What constitutes a haystack? (for stocks)

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MJW
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What constitutes a haystack? (for stocks)

Post by MJW » Fri Aug 31, 2018 1:41 pm

Continuing on a theme from a discussion about commonly used terms and concepts , a pillar of the Boglehead philosophy is to “buy the haystack.” Likewise, this phrase consistently comes up in discussions about buying individual stocks, tilting to factors or sectors and is especially central to the eternal US vs. international debate. But what do we really mean when we say this?

When dissecting the arguments over whether US investors are well-advised to invest internationally, it is clear that the opposing camps each have their own concept of what constitutes a haystack (for the purpose of simplicity, I am going to focus only on equities):

Position 1: The haystack is the global market. This should be the foundation for the investor. From there one may choose to tilt to a country, factor, sector, etc., but doing so is making an active bet away from the global market. (This doesn’t necessarily mean holding a global index fund like Total World (VT), but it does require all funds be held according to global market cap)

Position 2: For the US investor, the US market is the haystack. This is the foundation for the investor, and one may choose to add an arbitrary amount of international exposure and/or tilt to factors, sectors, etc. Taking this position also typically implies that there is something special and unique about the US haystack and that other haystacks are perhaps less trustworthy, or are simply unnecessary for one reason or another.

Note that Position 2 does not necessarily forsake international investing. This is important to the nature of our discussion. It does leave room for individual prerogative, though presumably at an allocation below global market cap.

A popular response to the US-only position is to cite large, ubiquitous international companies such as Samsung, Toyota, Shell, etc., and ask the investor, “Don’t you want to be invested in these companies as well?” I suspect that many Position 2 investors wouldn’t mind investing in such companies, but have less faith in the haystacks of which they are a part. But this is conjecture on my part.

Position 3: The investor has a different definition of a haystack than those described above. I just wanted to leave room for ambiguity in case someone wants to share. :wink:

What position mostly closely describes your own, and why? I promise I am not just trying to stir up another US vs. international debate! My rationale is that the manner in which your arguments are framed could be helpful to readers that are either agnostic or on the fence when it comes to choosing whether to invest internationally. This isn’t about who is right; it’s about one’s concept of a haystack when it comes to adopting the Boglehead philosophy.

And please, no appeals to authority (i.e. “what Bogle says is good enough for me”) without your own rationalization included. Thank you!
Last edited by MJW on Sat Sep 01, 2018 12:14 am, edited 2 times in total.

chevca
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Re: What constitutes a haystack?

Post by chevca » Fri Aug 31, 2018 1:46 pm

I consider an index fund a haysatack. When we're talking hundreds or thousands of stocks or bonds in a fund, that's haystack'ish enough for me. Of course, my definition means the are many more than one haystack out there. Which ones folks want to own or tilt to.... to each their own.

'Thee haystack'... I guess that would be the total world market of stocks and bonds. But, I doubt anyone has their portfolio set up exactly how that breaks down in percentages of all involved.

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Re: What constitutes a haystack?

Post by texasdiver » Fri Aug 31, 2018 2:07 pm

I'm in position 1, the global market with some tilt towards the US because that is how the target retirement funds (that hold the bulk of our portolio) are structured. In other words, I rely on the experts and Vanguard and the Thrift Savings Plan to figure out what the haystack is.

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Re: What constitutes a haystack?

Post by willthrill81 » Fri Aug 31, 2018 9:59 pm

chevca wrote:
Fri Aug 31, 2018 1:46 pm
'Thee haystack'... I guess that would be the total world market of stocks and bonds. But, I doubt anyone has their portfolio set up exactly how that breaks down in percentages of all involved.
Actually, the 'haystack' is defined by many as a market cap-weighting of all global assets, including stocks, bonds, real estate, art, wine collections, cryptocurrency, etc., etc.

And you're exactly right in that no one's AA accurately reflects that. There are many reasons (excuses?) for why virtually no one even attempts to do so, even though it's very easy to invest in international bonds and real estate at least these days.
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Re: What constitutes a haystack?

Post by Nate79 » Fri Aug 31, 2018 11:46 pm

Since when do we need to dumb down investing on this site talking about what a haystack is? If you want to discuss whether you should invest in US only, international, world allocation, tilting, etc then discuss that. But trying to figure out what some uneducated person saying buy the haystack is a waste of time.

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Re: What constitutes a haystack?

Post by MJW » Sat Sep 01, 2018 12:13 am

Nate79 wrote:
Fri Aug 31, 2018 11:46 pm
Since when do we need to dumb down investing on this site talking about what a haystack is? If you want to discuss whether you should invest in US only, international, world allocation, tilting, etc then discuss that. But trying to figure out what some uneducated person saying buy the haystack is a waste of time.
Discussing whether one should or shouldn't invest US-only or internationally is not the point of the thread. There are plenty of those threads as it is. The point is whether one considers the global or US equity market to be the appropriate starting point for building a portfolio on the philosophy of owning the market. And since the concept of owning the market is often referred to as "buying the haystack," I chose that as the framing device for the discussion. I'm sorry if I did not make that clear enough in my original post. I would not want to "dumb down" the conversation, as you put it.

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Re: What constitutes a haystack?

Post by MJW » Sat Sep 01, 2018 12:18 am

willthrill81 wrote:
Fri Aug 31, 2018 9:59 pm
chevca wrote:
Fri Aug 31, 2018 1:46 pm
'Thee haystack'... I guess that would be the total world market of stocks and bonds. But, I doubt anyone has their portfolio set up exactly how that breaks down in percentages of all involved.
Actually, the 'haystack' is defined by many as a market cap-weighting of all global assets, including stocks, bonds, real estate, art, wine collections, cryptocurrency, etc., etc.
I altered the thread title to emphasize the focus on equities for the purposes of this conversation, because obviously we can get derailed by how broad we want to define the haystack.
MJW wrote: When dissecting the arguments over whether US investors are well-advised to invest internationally, it is clear that the opposing camps each have their own concept of what constitutes a haystack (for the purpose of simplicity, I am going to focus only on equities):
Unless you are aware of some hot art or wine collection ETF you want to let me in on. :greedy

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Re: What constitutes a haystack? (for stocks)

Post by JoMoney » Sat Sep 01, 2018 1:03 am

Position 3.
You can define the market of securities or "haystack" you're willing to invest in a lot of different ways.
https://web.stanford.edu/~wfsharpe/art/ ... active.htm
...certain definitions of the key terms are necessary. First a market must be selected -- the stocks in the S&P 500, for example, or a set of "small" stocks. Then each investor who holds securities from the market must be classified as either active or passive. ...
...or the universe of dividend stocks, or REITS, or whatever. The point of "passive" index investing for me, isn't to try and own absolutely everything that someone is trying to sell me,
or believe that people aren't capable of discerning that one thing might involve risks they'd rather avoid, or believe that risks should somehow automatically come with a "risk premium"... It's more about minimizing costs and the other mistakes that sneak in when trying to get too tricky or playing the "active" game and trying to beat the other guy by out-trading them in the same universe of securities.
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Re: What constitutes a haystack? (for stocks)

Post by TD2626 » Sun Sep 02, 2018 4:41 pm

I believe the "haystack" for stocks is the global equities market, something like Vanguard Total World. In my opinion, this should be the starting point for an equity portfolio design. I think there is only one haystack, one earth.

However, that doesn't mean a small and intentional tilt towards US stocks isn't acceptable and even possibly advisable.

Frictions and things like currency risk exist, and these may be reasonable reasons to have 30 - 40% international instead of cap weight in international.

(Also --- the US is probably one of the few countries where many prominent investors support having all one's equities in. If you were from ((pick a random country, like Sweden, Peru, or New Zealand)) would you have 100% of equities in home country stock?)

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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 4:44 pm

My gosh. We have gone from stock picking to index picking to haystack picking. When will this ever end?
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Re: What constitutes a haystack? (for stocks)

Post by TD2626 » Sun Sep 02, 2018 4:53 pm

nedsaid wrote:
Sun Sep 02, 2018 4:44 pm
My gosh. We have gone from stock picking to index picking to haystack picking. When will this ever end?
Indexers tend to follow the advice of Bogle: “Don't look for the needle in the haystack. Just buy the haystack!”.

However, some indexers try to pick haystacks that have the most needles, or try to avoid haystacks that have no needles.

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Re: What constitutes a haystack? (for stocks)

Post by columbia » Sun Sep 02, 2018 4:58 pm

There’s been no tangible difference between owning the “whole” US market and owning the S&P 500.

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Re: What constitutes a haystack? (for stocks)

Post by MJW » Sun Sep 02, 2018 6:43 pm

nedsaid wrote:
Sun Sep 02, 2018 4:44 pm
My gosh. We have gone from stock picking to index picking to haystack picking. When will this ever end?
In a few centuries we'll be arguing over Total Earth vs. Intergalactic Index.

With the exception of a few responses, I think the point of the thread was mostly missed. My fault.

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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 6:49 pm

TD2626 wrote:
Sun Sep 02, 2018 4:53 pm
nedsaid wrote:
Sun Sep 02, 2018 4:44 pm
My gosh. We have gone from stock picking to index picking to haystack picking. When will this ever end?
Indexers tend to follow the advice of Bogle: “Don't look for the needle in the haystack. Just buy the haystack!”.

However, some indexers try to pick haystacks that have the most needles, or try to avoid haystacks that have no needles.
Cullen Roche in his blog Pragmatic Capitalism has said that if an investor is truly passive that one should reconstitute a market weighting that reflects all available securities world wide. This would make International Bonds the largest asset class and probably a roughly 40% stock and 60% bond portfolio. Any tilting would represent active management in his view.

I found a 2015 article that estimated that World financial assets to be $294 Trillion. The equity portion of that was $69 Trillion. So that would be 23% stocks but that seems low. The breakdown is $69 Trillion for equities, $58 Trillion public debt, $60 Trillion financial institution bonds, $31 Trillion non-financial corporate bonds, $14 Trillion securitized loans, and $62 Trillion non-securitized loans.

https://www.businessinsider.com/global- ... ets-2015-2

In a MarketWatch article dated November 28, 2017; there were some interesting numbers presented. World's silver $17 billion, World's gold $7.7 Trillion, Global coin & currency $7.6 Trillion, Global Stock Markets $73 Trillion, Money Supply (coins, currency, money market, checking, CDs, and savings accounts) $90.4 Trillion, Global Debt $215 Trillion, Global Real Estate $217 Trillion. A pretty amazing number was $544 Trillion for derivative contracts. The total value of the derivatives market could be as high as $1.2 Quadrillion or $1,200 Trillion.

https://www.marketwatch.com/story/this- ... 2015-12-18

I don't see any numbers for private ownership of business, I suppose it is as much as public ownership through the stock markets of the world. So probably another $70 Trillion or so but that is my uneducated guess.

So let's see:

$140 Trillion public and private equity
$215-225 Trillion Global Debt
$217 Trillion Global Real Estate
$90 Trillion Cash
$10 Trillion Precious Metals
$672 Trillion to $682 Trillion Total

A portfolio based on these numbers would be 21% equities, 32% real estate, 1% precious metals, 33% bonds, and 13% cash. But this doesn't take into account $544 Trillion to $1,200 Trillion in derivative contracts.

I have seen somewhere that a true representation of world markets would be 40% stocks and 60% bonds. Keep in mind that the only Real Estate that trades are REITs and Real Estate companies and the real estate owned by public companies. Money market funds are a fraction of the money supply.

So I am just guessing here, hard to say exactly what an "All World" Portfolio would look like. I believe all of this has factored into Vanguard deciding to add International Bonds to its Target Date Retirement and LifeStrategy Funds. It would be the largest asset class in the world.
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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 6:53 pm

MJW wrote:
Sun Sep 02, 2018 6:43 pm
nedsaid wrote:
Sun Sep 02, 2018 4:44 pm
My gosh. We have gone from stock picking to index picking to haystack picking. When will this ever end?
In a few centuries we'll be arguing over Total Earth vs. Intergalactic Index.

With the exception of a few responses, I think the point of the thread was mostly missed. My fault.
I was having some fun with this but I did read your original post in this thread and responded to it above. Another poster mentioned the S&P 500 vs. Total Stock Market Index definition of the US Stock haystack. I get your point, and again Cullen Roche and his blog Pragmatic Capitalism addresses this very point. Let's see if I can find a link for you.
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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 6:59 pm

Here is the article where Cullen Roche discusses active vs. passive investing. He expands upon Rick Ferri's point that once you get away from world market weightings of asset classes that you are venturing into the world of active management. He states in the article that an All-World portfolio would be about 45% stocks and 55% bonds.

https://www.pragcap.com/the-myth-of-passive-investing/

Mr. Roche claims that he was banned from this forum, in part because he kept making this point. I do find his blog very interesting. So read and decide for yourself.

This article was interesting because it brings up the haystack argument brought forward by the original poster.
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Re: What constitutes a haystack? (for stocks)

Post by CyberBob » Sun Sep 02, 2018 7:01 pm

William Sharpe prefers what he calls the “World Bond Stock” portfolio, which he constructs using Vanguard’s big-four total market funds. Current composition:

31.29% US stocks
26.62% ex US stocks
21.38% US bonds
20.71% ex US bonds

viewtopic.php?f=10&t=207804

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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 7:08 pm

For stocks, I would use a US Total Market Index for the US Market and a Total International Index for the International Stock Markets. Of course there are arguments about which indexes best represent the US and International Stock Markets. When I say "Total" for the US, I mean Large-Cap, Mid-Cap, Small-Cap, and Micro-Cap. When I say "Total" for International, I mean Developed Markets, Emerging Markets, and representing Mid/Small-Cap. A good case could be made that an All-World Stock Index would be the haystack.

There are all kinds of indexes out there. Obviously, some are better than others in representing all parts of the stock markets. Some indexes do a better job screening out the junk than others but in "Total" indexes, that is much less of an issue than the narrower indexes.

So I was being a smart aleck but really we are sort of haystack picking here.
Last edited by nedsaid on Sun Sep 02, 2018 7:10 pm, edited 1 time in total.
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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Sun Sep 02, 2018 7:09 pm

CyberBob wrote:
Sun Sep 02, 2018 7:01 pm
William Sharpe prefers what he calls the “World Bond Stock” portfolio, which he constructs using Vanguard’s big-four total market funds. Current composition:

31.29% US stocks
26.62% ex US stocks
21.38% US bonds
20.71% ex US bonds

viewtopic.php?f=10&t=207804
Thank you. I was looking for something like this.
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Re: What constitutes a haystack? (for stocks)

Post by Rowan Oak » Sun Sep 02, 2018 8:27 pm

"Simply buy a Standard & Poor's 500 Index fund or a total stock market index fund. Then, once you have bought your stocks, get out of the casino--and stay out. Just hold the market portfolio forever."

"There is simply no systematic way to assure success by picking the funds that will beat the market, even by looking (perhaps especially by looking) to their past performance over the long term."

"Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holdings in a Standard & Poor's 500 Index Fund (or a total stock market index fund) and holding their bonds in a total bond market index fund."
Isn't Jack Bogle's quote about the haystack in the context of the quotes above?
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Re: What constitutes a haystack? (for stocks)

Post by MJW » Sun Sep 02, 2018 11:55 pm

nedsaid wrote:
Sun Sep 02, 2018 7:08 pm
For stocks, I would use a US Total Market Index for the US Market and a Total International Index for the International Stock Markets. Of course there are arguments about which indexes best represent the US and International Stock Markets. When I say "Total" for the US, I mean Large-Cap, Mid-Cap, Small-Cap, and Micro-Cap. When I say "Total" for International, I mean Developed Markets, Emerging Markets, and representing Mid/Small-Cap. A good case could be made that an All-World Stock Index would be the haystack.

There are all kinds of indexes out there. Obviously, some are better than others in representing all parts of the stock markets. Some indexes do a better job screening out the junk than others but in "Total" indexes, that is much less of an issue than the narrower indexes.

So I was being a smart aleck but really we are sort of haystack picking here.
Well, the question is whether you are basing your selections off the idea that the global market is your starting point, or that it's the US market. You could hold US and international index funds taking either approach, but the underlying philosophy driving your choices is different. That's what I'm curious to know of our fellow Bogleheads.

Jack Bogle's haystack is the US market. You can then add international if you please, and tilt to factors if you dare.

Many members of our forum (as well as other investing experts) believe it is wrong-minded to take the view that the US unique to the extent that it should be its own special haystack and argue that the global market is the only logical place for an investor to start.

So, there are two different schools of thought here, but neither preclude an investor from holding both US and international, holding them separately, or holding a total world fund.

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Re: What constitutes a haystack? (for stocks)

Post by foodhype » Mon Sep 03, 2018 1:44 am

I think that the haystack could refer to everything including stocks, bonds, fine art, etc. but it's most useful as a principle when applied to stocks. I think it makes most sense to start with the global market cap and then subtract liabilities.

Rationale: https://docs.google.com/document/d/1xZ1 ... sp=sharing

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Re: What constitutes a haystack? (for stocks)

Post by MJW » Mon Sep 03, 2018 2:22 am

foodhype wrote:
Mon Sep 03, 2018 1:44 am
I think that the haystack could refer to everything including stocks, bonds, fine art, etc. but it's most useful as a principle when applied to stocks. I think it makes most sense to start with the global market cap and then subtract liabilities.

Rationale: https://docs.google.com/document/d/1xZ1 ... sp=sharing
Yes, I specified stocks in the subject line to avoid the conversation veering to fine art, wine, baseball cards, state coin collections, arrowheads, pocket lint or whatever else people wanted to try to add to the heap.

Thank you for the link to the paper.

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Re: What constitutes a haystack? (for stocks)

Post by oldzey » Mon Sep 03, 2018 3:23 am

MJW wrote:
Fri Aug 31, 2018 1:41 pm
Position 2: For the US investor, the US market is the haystack. This is the foundation for the investor, and one may choose to add an arbitrary amount of international exposure and/or tilt to factors, sectors, etc. Taking this position also typically implies that there is something special and unique about the US haystack and that other haystacks are perhaps less trustworthy, or are simply unnecessary for one reason or another.

And please, no appeals to authority (i.e. “what Bogle says is good enough for me”) without your own rationalization included. Thank you!
The U.S. haystack for stocks makes sense to me as a U.S. investor. If it were a tangible item, it would look something like this:

Image
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Re: What constitutes a haystack? (for stocks)

Post by ICH » Mon Sep 03, 2018 3:56 am

Position 1. One global equities ETF + One global aggregate bond ETF. No tilting as I have better things to do and don't see the point. I am not from/in the US.

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Re: What constitutes a haystack? (for stocks)

Post by Ron Scott » Mon Sep 03, 2018 4:40 am

Like Bogle, position 2, and no FOMO on Samsung, Toyota.

Total market or S&P500 would cover it.

International is unnecessary for diversification purposes and may add risk, but if one must, for whatever reason, limiting the exposure is highly recommended.
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Re: What constitutes a haystack? (for stocks)

Post by nedsaid » Mon Sep 03, 2018 11:23 am

MJW wrote:
Sun Sep 02, 2018 11:55 pm
nedsaid wrote:
Sun Sep 02, 2018 7:08 pm
For stocks, I would use a US Total Market Index for the US Market and a Total International Index for the International Stock Markets. Of course there are arguments about which indexes best represent the US and International Stock Markets. When I say "Total" for the US, I mean Large-Cap, Mid-Cap, Small-Cap, and Micro-Cap. When I say "Total" for International, I mean Developed Markets, Emerging Markets, and representing Mid/Small-Cap. A good case could be made that an All-World Stock Index would be the haystack.

There are all kinds of indexes out there. Obviously, some are better than others in representing all parts of the stock markets. Some indexes do a better job screening out the junk than others but in "Total" indexes, that is much less of an issue than the narrower indexes.

So I was being a smart aleck but really we are sort of haystack picking here.
Well, the question is whether you are basing your selections off the idea that the global market is your starting point, or that it's the US market. You could hold US and international index funds taking either approach, but the underlying philosophy driving your choices is different. That's what I'm curious to know of our fellow Bogleheads.

Jack Bogle's haystack is the US market. You can then add international if you please, and tilt to factors if you dare.

Many members of our forum (as well as other investing experts) believe it is wrong-minded to take the view that the US unique to the extent that it should be its own special haystack and argue that the global market is the only logical place for an investor to start.

So, there are two different schools of thought here, but neither preclude an investor from holding both US and international, holding them separately, or holding a total world fund.
This is an excellent discussion because investors really need to "know thyself". So you have to ask yourself some fundamental questions about what you believe deep down. Pretty much, it is important that your fundamental beliefs be rooted in reality, human nature, and human behavior. In other words, they need validity. Hopefully, this beliefs are rooted in timeless wisdom that won't change with fads.

Second, there is a matter of preference and taste. Not sure there is a right answer to the "US Only" vs. "World Portfolio" question. Unless the United States suffers a catastrophic loss of its competitive advantages, it is likely that it won't really matter. The U.S. has been a great place to invest. But I do remember the long and dreary bear market in Japan and for myself I don't want to take single country risk. I want some protection against a Japan scenario happening here. I might be right long run, and I might be wrong.

Not sure there is a right answer to the "market cap weighted indexing" vs. "factors" argument. During the last decade, the simple Taylor Larimore 3 fund portfolio has been beating factor tilted portfolios, largely because Value has been on Vacation for almost a decade now. History suggests that factors should win long run but of course we don't know the future. This is a matter of preference and taste.

So this gets people to thinking big picture about their investments. Am I a US only investor or do I venture out to International as well? Do I factor tilt or not? Do I believe markets can be timed? Stuff like that. This is a very good discussion though I had my fun here as well.
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Re: What constitutes a haystack? (for stocks)

Post by 2015 » Mon Sep 03, 2018 12:56 pm

nedsaid wrote:
Mon Sep 03, 2018 11:23 am
MJW wrote:
Sun Sep 02, 2018 11:55 pm
nedsaid wrote:
Sun Sep 02, 2018 7:08 pm
For stocks, I would use a US Total Market Index for the US Market and a Total International Index for the International Stock Markets. Of course there are arguments about which indexes best represent the US and International Stock Markets. When I say "Total" for the US, I mean Large-Cap, Mid-Cap, Small-Cap, and Micro-Cap. When I say "Total" for International, I mean Developed Markets, Emerging Markets, and representing Mid/Small-Cap. A good case could be made that an All-World Stock Index would be the haystack.

There are all kinds of indexes out there. Obviously, some are better than others in representing all parts of the stock markets. Some indexes do a better job screening out the junk than others but in "Total" indexes, that is much less of an issue than the narrower indexes.

So I was being a smart aleck but really we are sort of haystack picking here.
Well, the question is whether you are basing your selections off the idea that the global market is your starting point, or that it's the US market. You could hold US and international index funds taking either approach, but the underlying philosophy driving your choices is different. That's what I'm curious to know of our fellow Bogleheads.

Jack Bogle's haystack is the US market. You can then add international if you please, and tilt to factors if you dare.

Many members of our forum (as well as other investing experts) believe it is wrong-minded to take the view that the US unique to the extent that it should be its own special haystack and argue that the global market is the only logical place for an investor to start.

So, there are two different schools of thought here, but neither preclude an investor from holding both US and international, holding them separately, or holding a total world fund.
This is an excellent discussion because investors really need to "know thyself". So you have to ask yourself some fundamental questions about what you believe deep down. Pretty much, it is important that your fundamental beliefs be rooted in reality, human nature, and human behavior. In other words, they need validity. Hopefully, this beliefs are rooted in timeless wisdom that won't change with fads.

...

So this gets people to thinking big picture about their investments. Am I a US only investor or do I venture out to International as well? Do I factor tilt or not? Do I believe markets can be timed? Stuff like that. This is a very good discussion though I had my fun here as well.
Powerful stuff, particularly the first paragraph.

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Phineas J. Whoopee
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Re: What constitutes a haystack? (for stocks)

Post by Phineas J. Whoopee » Mon Sep 03, 2018 1:38 pm

I don't agree that trying to pin down the precise definition of a metaphor is a worthwhile endeavor. We know Bogle meant investors should avoid trying to discover the next new thing just before it becomes hot.
PJW

MJW
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Re: What constitutes a haystack? (for stocks)

Post by MJW » Mon Sep 03, 2018 2:32 pm

Phineas J. Whoopee wrote:
Mon Sep 03, 2018 1:38 pm
I don't agree that trying to pin down the precise definition of a metaphor is a worthwhile endeavor. We know Bogle meant investors should avoid trying to discover the next new thing just before it becomes hot.
PJW
In retrospect I wish I would have chosen a different subject line to convey my motivation behind facilitating this discussion. My use of that particular metaphor was never meant to be this much of a distraction. It was merely intended to be familiar language used as a framing device.

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JoMoney
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Re: What constitutes a haystack? (for stocks)

Post by JoMoney » Mon Sep 03, 2018 2:46 pm

MJW wrote:
Mon Sep 03, 2018 2:32 pm
In retrospect I wish I would have chosen a different subject line to convey my motivation behind facilitating this discussion...
So what is your motivation for the discussion ?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Phineas J. Whoopee
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Re: What constitutes a haystack? (for stocks)

Post by Phineas J. Whoopee » Mon Sep 03, 2018 3:00 pm

MJW wrote:
Mon Sep 03, 2018 2:32 pm
...
In retrospect I wish I would have chosen a different subject line to convey my motivation behind facilitating this discussion. My use of that particular metaphor was never meant to be this much of a distraction. It was merely intended to be familiar language used as a framing device.
Hi MJW.

I understand, thank you, and no problem.

More conventionally, and you probably already know this but some readers might not, there is the term investment universe, which itself is a misleading metaphor. It's the characteristics of securities the investor, often an institution, means to choose among.

If I may attempt phrasing the original question in another way, and by no means do I intend to put words into your mouth, it's: What should my investment universe be?

My personal investment universe includes listed US and international stocks, market-cap weighted but with a small bias to the US because I use and expect to continue using US dollars so the slant is there to mildly diminish currency risk, US investment-grade intermediate-term fixed income, and US inflation-protected fixed income.

Some earlier posters prescribe what the haystack is. I suggest each investor's investment universe needs to reflect their own particular situation, objectives, and the risks they face.

Arguing about whether moon polar water futures (to take a recent item from the news then make it silly) are part of everybody's investment universe seems futile to me.

PJW

MJW
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Re: What constitutes a haystack? (for stocks)

Post by MJW » Mon Sep 03, 2018 3:08 pm

JoMoney wrote:
Mon Sep 03, 2018 2:46 pm
MJW wrote:
Mon Sep 03, 2018 2:32 pm
In retrospect I wish I would have chosen a different subject line to convey my motivation behind facilitating this discussion...
So what is your motivation for the discussion ?
Primarily for a deeper dive into what investors believe is the most logical starting point for investing "in the market" of equities and why, with emphasis on a global vs. US perspective. I used the haystack metaphor because of its familiarity to Bogleheads as well as its popular use in justifying one's own investing philosophy. As we've seen, telling someone to "buy the haystack" means different things to different people depending on what they view as a logical starting point. Depending on which position you take, it can seem easy to present one's rationale as being self-evident.

It seems that the most varied approaches come from investors that view the US as their starting point (or primary haystack, if you will). Some invest in US-only because they lack faith in other haystacks, or simply deem them unnecessary. Others start with US and then add an arbitrary allocation of international for reasons of diversification or single-country risk. Investors that view the global equity market as their starting point tend to either leave it that, or tilt slightly to domestic.

Either way, there is usually some degree of conviction in one's choices. Maybe it's on account of my own lack of conviction on this subject that I'm curious to know more about how others think. It's just interesting to me, and perhaps helpful to other investing agnostics or fence-sitters.

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