The benefits of international diversification - NOT: Hulbert

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Culbretd
Posts: 64
Joined: Sat Mar 24, 2018 4:06 am

Re: The benefits of international diversification - NOT: Hulbert

Post by Culbretd » Wed Oct 10, 2018 6:17 am

I go back and forth on international diversification. I started out with none then read Bernstein’s books and decided to allocate 20% to it. While looking in my 401(k) one share of S&P 500 is roughly $160 a share and in my wifes 403(b) one share of S&P 500 (VIIIX) was $250 a share. Meanwhile my international fund (MSCI EAFE) is $16 a share. As Bernstein says valuations matter. When International takes off it will pay off hugely I believe. Once Brexit is figured out and Italy stabilizes then I see Europe pulling out of their recession. Til then I will keep buying at really cheap prices and holding. I will double my stake in international if it makes it to $32 a share. I’ll take those odds. If it continues to climb then I will make out like a bandit in the night.

Ari
Posts: 524
Joined: Sat May 23, 2015 6:59 am

Re: The benefits of international diversification - NOT: Hulbert

Post by Ari » Wed Oct 10, 2018 6:26 am

Culbretd wrote:
Wed Oct 10, 2018 6:17 am
While looking in my 401(k) one share of S&P 500 is roughly $160 a share and in my wifes 403(b) one share of S&P 500 (VIIIX) was $250 a share. Meanwhile my international fund (MSCI EAFE) is $16 a share.
I'm confused. How is the share price of the funds you invest in relevant?
All in, all the time.

z3r0c00l
Posts: 1196
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: The benefits of international diversification - NOT: Hulbert

Post by z3r0c00l » Wed Oct 10, 2018 6:32 am

Culbretd wrote:
Wed Oct 10, 2018 6:17 am
I go back and forth on international diversification. I started out with none then read Bernstein’s books and decided to allocate 20% to it. While looking in my 401(k) one share of S&P 500 is roughly $160 a share and in my wifes 403(b) one share of S&P 500 (VIIIX) was $250 a share. Meanwhile my international fund (MSCI EAFE) is $16 a share. As Bernstein says valuations matter. When International takes off it will pay off hugely I believe. Once Brexit is figured out and Italy stabilizes then I see Europe pulling out of their recession. Til then I will keep buying at really cheap prices and holding. I will double my stake in international if it makes it to $32 a share. I’ll take those odds. If it continues to climb then I will make out like a bandit in the night.
Those share prices are meaningless and depend on how the mutual fund set the pricing at the inception of the fund. Compare a SP500 fund to an SP500 ETF to a Total Stock fund and, though they are all similar products, you will find the share price all over the map.

Even NAV percent change alone is not a great measurement for comparison, be sure to chart total return for any investment to make comparisons. International stocks often pay hefty dividends so that must be factored in.
Last edited by z3r0c00l on Wed Oct 10, 2018 6:35 am, edited 1 time in total.

User avatar
jadd806
Posts: 263
Joined: Mon Aug 17, 2015 4:34 pm
Location: New England

Re: The benefits of international diversification - NOT: Hulbert

Post by jadd806 » Wed Oct 10, 2018 6:33 am

lostdog wrote:
Tue Oct 09, 2018 9:55 pm
willthrill81 wrote:
Tue Oct 09, 2018 9:52 pm
lostdog wrote:
Tue Oct 09, 2018 9:48 pm
randomguy wrote:
Tue Oct 09, 2018 8:48 pm
I can't wait for the next 3-5 year period where EM or international crushes the US stocks. Those threads will be entertaining:) It is easy when an asset is soaring to say that it is all you need. Getting that article published when the sector is underperforming is a lot harder:)
+1

Recency bias is quite apparent.
To which someone (not necessarily me) could reply: "How 'recent' do you consider the last 30 years to be?"
And I feel bad for the young investors just starting out seeing 0% international posts. Not good...
I've been reading this forum since I was 18 (25 now) and I always viewed the 0% international advice as some weird generational quirk. Most people my age would file US-centric thinking in "world views from a time gone by." Without the emotional appeal, the arguments of the 0% international crowd fall apart even faster. Maybe that's why they have to keep making so many threads about it?

User avatar
arcticpineapplecorp.
Posts: 3334
Joined: Tue Mar 06, 2012 9:22 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by arcticpineapplecorp. » Wed Oct 10, 2018 6:39 am

z3r0c00l wrote:
Wed Oct 10, 2018 6:32 am
Culbretd wrote:
Wed Oct 10, 2018 6:17 am
I go back and forth on international diversification. I started out with none then read Bernstein’s books and decided to allocate 20% to it. While looking in my 401(k) one share of S&P 500 is roughly $160 a share and in my wifes 403(b) one share of S&P 500 (VIIIX) was $250 a share. Meanwhile my international fund (MSCI EAFE) is $16 a share. As Bernstein says valuations matter. When International takes off it will pay off hugely I believe. Once Brexit is figured out and Italy stabilizes then I see Europe pulling out of their recession. Til then I will keep buying at really cheap prices and holding. I will double my stake in international if it makes it to $32 a share. I’ll take those odds. If it continues to climb then I will make out like a bandit in the night.
Those share prices are meaningless and depend on how the mutual fund set the pricing at the inception of the fund. Compare a SP500 fund to an SP500 ETF to a Total Stock fund and, though they are all similar products, you will find the share price all over the map.

Even NAV percent change alone is not a great measurement for comparison, be sure to chart total return for any investment to make comparisons. International stocks often pay hefty dividends so that must be factored in.
and those dividends from international investments can be used to get a foreign tax credit (in taxable accounts only, not in Roth or tax deferred accounts):
https://www.google.com/search?q=foreign ... fox-b-1-ab
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

User avatar
Taylor Larimore
Advisory Board
Posts: 27506
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Mr. Bogle on "International Investing"

Post by Taylor Larimore » Wed Oct 10, 2018 8:04 am

Oldzey:

Thank you for giving us this series of articles explaining why Mr. Bogle does not favor international investing (so far he has been right).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Culbretd
Posts: 64
Joined: Sat Mar 24, 2018 4:06 am

Re: The benefits of international diversification - NOT: Hulbert

Post by Culbretd » Wed Oct 10, 2018 8:06 am

z3r0c00l wrote:
Wed Oct 10, 2018 6:32 am
Culbretd wrote:
Wed Oct 10, 2018 6:17 am
I go back and forth on international diversification. I started out with none then read Bernstein’s books and decided to allocate 20% to it. While looking in my 401(k) one share of S&P 500 is roughly $160 a share and in my wifes 403(b) one share of S&P 500 (VIIIX) was $250 a share. Meanwhile my international fund (MSCI EAFE) is $16 a share. As Bernstein says valuations matter. When International takes off it will pay off hugely I believe. Once Brexit is figured out and Italy stabilizes then I see Europe pulling out of their recession. Til then I will keep buying at really cheap prices and holding. I will double my stake in international if it makes it to $32 a share. I’ll take those odds. If it continues to climb then I will make out like a bandit in the night.
Those share prices are meaningless and depend on how the mutual fund set the pricing at the inception of the fund. Compare a SP500 fund to an SP500 ETF to a Total Stock fund and, though they are all similar products, you will find the share price all over the map.

Even NAV percent change alone is not a great measurement for comparison, be sure to chart total return for any investment to make comparisons. International stocks often pay hefty dividends so that must be factored in.
I will go back and chart them both and look at the dividends factored in.

lostdog
Posts: 1237
Joined: Thu Feb 04, 2016 2:15 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by lostdog » Wed Oct 10, 2018 8:16 am

simplesimon wrote:
Wed Oct 10, 2018 5:41 am
I view international as part of the total (public) market like how a company is part of a sector or industry that is part of the total market.

Why aren't we talking about the worst performing industries over the last couple of decades and completely divesting from them?
+1 Bingo!!

Completely irrational just sticking with your home country.

lostdog
Posts: 1237
Joined: Thu Feb 04, 2016 2:15 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by lostdog » Wed Oct 10, 2018 8:21 am

jadd806 wrote:
Wed Oct 10, 2018 6:33 am
lostdog wrote:
Tue Oct 09, 2018 9:55 pm
willthrill81 wrote:
Tue Oct 09, 2018 9:52 pm
lostdog wrote:
Tue Oct 09, 2018 9:48 pm
randomguy wrote:
Tue Oct 09, 2018 8:48 pm
I can't wait for the next 3-5 year period where EM or international crushes the US stocks. Those threads will be entertaining:) It is easy when an asset is soaring to say that it is all you need. Getting that article published when the sector is underperforming is a lot harder:)
+1

Recency bias is quite apparent.
To which someone (not necessarily me) could reply: "How 'recent' do you consider the last 30 years to be?"
And I feel bad for the young investors just starting out seeing 0% international posts. Not good...
I've been reading this forum since I was 18 (25 now) and I always viewed the 0% international advice as some weird generational quirk. Most people my age would file US-centric thinking in "world views from a time gone by." Without the emotional appeal, the arguments of the 0% international crowd fall apart even faster. Maybe that's why they have to keep making so many threads about it?
You could be right about this. It would be interesting to find out the average age groups of the international vs no international crowd. Over time, this type of irrational thinking could be on it's way out. Young investors should not be persuaded to this irrationality.

Chief_Engineer
Posts: 34
Joined: Wed Jan 15, 2014 9:32 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by Chief_Engineer » Wed Oct 10, 2018 8:47 am

lostdog wrote:
Wed Oct 10, 2018 8:21 am
jadd806 wrote:
Wed Oct 10, 2018 6:33 am

I've been reading this forum since I was 18 (25 now) and I always viewed the 0% international advice as some weird generational quirk. Most people my age would file US-centric thinking in "world views from a time gone by." Without the emotional appeal, the arguments of the 0% international crowd fall apart even faster. Maybe that's why they have to keep making so many threads about it?
You could be right about this. It would be interesting to find out the average age groups of the international vs no international crowd. Over time, this type of irrational thinking could be on it's way out. Young investors should not be persuaded to this irrationality.
I'm 30 and reflect jadd's opinion. The 0% international arguments rings of 'American Exceptionalism,' which I am very skeptical of. I think this opinion is not rare among millenials, but I have no data for that. Growing up post-9/11 and experiencing the combo of the Great Recession and the explosion of student loan debt tends to dampen one's optimism.

Random Walker
Posts: 3171
Joined: Fri Feb 23, 2007 8:21 pm

Re: Mr. Bogle on "International Investing"

Post by Random Walker » Wed Oct 10, 2018 8:54 am

Taylor Larimore wrote:
Wed Oct 10, 2018 8:04 am
Oldzey:

Thank you for giving us this series of articles explaining why Mr. Bogle does not favor international investing (so far he has been right).

Best wishes.
Taylor
What would Mr. Bogle recommend for a Japanese, English, or Finnish investor?

bradshaw1965
Posts: 715
Joined: Tue Jul 31, 2007 9:36 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by bradshaw1965 » Wed Oct 10, 2018 9:06 am

willthrill81 wrote:
Tue Oct 09, 2018 10:28 pm
It sounds trite and almost buffoonish, but if you're going to buy-and-hold, then that's what you have to do.
The nice thing about buy and hold is that there is exactly one thing I need to do over my investment lifetime to almost guarantee a statistically excellent outcome. If I can control my emotions and fight the impulse to question my plan through the inevitable threads like these I'm rewarded. So sure I'll answer to trite and buffoonish, but I prefer simple not easy.
Last edited by bradshaw1965 on Wed Oct 10, 2018 10:11 am, edited 1 time in total.

User avatar
vineviz
Posts: 2005
Joined: Tue May 15, 2018 1:55 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by vineviz » Wed Oct 10, 2018 9:17 am

lostdog wrote:
Wed Oct 10, 2018 8:21 am
You could be right about this. It would be interesting to find out the average age groups of the international vs no international crowd. Over time, this type of irrational thinking could be on it's way out. Young investors should not be persuaded to this irrationality.
Younger investors definitively tend to have higher levels of international diversification than older investors, according to data from this Columbia University study. Investors born after 1980 had nearly twice as much in international stocks as investors born before 1950.

Image

This is likely due in part to younger investors being more likely to invest in target date funds, but they also found that each age cohort has been increasing its international diversification over time as well.

From the abstract:
Worker’s salary has a positive effect on international allocations, while account balance has a negative one, but these effects are not economically large. Education, financial literacy and the fraction of foreign-born population measured at the zip code level have strong positive effects on international diversification, consistent with familiarity and information stories. In addition, states with more exports have higher international allocations.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

international001
Posts: 465
Joined: Thu Feb 15, 2018 7:31 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by international001 » Wed Oct 10, 2018 9:19 am

lostdog wrote:
Wed Oct 10, 2018 8:16 am
simplesimon wrote:
Wed Oct 10, 2018 5:41 am
I view international as part of the total (public) market like how a company is part of a sector or industry that is part of the total market.

Why aren't we talking about the worst performing industries over the last couple of decades and completely divesting from them?
+1 Bingo!!

Completely irrational just sticking with your home country.

Because US is not any home country. It's 50% of world market. Despite added diversification of other countries, does it outweight the extra taxes?

Plus, you can argue that US is better for investments as reflected in long term returns. Of course, nobody can see the future. So a black swam event is always possible (US becoming into Japan), or long term may not be long enough (if you are retiring in 15 years, you don't want to be caught on a decade with low US returns)

User avatar
JoMoney
Posts: 6092
Joined: Tue Jul 23, 2013 5:31 am

Re: The benefits of international diversification - NOT: Hulbert

Post by JoMoney » Wed Oct 10, 2018 9:40 am

Being a "irrational" US investor has certainly done ok.
Paid lower fees and transaction costs, lower taxes, didn't need to take on many of the qualifiable risks international has (as enumerated in a prospectus), or the quantifiable increased standard deviation... while at the same time having returns on par (or better).
If "efficient market" theory is right, assets are fairly priced for their risk anyway, and a "tilt" one direction or another is at worst something that could be better "diversified".
Hopefully, future generations will continue to live through unprecedented periods of peace, and a global order offering both individual freedom and rule of law, while lowering restrictions of flow of capital across borders.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

lostdog
Posts: 1237
Joined: Thu Feb 04, 2016 2:15 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by lostdog » Wed Oct 10, 2018 9:41 am

vineviz wrote:
Wed Oct 10, 2018 9:17 am
lostdog wrote:
Wed Oct 10, 2018 8:21 am
You could be right about this. It would be interesting to find out the average age groups of the international vs no international crowd. Over time, this type of irrational thinking could be on it's way out. Young investors should not be persuaded to this irrationality.
Younger investors definitively tend to have higher levels of international diversification than older investors, according to data from this Columbia University study. Investors born after 1980 had nearly twice as much in international stocks as investors born before 1950.

Image

This is likely due in part to younger investors being more likely to invest in target date funds, but they also found that each age cohort has been increasing its international diversification over time as well.

From the abstract:
Worker’s salary has a positive effect on international allocations, while account balance has a negative one, but these effects are not economically large. Education, financial literacy and the fraction of foreign-born population measured at the zip code level have strong positive effects on international diversification, consistent with familiarity and information stories. In addition, states with more exports have higher international allocations.
Interesting. So some opinions of international investing could hover around "American Exceptionalism" attitudes of the older crowd and taking the opinion of an authoritative figure like Jack Bogle seriously because of his "American Exceptionalism" attitude.

staythecourse
Posts: 6112
Joined: Mon Jan 03, 2011 9:40 am

Re: The benefits of international diversification - NOT: Hulbert

Post by staythecourse » Wed Oct 10, 2018 11:14 am

visualguy wrote:
Tue Oct 09, 2018 11:17 pm
staythecourse wrote:
Tue Oct 09, 2018 7:57 pm
Well the data shows US SCV has been the best overall part of the market. Are you 100% US SCV then? If you are then you walk the walk. If you aren't then you are just rationalizing being 100% U.S. equities or otherwise NOT being market cap even though most espouse being market cap on this board.
This is a false analogy. My argument wasn't limited to the relative performance to the US stock market. It was about absolute performance. Ex-US has performed poorly in absolute terms. The poor return didn't justify the huge volatility. You don't need to put up with that kind of volatility to get that meager long-term return (just buy bonds or CDs, for example). It has been a bad way to invest money. Period. Even if the US had been as bad or worse, it wouldn't have made ex-US a good investment. It would have just made both of them bad.
You are describing the epitome of home country bias. There is NO guarantee that U.S. has to outperform. Even if you believed it to be true then how do you reconcile that a GUARANTEED better return can be had by avoiding other markets? There is NO FREE LUNCH Is the very basics of financial theory. IF something is certain it has to be discounted. As far as I know there is NO STUDY showing a systematic premium or discount on U.S. equities vs. the world's equities.

The reason U.S. HAS done the best HAS been the strength of the U.S. dollar. Despite your belief there is no reason the U.S. dollar has to outperform going forward. If you believe it great, but there is NO THEORY that guarantees it and if there was the returns should be discounted to reflect them. They aren't. You as many intelligent folks miss is being able to analyze ex ante vs. ex post.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

hdas
Posts: 314
Joined: Thu Jun 11, 2015 8:24 am

Re: The benefits of international diversification - NOT: Hulbert

Post by hdas » Wed Oct 10, 2018 11:30 am

willthrill81 wrote:
Tue Oct 09, 2018 10:03 pm

This is part of the problem with the buy-and-hold strategy. Those practicing it must be prepared for periods lasting years and, yes, even decades where certain asset classes underperform, which history indicates is pretty much bound to happen at some point. The investor may never live to see those asset classes outperform the others. This is exceedingly difficult for many people, but this is the deal that is made when they decide to buy-and-hold.
One could also say:

This is part of the problem with the trend following strategy. Those practicing it must be prepared for periods lasting years and, yes, even decades where the strategy underperforms, which history indicates is pretty much bound to happen at some point. The investor may never live to see the strategy to outperform buy and hold. This is exceedingly difficult for many people, but this is the deal that is made when they decide to be a trend follower.

garlandwhizzer
Posts: 2016
Joined: Fri Aug 06, 2010 3:42 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by garlandwhizzer » Wed Oct 10, 2018 12:48 pm

nisi wrote:

At this point, I'm almost completely convinced that people are starting to see imaginary patterns in pure noise in correlations. I suspect most of the claimed phenomena are just sampling error.
1+

This is IMO sage insight. Markets in general produce a massive amount of random noise and a minimal and fluctuating signal. Some market analysts/media consistently discern reliable patterns in what are likely just random distributions. This is true not only for US versus INTL but for much of what passes for market insight. The proof in the pudding is that the Hall of Fame for market timers is an empty room. The Hall of Fame for consistent long term risk adjusted investing outperformance is no bigger than a condo.

Garland Whizzer

User avatar
willthrill81
Posts: 6089
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: The benefits of international diversification - NOT: Hulbert

Post by willthrill81 » Wed Oct 10, 2018 12:51 pm

hdas wrote:
Wed Oct 10, 2018 11:30 am
willthrill81 wrote:
Tue Oct 09, 2018 10:03 pm

This is part of the problem with the buy-and-hold strategy. Those practicing it must be prepared for periods lasting years and, yes, even decades where certain asset classes underperform, which history indicates is pretty much bound to happen at some point. The investor may never live to see those asset classes outperform the others. This is exceedingly difficult for many people, but this is the deal that is made when they decide to buy-and-hold.
One could also say:

This is part of the problem with the trend following strategy. Those practicing it must be prepared for periods lasting years and, yes, even decades where the strategy underperforms, which history indicates is pretty much bound to happen at some point. The investor may never live to see the strategy to outperform buy and hold. This is exceedingly difficult for many people, but this is the deal that is made when they decide to be a trend follower.
Yup. Although the trend follower is historically likely to experience significantly smaller drawdowns. But when a bull market is underway, the buy-and-holder is apt to be ahead.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

jalbert
Posts: 3812
Joined: Fri Apr 10, 2015 12:29 am

Re: The benefits of international diversification - NOT: Hulbert

Post by jalbert » Wed Oct 10, 2018 2:21 pm

JoMoney wrote:
Wed Oct 10, 2018 2:19 am
jalbert wrote:
Wed Oct 10, 2018 1:17 am
...
Non-US equities greatly improved portfolio survivability for US retirees during the inflation of the 1970's...
I wonder which countries, and how widely available foreign stock ownership was in the 1970's. Much of the relaxation of capital controls and global market liberalization occurred in and after the 1970s.
Non-US stocks were not widely held by US investors in the US. The portfolio survivability data is from sustainable withdrawal research that simulates retirement withdrawals in historical periods. Research on SWR with int’l diversification that I’m aware of was done by Wade Pfau.
Risk is not a guarantor of return.

User avatar
Lauretta
Posts: 805
Joined: Wed Jul 05, 2017 6:27 am

Re: Mr. Bogle on "International Investing"

Post by Lauretta » Wed Oct 10, 2018 2:45 pm

Random Walker wrote:
Wed Oct 10, 2018 8:54 am
Taylor Larimore wrote:
Wed Oct 10, 2018 8:04 am
Oldzey:

Thank you for giving us this series of articles explaining why Mr. Bogle does not favor international investing (so far he has been right).

Best wishes.
Taylor
What would Mr. Bogle recommend for a Japanese, English, or Finnish investor?
I posted a similar question for Mr Bogle for the Q&A session of the Bogleheads meeting; I don't know whether my question was selected, we'll see in the Q&A video.
When everyone is thinking the same, no one is thinking at all

Random Walker
Posts: 3171
Joined: Fri Feb 23, 2007 8:21 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by Random Walker » Wed Oct 10, 2018 4:59 pm

I’m very curious too, and I don’t think I can predict what he would say at all.

Dave

Elysium
Posts: 1291
Joined: Mon Apr 02, 2007 6:22 pm

Re: Mr. Bogle on "International Investing"

Post by Elysium » Wed Oct 10, 2018 5:23 pm

Lauretta wrote:
Wed Oct 10, 2018 2:45 pm
Random Walker wrote:
Wed Oct 10, 2018 8:54 am
Taylor Larimore wrote:
Wed Oct 10, 2018 8:04 am
Oldzey:

Thank you for giving us this series of articles explaining why Mr. Bogle does not favor international investing (so far he has been right).

Best wishes.
Taylor
What would Mr. Bogle recommend for a Japanese, English, or Finnish investor?
I posted a similar question for Mr Bogle for the Q&A session of the Bogleheads meeting; I don't know whether my question was selected, we'll see in the Q&A video.
I have no idea what he would say, but my suspicion is that it would be something specific to their country / culture. Investing in stocks as a way to build long term wealth is an American thing and mostly a modern innovation of the last 75 years or so. Especially, the buy & hold stocks for long term is a very modern thing that may not go back prior to 1970. I would suspect stocks aren't a form of wealth creation for people in those countries, perhaps they don't need to as much as American workers since they have other sources for retirement??

columbia
Posts: 979
Joined: Tue Aug 27, 2013 5:30 am

Re: Mr. Bogle on "International Investing"

Post by columbia » Wed Oct 10, 2018 5:57 pm

Elysium wrote:
Wed Oct 10, 2018 5:23 pm
Lauretta wrote:
Wed Oct 10, 2018 2:45 pm
Random Walker wrote:
Wed Oct 10, 2018 8:54 am
Taylor Larimore wrote:
Wed Oct 10, 2018 8:04 am
Oldzey:

Thank you for giving us this series of articles explaining why Mr. Bogle does not favor international investing (so far he has been right).

Best wishes.
Taylor
What would Mr. Bogle recommend for a Japanese, English, or Finnish investor?
I posted a similar question for Mr Bogle for the Q&A session of the Bogleheads meeting; I don't know whether my question was selected, we'll see in the Q&A video.
I have no idea what he would say, but my suspicion is that it would be something specific to their country / culture. Investing in stocks as a way to build long term wealth is an American thing and mostly a modern innovation of the last 75 years or so. Especially, the buy & hold stocks for long term is a very modern thing that may not go back prior to 1970. I would suspect stocks aren't a form of wealth creation for people in those countries, perhaps they don't need to as much as American workers since they have other sources for retirement??
Very interesting, as it also speaks to the role of corporation within a particular society. I’d love to see - for example- the dividend history of European large caps vs SP500 since 1970.

TomCat96
Posts: 524
Joined: Sun Oct 18, 2015 12:18 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by TomCat96 » Wed Oct 10, 2018 6:34 pm

nisiprius wrote:
Tue Oct 09, 2018 4:46 pm
1) The observation that diversification fails in crises is basically just another way of saying "financial crises happen." If it only affected one asset class and not others, it wouldn't be a crisis.

2) "The problem is that the correlation between domestic and international stocks is not constant." At this point, I'm almost completely convinced that people are starting to see imaginary patterns in pure noise in correlations. I suspect most of the claimed phenomena are just sampling error.

3) I continue to be in the strange position of being, seemingly, one of the few people who think that there's no evidence that international diversification has ever mattered much--never has helped much, never has hurt much.

4) I continued to be be puzzled why my point of view is so seemingly rare, and why people are so intense in asserting that it matters an awful lot.
You're not alone. After running the numbers, I'm honestly shocked why it hasn't made more of a difference.
Theoretically, it makes sense that the two would do their separate things. Structurally (as in taxation, governance, shareholder rights, differences in locale), it makes sense that it should do separate things.

To my mild dismay, it does not---at least not as much as it should. Theoretically, international investing should be amazing, with growth rate similar to US stocks, its deviations capable of lowering the risk or standard deviation of a pure US stock portfolio.

Instead, all I can conclude is that International investing such as VXUS, appears to have a higher volatility than US stocks, and it is the mixing of the US market with these stocks that seems to bring down the volatility of international stocks, rather than bring down the volatility of a US portfolio alone.

TomCat96
Posts: 524
Joined: Sun Oct 18, 2015 12:18 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by TomCat96 » Wed Oct 10, 2018 6:48 pm

CULater wrote:
Tue Oct 09, 2018 1:38 pm
Here's the reason Mark Hulbert says that international diversification isn't all it's supposed to be on paper. I guess we're left with the "what if the U.S. is the next Japan?" argument.
The problem is that the correlation between domestic and international stocks is not constant. It instead shifts with the bull and bear cycle of the market itself: The correlation is lowest when the U.S. market is rising, and highest when U.S. equities are falling.

As a result, international stocks provide the least diversification precisely when investors need it most — when U.S. stocks are declining. And when U.S. stocks are rising, and investors don’t need or want any diversification, international stocks provide it in spades.
https://www.marketwatch.com/story/inter ... 2018-10-09

I'm going to throw a stray thought in there. I have no evidence to back up my claim.
Suppose, just suppose that the US with our absolutely monstrous amounts of debt, and our record trade deficits that we are the global customer of the world. We are a net importer for sure, reliant on the strength of the US dollar. In the aggregate at least, that means that the international community with respect to the US is net downstream.

Whether it's through our purchase of finished goods, or direct commodities, our purchases induce the downstream purchases and movements of the raw materials to supply us--again directly or through finished goods.

When our market crashes and free cash gets tight, the global economy has to suffer, because the global economy is structured, for now at least, to grow because we buy.

Again, on some level, this must be true. Looking at some numbers from the BEA, https://www.bea.gov/data/intl-trade-inv ... d-services, we are running a half trillion dollar trade deficit annually with respect to the rest of the world.

A half trillion dollar per year outflow has to go somewhere. We tackle the international vs US question at a high level--as abstract disparate entities. But if we are the global customer, it makes sense why valuation of foreign companies would drop when its main customer stops buying.

User avatar
arcticpineapplecorp.
Posts: 3334
Joined: Tue Mar 06, 2012 9:22 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by arcticpineapplecorp. » Wed Oct 10, 2018 6:55 pm

don't forget: "diversification means always having to say you're sorry"

You think you don't want something that's gone down in your portfolio (like international) but then that means you ONLY want things that go up. You know it doesn't work that way. And even if you think you only want things that go up together (instead of some going up and some going down), you do realize that means that everything you own will go down together to. Do you really want that?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

columbia
Posts: 979
Joined: Tue Aug 27, 2013 5:30 am

Re: The benefits of international diversification - NOT: Hulbert

Post by columbia » Wed Oct 10, 2018 7:06 pm

I wonder what the correlation is between not liking SPIAs and embracing international at global cap weight, in that they are both - theoretically- insurance policies.

heyyou
Posts: 3172
Joined: Tue Feb 20, 2007 4:58 pm

Re: The benefits of international diversification - NOT: Hulbert

Post by heyyou » Wed Oct 10, 2018 7:50 pm

I would rather be half right, than all wrong about the future.

jalbert
Posts: 3812
Joined: Fri Apr 10, 2015 12:29 am

Re: The benefits of international diversification - NOT: Hulbert

Post by jalbert » Fri Oct 12, 2018 8:05 pm

I'm going to throw a stray thought in there. I have no evidence to back up my claim.
Suppose, just suppose that the US with our absolutely monstrous amounts of debt, and our record trade deficits that we are the global customer of the world. We are a net importer for sure, reliant on the strength of the US dollar. In the aggregate at least, that means that the international community with respect to the US is net downstream.

Whether it's through our purchase of finished goods, or direct commodities, our purchases induce the downstream purchases and movements of the raw materials to supply us--again directly or through finished goods.

When our market crashes and free cash gets tight, the global economy has to suffer, because the global economy is structured, for now at least, to grow because we buy.
With growing middle classes in emerging economies around the world, there is no guarantee that US consumers will drive outsize global demand in the future. There is also no reason why many US equities have to be be any more dependent on US consumers than non-US equities.
Risk is not a guarantor of return.

Post Reply