Larry Swedroe: Home Country Bias Ubiquitous

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Random Walker
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Larry Swedroe: Home Country Bias Ubiquitous

Post by Random Walker » Fri May 17, 2019 9:28 am

https://www.etf.com/sections/index-inve ... ubiquitous

Larry discusses a Vanguard study showing that home country bias exists around the world. As of last September US made up 55.1% of world equity. A good starting point for equity allocation is the world market cap weighting. Larry goes on to look at a study of actively managed European funds; the pros display home country bias too. Since one’s home country equities do not achieve any higher risk adjusted returns than international holdings, individuals investing only in home country are missing out on a diversification benefit. Although global market cap weighting is a good starting point, because of higher expense ratios, taxes, and trading costs, there can be good rationale for a US investor to display a small home country bias.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by pdavi21 » Fri May 17, 2019 11:15 am

To me, the data says, if everyone else is doing it, I should do it too. Either to get the fair price (assuming market efficiency) or to get the average right balance of diversification vs cost that the market has determined (assuming market efficiency).

However, I strongly agree with Larry's conclusion. It's just that the data presented, in my opinion, does not necessarily support his conclusion.
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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by willthrill81 » Mon May 27, 2019 10:11 pm

I find it interesting that, relatively speaking, exceptionally few investors hold what many consider to be the 'default' weighting of global equities.

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by fennewaldaj » Mon May 27, 2019 10:28 pm

willthrill81 wrote:
Mon May 27, 2019 10:11 pm

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
This is something I have thought about a bit. If individual investors everywhere have a strong home bias then the amount of investing done by individuals vs things like pension funds should affect the valuation of the market of that country. My assumption is that pension funds are much less home biased than individual investors. So the US has a lot of 401k, IRA and perhaps less pension fund money than other countries. This ratio should affect the valuation of the market in question.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Valuethinker » Tue May 28, 2019 5:24 am

willthrill81 wrote:
Mon May 27, 2019 10:11 pm
I find it interesting that, relatively speaking, exceptionally few investors hold what many consider to be the 'default' weighting of global equities.

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
Because the investor at the margin sets the price. The last buyer and the last seller set the market price for everyone.

As long as enough investors are, at the margin, well informed in their investing decisions, the existence of less well informed investors is not a problem. The market will still set the "right" price given all the publicly available information.

That's why having more index investors does not lower market efficiency.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Rick Ferri » Tue May 28, 2019 7:16 am

Having a home country bias makes sense because our liabilities are paid in local currency. An alternative is to invest away from one's home country and hedge currencies back into local currency. It's expensive to do this but it does give an investor more diversification. I don't find this necessary for US investors because there is amble diversification available without hedging, i.e. this is why I don't invest in hedged foreign bond funds.

See I’m still not a fan of international bond funds.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by azanon » Tue May 28, 2019 7:28 am

I could see it both ways - the opposite view is you have your job in the US, government income sources in the US, your economy is the US, so why the heck would you go "all in" and have all of your investments here too, or even bias them here? To me that sounds higher risk. I guess what I'm saying is that I could imagine certain economic events that could affect all of those at once, but not necessarily, say, foreign stock or bonds held in foreign currencies.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by azanon » Tue May 28, 2019 7:41 am

willthrill81 wrote:
Mon May 27, 2019 10:11 pm
I find it interesting that, relatively speaking, exceptionally few investors hold what many consider to be the 'default' weighting of global equities.

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
This reminds me of a post Meb Faber made on twitter about a month ago:

"Over the past 70 years the US stock market has been a darling, outperforming foreign stocks by 1% per year. $10k invested in US stocks in 1950 turned into $14 million vs. only $8m in foreign stocks. Want to know how much of that out-performance has come since 2009? All of it"

So I'm in the camp that default weighting should be global market cap weighting. I understand so is Vanguard (though they currently recommend just 40% cause they don't think investors are ready for the full 50%).

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by packer16 » Tue May 28, 2019 7:48 am

I think a home country or IMO more appropriately an Anglo-Dutch system premium is appropriate. In Anglo-Dutch based economies you know the rules, there is alot of disclosure/transparency and corruption for the most part is small. When you move away from these economies, the economic interactions become more relationship vs. rule based & the incentives become less shareholder focused and more management or government focused. I know the market is good at pricing known & disclosed risks but in these more relationship based & opaque situation efficiency is harder to achieve and thus the additional uncertainty requires an additional risk premium whose magnitude is not known due to lack of transparency & non shareholder incentives of management.

You also have to remember in the capitalist based system, the larger & more diverse economies have inherent advantages & less risk vs. smaller or more focused economies. Thus I think international diversification is more important in a country like Finland than the US. Thus the real diversification benefits come from industry diversification and sales to customers in different parts of the world not from where a company is located.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by DaufuskieNate » Tue May 28, 2019 8:04 am

azanon wrote:
Tue May 28, 2019 7:28 am
I could see it both ways - the opposite view is you have your job in the US, government income sources in the US, your economy is the US, so why the heck would you go "all in" and have all of your investments here too, or even bias them here? To me that sounds higher risk. I guess what I'm saying is that I could imagine certain economic events that could affect all of those at once, but not necessarily, say, foreign stock or bonds held in foreign currencies.
The decade of the 1970's provided an example of the advantages of a globally-diversified portfolio. During this time, the U.S. struggled with rising inflation and a declining dollar. Unhedged international stocks worked out pretty well for U.S. investors at that time. I can't predict what's coming next for the global economy and I'm a buy and hold investor, so for me global diversification makes sense.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by azanon » Tue May 28, 2019 8:11 am

DaufuskieNate wrote:
Tue May 28, 2019 8:04 am
azanon wrote:
Tue May 28, 2019 7:28 am
I could see it both ways - the opposite view is you have your job in the US, government income sources in the US, your economy is the US, so why the heck would you go "all in" and have all of your investments here too, or even bias them here? To me that sounds higher risk. I guess what I'm saying is that I could imagine certain economic events that could affect all of those at once, but not necessarily, say, foreign stock or bonds held in foreign currencies.
The decade of the 1970's provided an example of the advantages of a globally-diversified portfolio. During this time, the U.S. struggled with rising inflation and a declining dollar. Unhedged international stocks worked out pretty well for U.S. investors at that time. I can't predict what's coming next for the global economy and I'm a buy and hold investor, so for me global diversification makes sense.
I agree. I try to take some of those boglehead sayings to the next level, such as "nobody knows nothing." If nobody really knows nothing, then why the heck would you tie every single financial asset, and income stream that you have to the US economy?

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Valuethinker » Tue May 28, 2019 8:29 am

azanon wrote:
Tue May 28, 2019 8:11 am
DaufuskieNate wrote:
Tue May 28, 2019 8:04 am
azanon wrote:
Tue May 28, 2019 7:28 am
I could see it both ways - the opposite view is you have your job in the US, government income sources in the US, your economy is the US, so why the heck would you go "all in" and have all of your investments here too, or even bias them here? To me that sounds higher risk. I guess what I'm saying is that I could imagine certain economic events that could affect all of those at once, but not necessarily, say, foreign stock or bonds held in foreign currencies.
The decade of the 1970's provided an example of the advantages of a globally-diversified portfolio. During this time, the U.S. struggled with rising inflation and a declining dollar. Unhedged international stocks worked out pretty well for U.S. investors at that time. I can't predict what's coming next for the global economy and I'm a buy and hold investor, so for me global diversification makes sense.
I agree. I try to take some of those boglehead sayings to the next level, such as "nobody knows nothing." If nobody really knows nothing, then why the heck would you tie every single financial asset, and income stream that you have to the US economy?
Because they cannot imagine that things could be different -- a form of recency bias as well as the representativeness effect. It helps to invest in WalMart if you can actually drive to one - the US market is familiar.

Or a disbelief that the market could actually be well informed: the discount of foreign stocks against US stocks is partly simply sectoral (US has more tech and other high growth companies) but it also reflects the market's recognition of different growth prospects. The European banks trade at big discounts to Book Value vs the US, and there's a reason for that.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by David Althaus » Tue May 28, 2019 10:59 am

I worry about Vanguard thinking on this issue. It's purely numerical and assumes all companies in all parts of the world are the same. Here's some experience and--yes--anecdotal to me:
1. A deal is a deal in the US. This may or may not be the case in too many parts of the world.
2. Almost to a person ex-US employees devote to US markets whatever the law of their land allows. Is that home country bias?
3. It can prove almost impossible to layoff (even worse when someone deserves to be fired). This can lead to a less dynamic workforce.
4. Problem-solving and the "business gene" seems deeply embedded in the US. Not so much in some other places. That's not an indictment of people but says a lot about our wonderful country's culture. Once here these employees more than not think like Americans.

We know we can't determine price movements but the theory that ex-US stocks sell for about what they're worth should be examined more closely with an eye to more than strictly a numbers exercise.

At 72 I have 20% (bludgeoned into it by conventional wisdom) in VXUS and ask myself if I will be around to enjoy the reversion to the mean--should it even exist. The better case may be as a diversifier and something of a dollar hedge.

All the best

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by garlandwhizzer » Tue May 28, 2019 2:18 pm

willthrill81 wrote:

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
True. Humans are not now nor ever have been entirely rational beings. We often hold mutually contradictory opinions simultaneously about a variety of subjects. Most strongly felt opinions are derived from non-rational emotions (fear and greed for example in investing). Then after the fact we use our capacity for reason to try to explain and rationalize our positions attempting to make them to have originated from reason alone. We are not Spocks from Star Trek.

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International Allocation Suggestion

Post by Taylor Larimore » Tue May 28, 2019 2:47 pm

Bogleheads:

In 2016 I made a post suggesting a 20% International Allocation for USA Investors. I feel the same today:

viewtopic.php?t=196956

Best wishes.
Taylor
Last edited by Taylor Larimore on Wed May 29, 2019 10:00 am, edited 1 time in total.
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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by nisiprius » Tue May 28, 2019 4:00 pm

Random Walker wrote:
Fri May 17, 2019 9:28 am
....Since one’s home country equities do not achieve any higher risk adjusted returns than international holdings,...
A quick reality check on the robustness and reliability of this statement, using what would seem to be the most obvious choices from Larry Swedroe's favored fund company, DFA.

The most obvious choice for international equities would seem to be DFIEX, the DFA Enhanced International Core Equity Portfolio. The obvious plain vanilla US counterpart would seem to be DFELX, DFA US enhanced US Large Company Portfolio. Since inception of DFIEX, it has had a Sharpe ratio of 0.29. Over the same time period, the Sharpe ratio for DFELX was 0.59. That is, over the life of the international fund, the US fund had twice the risk-adjusted return of the international fund.

One can find time periods where the reverse was true. My point is that one shouldn't be categorical about what asset classes "do." The natural variation is so large. I think it's very likely that international stock funds have had a slightly lower risk-adjusted return than US funds, but it's awfully hard to figure out a really fair comparison.
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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by protagonist » Tue May 28, 2019 4:05 pm

I am no expert, so take my comment as you wish, but I believe that Larry's guess is as good as anybody's.
That includes my own, those of all the above posters, and that of Mr. Bogle (were he still alive to chime in).

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by All Seasons » Tue May 28, 2019 5:01 pm

What’s even more ubiquitous than home country bias is the laundry list of silly arguments being put forth trying to justify it. :oops:
The market portfolio is always a legitimate portfolio.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by pward » Tue May 28, 2019 5:54 pm

I think that for non-U.S. investors a case can be made to overweight their home country from world market weight. In general, we should be diversified, but we are also all inexorably tied to our local economies and currencies, and it makes no sense to go short our local economy and currency (an international allocation that is greater than local allocation is a short position against your local economy and currency behind the scenes). I think we all also have a vested interest in supporting our local businesses through investment.

For U.S. investors this obviously doesn't apply, as global market cap is still long U.S. economy and currency. But we are the only country in that position. I still don't think people need to go to global market cap if they don't want to. For a U.S. investor having 20% of the equity allocation in international will yield 80% of the diversification benefits. I think this is a fine starting point. Those with a gold allocation could go even lower since international historically tends to outperform in times the U.S. currency underperforms, at which time gold also historically tends to outperform. Having both gold and a high international allocation can be redundant, and can also cause the situation I mentioned above where you are short your local currency. Currency fluctuations tend to be the majority of the over or under performance in U.S. vs international. There's more than 1 way to diversify. Everyone needs to look at the context of their portfolio as a whole and make the decision based on that. There is no one size fits all shoe in investing.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Taylor Larimore » Tue May 28, 2019 6:54 pm

protagonist wrote:
Tue May 28, 2019 4:05 pm
I am no expert, so take my comment as you wish, but I believe that Larry's guess is as good as anybody's.
That includes my own, those of all the above posters, and that of Mr. Bogle (were he still alive to chime in).
protagonist:

Jack Bogle, for whom this forum was named, made the best investment forecast about international funds that I know. This is what he wrote in the Forward of The Bogleheads' Guide to the Three-Fund Portfolio:
In my first book, Bogle on Mutual Funds published in 1994, I wrote that a long-term investor need not allocate any of his or her assets to non-U.S. stocks. Since 1994, as it was to happen, the U.S. S&P 500 Index was to rise by 743%, while the EAFE Index of non-U.S.stocks rose by 327%.
For 25 long years Mr. Bogle was right!

Best wishes.
Taylor
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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by vineviz » Tue May 28, 2019 7:28 pm

David Althaus wrote:
Tue May 28, 2019 10:59 am
I worry about Vanguard thinking on this issue. It's purely numerical and assumes all companies in all parts of the world are the same.
No it's not, and no it doesn't.
David Althaus wrote:
Tue May 28, 2019 10:59 am
1. A deal is a deal in the US. This may or may not be the case in too many parts of the world.
True, in many other countries a deal is MORE of a deal than it is in the U.S. There are more than two dozen countries with stronger property rights protections than the US has.

David Althaus wrote:
Tue May 28, 2019 10:59 am
2. Almost to a person ex-US employees devote to US markets whatever the law of their land allows. Is that home country bias?
No, but it's also not true.
David Althaus wrote:
Tue May 28, 2019 10:59 am
3. It can prove almost impossible to layoff (even worse when someone deserves to be fired). This can lead to a less dynamic workforce.
Here you're talking about the US, right?

David Althaus wrote:
Tue May 28, 2019 10:59 am
4. Problem-solving and the "business gene" seems deeply embedded in the US. Not so much in some other places. That's not an indictment of people but says a lot about our wonderful country's culture. Once here these employees more than not think like Americans.
Did you know that the more exposed American investors are to ex-US companies and workers, and the more educated they are, the MORE they tend to allocate ex-US stocks? I wonder what those investors know that could be helpful to others?
"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: Larry Swedroe: Home Country Bias Ubiquitous

Post by lostdog » Tue May 28, 2019 8:29 pm

All Seasons wrote:
Tue May 28, 2019 5:01 pm
What’s even more ubiquitous than home country bias is the laundry list of silly arguments being put forth trying to justify it. :oops:
+1

After awhile you can read between the lines and come to other conclusions that are not allowed to be discussed on this forum.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future. I invest in Vanguard Total World Stock Index.

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Re: International Allocation Suggestion

Post by lostdog » Tue May 28, 2019 8:41 pm

Taylor Larimore wrote:
Tue May 28, 2019 2:47 pm
Bogleheads:

In 2016 I made a post suggesting a 25% International Allocation for USA Investors. I feel the same today:

viewtopic.php?t=196956

Best wishes.
Taylor
Vanguard feels 40% is good for U.S. investors.

https://investor.vanguard.com/investing ... -investing
I don't invest looking in the rear view mirror and I know absolutely nothing about the future. I invest in Vanguard Total World Stock Index.

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Re: International Allocation Suggestion

Post by bikechuck » Tue May 28, 2019 8:44 pm

Taylor Larimore wrote:
Tue May 28, 2019 2:47 pm
Bogleheads:

In 2016 I made a post suggesting a 25% International Allocation for USA Investors. I feel the same today:

viewtopic.php?t=196956

Best wishes.
Taylor

I thought that your recommendation was 20% which is what I am currently using?

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Re: International Allocation Suggestion

Post by Taylor Larimore » Wed May 29, 2019 9:28 am

bikechuck wrote:
Tue May 28, 2019 8:44 pm
Taylor Larimore wrote:
Tue May 28, 2019 2:47 pm
Bogleheads:

In 2016 I made a post suggesting a 25% International Allocation for USA Investors. I feel the same today:

viewtopic.php?t=196956

Best wishes.
Taylor

I thought that your recommendation was 20% which is what I am currently using?
bikechuck:

You are correct.

I know you are pleased with your 20% international stocks rather than the 40%-50% most recommend. We can both thank Mr. Bogle.

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

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Re: International Allocation Suggestion

Post by lostdog » Wed May 29, 2019 9:58 am

Taylor Larimore wrote:
Wed May 29, 2019 9:28 am
bikechuck wrote:
Tue May 28, 2019 8:44 pm
Taylor Larimore wrote:
Tue May 28, 2019 2:47 pm
Bogleheads:

In 2016 I made a post suggesting a 25% International Allocation for USA Investors. I feel the same today:

viewtopic.php?t=196956

Best wishes.
Taylor

I thought that your recommendation was 20% which is what I am currently using?
bikechuck:

You are correct.

I know you are pleased with your 20% international stocks rather than the 40%-50% most recommend. We can both thank Mr. Bogle.

Best wishes.
Taylor
Deleted
I don't invest looking in the rear view mirror and I know absolutely nothing about the future. I invest in Vanguard Total World Stock Index.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by celerity » Wed May 29, 2019 11:10 am

For those who’d like a serious overview of current home bias research:

Home bias in open economy financial macroeconomics (Coeurdacier, Rey 2013)

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by protagonist » Wed May 29, 2019 11:31 am

Taylor Larimore wrote:
Tue May 28, 2019 6:54 pm
protagonist wrote:
Tue May 28, 2019 4:05 pm
I am no expert, so take my comment as you wish, but I believe that Larry's guess is as good as anybody's.
That includes my own, those of all the above posters, and that of Mr. Bogle (were he still alive to chime in).
protagonist:

Jack Bogle, for whom this forum was named, made the best investment forecast about international funds that I know. This is what he wrote in the Forward of The Bogleheads' Guide to the Three-Fund Portfolio:
In my first book, Bogle on Mutual Funds published in 1994, I wrote that a long-term investor need not allocate any of his or her assets to non-U.S. stocks. Since 1994, as it was to happen, the U.S. S&P 500 Index was to rise by 743%, while the EAFE Index of non-U.S.stocks rose by 327%.
For 25 long years Mr. Bogle was right!

Best wishes.
Taylor
Thanks, Taylor!
First, this is not out of any disrespect for Jack Bogle....I have utmost respect for the man (though I have never met him).
That said, he had a 50-50 chance of being correct in predicting that US stocks would outperform non-US stocks.
I would humbly suggest that it may well have been a lucky guess. Given my faith in 25 year predictions, I think it almost certainly was luck. You may disagree.
If in 1994 he predicted the Dow would be at 25,000 in 2019, I would probably still attribute that to a lucky guess, though I would give that a second thought.
If in 1994 he predicted the 1999 tech bubble, the 2008 crash AND the current 25000 Dow, well....I suppose that would convince me to scratch my head and maybe take his predictions seriously. To date nobody, NOT EVEN Mr. Bogle, has provided me with enough evidence to convince me to take their 25 year predictions of the stock market seriously. I admit I don't have the financial expertise that either you or Jack Bogle do. But with what I know of the behavior of complex, nonlinear systems, such predictions make no sense. I'm still waiting for somebody to prove me wrong.

(Currently, 12.9% of my total portfolio, and about 28-29% of my stock allocation, is in international stocks...fairly close to your 25% recommendation. That is a lazy consequence of being invested in Fidelity Four in One Fund (FFNOX), not due to any brilliant prediction of mine as to how well international stocks will do. For that, I am clueless.)
Last edited by protagonist on Wed May 29, 2019 12:02 pm, edited 6 times in total.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Angst » Wed May 29, 2019 11:35 am

celerity wrote:
Wed May 29, 2019 11:10 am
For those who’d like a serious overview of current home bias research:

Home bias in open economy financial macroeconomics (Coeurdacier, Rey 2013)
Here are a couple links - paper, slides...

https://www.researchgate.net/profile/He ... ion_detail

http://econ.sciences-po.fr/sites/defaul ... slides.pdf

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by vineviz » Wed May 29, 2019 1:06 pm

protagonist wrote:
Wed May 29, 2019 11:31 am
For 25 long years Mr. Bogle was right!
Thanks, Taylor!
First, this is not out of any disrespect for Jack Bogle....I have utmost respect for the man (though I have never met him).
That said, he had a 50-50 chance of being correct in predicting that US stocks would outperform non-US stocks.
I would humbly suggest that it may well have been a lucky guess.
Possibly even more lucky than it might first appear: over the past 60 years, U.S. stocks have outperformed non-US stocks in only about 44% of rolling five-year time periods.
"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: Larry Swedroe: Home Country Bias Ubiquitous

Post by lostdog » Wed May 29, 2019 9:31 pm

I'm guessing most of the U.S. only and very low International allocation posters are stuck in the cold war and earlier era. Then making "arm chair" expert opinions on international allocation. I'll take Vanguard's advice.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future. I invest in Vanguard Total World Stock Index.

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"Lucky Guess?"

Post by Taylor Larimore » Thu May 30, 2019 10:10 pm

He had a 50-50 chance of being correct in predicting that US stocks would outperform non-US stocks.
I would humbly suggest that it may well have been a lucky guess.
protagonist:

If you read Mr. Bogle's original 1999 edition of Common Sense on Mutual Funds you can read a 19 page chapter "On Global Investing" in which Mr. Bogle explains his reasoning for predicting that US stocks would outperform non-US stocks.

He has been right and for that he deserves credit.

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

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by Northern Flicker » Thu May 30, 2019 11:51 pm

In 1999, did Mr. Bogle also predict the global financial crisis of 2008/2009? The reason I ask is that non-US stocks handily trounced US stocks from 1/1/2000 to 12/31/2007. The prediction of US outperformance was dead wrong until the start of the global financial crisis, which threw such a large wrench into the works that any prediction in 1999 that would apply to the period 2008-present could not have been based on any kind of skill deserving of credit without having also predicted the crisis.

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Re: "Lucky Guess?"

Post by protagonist » Fri May 31, 2019 7:37 am

Taylor Larimore wrote:
Thu May 30, 2019 10:10 pm
He had a 50-50 chance of being correct in predicting that US stocks would outperform non-US stocks.
I would humbly suggest that it may well have been a lucky guess.
protagonist:

If you read Mr. Bogle's original 1999 edition of Common Sense on Mutual Funds you can read a 19 page chapter "On Global Investing" in which Mr. Bogle explains his reasoning for predicting that US stocks would outperform non-US stocks.

He has been right and for that he deserves credit.

Best wishes.
Taylor
I will read that, Taylor.
Thanks.

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Re: "Lucky Guess?"

Post by asif408 » Fri May 31, 2019 8:00 am

Taylor Larimore wrote:
Thu May 30, 2019 10:10 pm
He had a 50-50 chance of being correct in predicting that US stocks would outperform non-US stocks.
I would humbly suggest that it may well have been a lucky guess.
protagonist:

If you read Mr. Bogle's original 1999 edition of Common Sense on Mutual Funds you can read a 19 page chapter "On Global Investing" in which Mr. Bogle explains his reasoning for predicting that US stocks would outperform non-US stocks.

He has been right and for that he deserves credit.

Best wishes.
Taylor
That is true, Taylor. But to defend the globally diversified crowd a bit, those who stuck with only US stock have only been ahead since 2013: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. Anyone who bought US stocks only in 1999 and sold sometime between 2004-2013 likely came out behind a more globally diversified portfolio. And even those who didn't sell had to endure a decade of US underperformance to get to today. The majority of the outperformance of US stocks has occured in the last 5 years. Not exactly a ringing endorsement for the superiority of US stocks.

Honestly, if I start in 1999 and include emerging markets, I could make a pretty strong case that emerging markets are the best long term investment: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by willthrill81 » Mon Jun 10, 2019 10:01 pm

Valuethinker wrote:
Tue May 28, 2019 5:24 am
willthrill81 wrote:
Mon May 27, 2019 10:11 pm
I find it interesting that, relatively speaking, exceptionally few investors hold what many consider to be the 'default' weighting of global equities.

It's also interesting that we're told by the experts that most investors are strongly biased in one direction but that the market also 'efficiently' prices everything.
Because the investor at the margin sets the price. The last buyer and the last seller set the market price for everyone.
I've thought about this, and it's not quite right. It's like claiming that the very last strike on a block of ice that someone's been working for hours to split in two was 'the' strike that split it. If that were strictly accurate, the person should have struck the ice with 'that' blow first and saved themselves all the superfluous effort.

Prices are 'sort of' set at the margin, but the only reason that the margin is where it is is because that is the market's equilibrium, which is the confluence of a great many individuals, not just the last buyer and seller's.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by comeinvest » Tue Jun 11, 2019 2:02 am

packer16 wrote:
Tue May 28, 2019 7:48 am
I think a home country or IMO more appropriately an Anglo-Dutch system premium is appropriate. In Anglo-Dutch based economies you know the rules, there is alot of disclosure/transparency and corruption for the most part is small. When you move away from these economies, the economic interactions become more relationship vs. rule based & the incentives become less shareholder focused and more management or government focused. I know the market is good at pricing known & disclosed risks but in these more relationship based & opaque situation efficiency is harder to achieve and thus the additional uncertainty requires an additional risk premium whose magnitude is not known due to lack of transparency & non shareholder incentives of management.

You also have to remember in the capitalist based system, the larger & more diverse economies have inherent advantages & less risk vs. smaller or more focused economies. Thus I think international diversification is more important in a country like Finland than the US. Thus the real diversification benefits come from industry diversification and sales to customers in different parts of the world not from where a company is located.

Packer
With no offense, do you have any data supporting your theses? I keep coming across these type of posts in this forum, until somebody posts graphs or data supporting the opposite. I posted a link to a graph just recently, but there are probably hundreds of threads discussing this. I'm not exactly sure what is your definition of Anglo-Dutch, but as far as I know the Dutch system is very similar to e.g. the German system, and I'm not sure if it is more or less capitalist than, say, the Japanese or South-Korean system, or whether the British or German system is more capitalist or efficient. I'm not even sure if it matters, because as you say, if they have different efficiencies, we can assume that this fact is priced in. Just one post above yours it was stated that the U.S. did NOT outperform international in the 60 years before the last 10, i.e. all the outperformance came from the last 10 years. Either by correlation or by causation, the valuation numbers diverged during that same time frame, so everyone can draw their own conclusions. Even if there was a currently uncompensated difference in efficiency, freedom of markets, or rule or law, one might argue that the magnitude of the difference might be at the peak or already have peaked, given the current shift of the political spectrum in the U.S. and the perhaps decreasing regard of values like individual responsibility and self-reliance that set the U.S. apart in the past, not to mention the disregard for some of the rule of law in some of the political establishment. Everyone has their own opinion and I'm not going into details as the post would otherwise be deleted by the editors, but just making the point that the degree of freedom, capitalism, and perceived rule of law is not a one way street but can go both ways, and if it is - as supported by academic literature - the unexpected, unanticipated changes in this perception that affects equity performance and changes in valuation, rather than the current degree of competitiveness, it might not necessarily support U.S. equity markets outperformance in the future.

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Re: Larry Swedroe: Home Country Bias Ubiquitous

Post by packer16 » Tue Jun 11, 2019 7:59 am

The data is from where the blow-ups occur. If you look at "This Time is Different" by Rinehart & Rogoff, the serial defaulters are the same groups of countries and they are not Anglo-Dutch. I am describing the historically Anglo-Dutch system with publicly traded equities being a large part of the culture. My understanding is that although Germany does have publicly traded firms it also has more situations (than the UK or the Netherlands) where firms are private & banks provide the financing. There have been studies (referenced in CFA talk about EM) of EM markets where the largest risk is expropriation, if you exclude countries where your shares were expropriated then your returns would be higher than developed markets. I think that markets can incorporate some of this information but if the information is not disclosed & only known to insiders (like in places with few enforcement mechanisms for foreigners e.g. Russia), I think it is much more difficult for the market to be efficient & the foreigner is more likely to be the sucker at the table.

I just think the Anglo-Dutch framework is a way to differentiate systems where markets drive businesses typically in decentralized way versus other systems where either the government or families drive business in a more centralized way. As to each of the factors of rule of law, freedom & capitalism they do go back & forth over time but I think we can agree the systems that are decentralized have held unto these longer than those systems which are centralized due to the fact that centralized systems are dependent upon the wisdom or a leader or small group. One leader or a small group of powerful leaders (Russia, China) have had pretty poor track records over time versus decentralized systems (UK, US, Canada). IMO this is due to our inability as a species to deal with power in a rationale humane way. We typically end up with a tyranny that erases many of moves forward that were previously achieved. Competition keeps us humble & looking out for the interest of the customer.

Packer
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