Why Mr. Bogle prefers U.S stocks

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EddyB
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Re: Why Mr. Bogle prefers U.S stocks

Post by EddyB » Wed Jul 31, 2019 9:07 pm

Forester wrote:
Wed Jul 31, 2019 8:59 pm
The situation of ex-US markets in the 2010s doesn't seem so different to the US in the 2000s.
Well, it plays into a different set of beliefs.

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willthrill81
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Re: Why Mr. Bogle prefers U.S stocks

Post by willthrill81 » Wed Jul 31, 2019 9:13 pm

nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
I keep warning Bogleheads about performance chasing, which preference for US Stocks is.
I have no doubt that that's true for many U.S.-only investors, but I doubt that it's true of all of them. Many prefer to invest in 'what they know', others prefer to avoid currency risk and higher costs (e.g. taxes on foreign earnings), and others believe that the U.S. system is superior to that of other nations, none of which have anything to do with recency bias.
“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

stocknoob4111
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Re: Why Mr. Bogle prefers U.S stocks

Post by stocknoob4111 » Wed Jul 31, 2019 9:18 pm

visualguy wrote:
Wed Jul 31, 2019 8:23 pm
It's not yet 20 years of no price movement, although the movement has been small. M
Here is the backtest on PV with just price returns: https://tinyurl.com/y39d4u9l

using VGTSX (Total International Investor) as VTIAX Admiral does not go back that far.

~~ 2000-2019 ~~

Price returns:

CAGR: 0.87%
Real CAGR: -1.28%

Total returns:

CAGR: 3.38%
Real CAGR: 1.18%

Infact, even Total US Bonds outperformed International quite a bit in the last 20 years. This is quite ridiculous, 2000-2019 with dividends re-invested, Total International had a Sharpe of 0.19 with a max drawdown of 58%!!! and Total Bond had a Sharpe of 0.93 and a max drawdown of 3.99%.

I have no biases against any asset class, I am purely looking at the numbers and Total International at least in the last 2 decades has been terrible. You're taking crazy amounts of risk for virtually no returns and WORSE returns than US bonds. Risk adjusted it's been a disaster.

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willthrill81
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Re: Why Mr. Bogle prefers U.S stocks

Post by willthrill81 » Wed Jul 31, 2019 9:27 pm

stocknoob4111 wrote:
Wed Jul 31, 2019 9:18 pm
visualguy wrote:
Wed Jul 31, 2019 8:23 pm
It's not yet 20 years of no price movement, although the movement has been small. M
Here is the backtest on PV with just price returns: https://tinyurl.com/y39d4u9l

using VGTSX (Total International Investor) as VTIAX Admiral does not go back that far.

~~ 2000-2019 ~~

Price returns:

CAGR: 0.87%
Real CAGR: -1.28%

Total returns:

CAGR: 3.38%
Real CAGR: 1.18%

Infact, even Total US Bonds outperformed International quite a bit in the last 20 years. This is quite ridiculous, 2000-2019 with dividends re-invested, Total International had a Sharpe of 0.19 with a max drawdown of 58%!!! and Total Bond had a Sharpe of 0.93 and a max drawdown of 3.99%.

I have no biases against any asset class, I am purely looking at the numbers and Total International at least in the last 2 decades has been terrible. You're taking crazy amounts of risk for virtually no returns and WORSE returns than US bonds. Risk adjusted it's been a disaster.
Ex-U.S. stock had much better returns from 1986-1999 (earliest data in PV) but still lagged the U.S. significantly, 16.7% vs. 12.03%.

Apart from a few short periods, it's been over 30 years since ex-U.S. stock ownership would have been significantly benefited U.S. investors. But what the future holds, I have no idea.
“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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JoMoney
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Re: Why Mr. Bogle prefers U.S stocks

Post by JoMoney » Wed Jul 31, 2019 9:45 pm

willthrill81 wrote:
Wed Jul 31, 2019 9:13 pm
nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
I keep warning Bogleheads about performance chasing, which preference for US Stocks is.
I have no doubt that that's true for many U.S.-only investors, but I doubt that it's true of all of them. Many prefer to invest in 'what they know', others prefer to avoid currency risk and higher costs (e.g. taxes on foreign earnings), and others believe that the U.S. system is superior to that of other nations, none of which have anything to do with recency bias.
My portfolio has been predominately U.S. stocks for as long as I've owned stocks. When I made the decision to switch entirely to indexing, and just use a S&P 500 fund, it was in 2008 after some comments made by Buffett and he made his hedge fund bet. It certainly wasn't performance chasing at the relative performance at that point in time. I'm fairly certain if international has relatively better performance a few years from now, I'm not going to be changing anything then either...
I was curious about what the results of someone actively "performance chasing" between US and International would have been, and at least using a 2 to 6 month "Relative Strength" Indicator it seems like that might have worked PV Link
"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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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Wed Jul 31, 2019 9:47 pm

Forester wrote:
Wed Jul 31, 2019 8:59 pm
The situation of ex-US markets in the 2010s doesn't seem so different to the US in the 2000s.
The difference is that we're not talking about a one-decade problem with ex-US. Take the last 30 years, for example, if you want.

jibantik
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Re: Why Mr. Bogle prefers U.S stocks

Post by jibantik » Wed Jul 31, 2019 9:57 pm

Nothing says boglehead like people using past performance to slice and dice their equity holdings :oops:

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unclescrooge
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Re: Why Mr. Bogle prefers U.S stocks

Post by unclescrooge » Wed Jul 31, 2019 9:59 pm

nedsaid wrote:
Sun Jul 28, 2019 6:36 pm
UpperNwGuy wrote:
Sun Jul 28, 2019 6:27 pm
Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.
You have it about right. There actually seems to be very little difference in the range from 20% to 50%. I have almost 30% of my stocks in International.

The thing is, if the US retains its competitive advantages in the world economy, these arguments are pretty mute. It should make little difference whether you invest internationally or not. I believe in American exceptionalism but don't know that it will last. Hence my "Britannia Rules The Waves" post above. Things do change, the UK was in our position at one time. Just seems prudent to hedge your bets.
What has changed about America's exceptionalism in the past decade? I'm asking because the decade before was a dud for US stocks.

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willthrill81
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Re: Why Mr. Bogle prefers U.S stocks

Post by willthrill81 » Wed Jul 31, 2019 10:14 pm

unclescrooge wrote:
Wed Jul 31, 2019 9:59 pm
nedsaid wrote:
Sun Jul 28, 2019 6:36 pm
UpperNwGuy wrote:
Sun Jul 28, 2019 6:27 pm
Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.
You have it about right. There actually seems to be very little difference in the range from 20% to 50%. I have almost 30% of my stocks in International.

The thing is, if the US retains its competitive advantages in the world economy, these arguments are pretty mute. It should make little difference whether you invest internationally or not. I believe in American exceptionalism but don't know that it will last. Hence my "Britannia Rules The Waves" post above. Things do change, the UK was in our position at one time. Just seems prudent to hedge your bets.
What has changed about America's exceptionalism in the past decade? I'm asking because the decade before was a dud for US stocks.
It (i.e. 2000-2009) was a dud for TSM, but it wasn't a bad decade for mid-caps (6.13% nominal CAGR) and small-caps (4.36%), both of which outperformed ex-U.S.'s 2.29%.
Last edited by willthrill81 on Wed Jul 31, 2019 10:17 pm, edited 1 time in total.
“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: Why Mr. Bogle prefers U.S stocks

Post by Ferdinand2014 » Wed Jul 31, 2019 10:16 pm

LFS1234 wrote:
Sun Jul 28, 2019 5:35 pm
Fifty years ago, the conventional wisdom regarding foreign stocks would have been more averse. There would still have been generations of older people around who had first-hand memories of World Wars I and II, closed borders, massive wealth destruction, and wholesale confiscations of assets owned by foreigners and fellow citizens alike.

These types of events have occurred from time to time throughout history. They are still occurring today, although perhaps not in places we'd like to visit. We might like to think that "this time is different" and "never again". But how realistic is that? Especially for people with a very long investment time horizon? Human beings will be human beings, and one of the quickest paths to riches, unfortunately, still is to take somebody else's stuff.

"Friendly" countries also erect barriers against each other. See posts on this web site regarding the difficulties of US citizens in dealing with many types of non-US investments. See other posts pointing out how treacherous it can be for some foreign investors to own US stocks in ways that potentially could subject them to huge US estate taxes even if they have no other ties with the US and even though they may be of quite limited means. These types of complicated, counter-intuitive, discriminatory rules are nothing new; consider for example the "interest equalization tax" implemented in the US during the time of JFK, for the express purpose of making it less attractive for US citizens to invest overseas and more attractive for them to bring their money home.

Rules can change drastically and with little or no notice, both in the US and elsewhere. In your home country, at least you may have a political voice, especially when combined with those of others similarly situated. In somebody else's country, the local populists may just consider you to be a rich foreigner who is taking advantage of the locals and who ought to be expropriated.

Foreign investments can make sense; I have some. But the analysis required in making them is considerably more complicated than that which would be required for making a similar investment in your (developed) home country.
Very true.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Why Mr. Bogle prefers U.S stocks

Post by alex123711 » Wed Jul 31, 2019 10:28 pm

What would he recommend non U.S investors do?

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Re: Why Mr. Bogle prefers U.S stocks

Post by konic » Wed Jul 31, 2019 10:41 pm

hagridshut wrote:
Tue Jul 30, 2019 9:07 am
deltaneutral83 wrote:
Mon Jul 29, 2019 8:14 am
Whatever you do regarding International, don't spend hours reading about it. If that's you, you probably need to be at the 20% level and just forget it and stick to it and rebalance every year or so. I realized this was me several years ago and chose 25% as I wanted to be right down the middle between market cap and 0. I've been fine with it and it gives me a huge portion of the diversification benefits at that 25% level without losing too much when it underperforms as it has done the last decade. If anyone can tell me with certainty which market will outperform the next 10 years with 100% certainty I'm also open to that :sharebeer .
I am one of those people who has spent countless hours reading about International investing. I am at 60% U.S. and 40% International.

I will be the first to admit that I instinctively prefer U.S. stocks. The sheer amount of chaos and freewheeling dynamism in the U.S. tech sector over the past 10 years has resulted in a wealth of new businesses and innovation. Japan has stagnated. Europe appears headed down a similar path, with frustratingly low levels of opportunity for young people in places like Spain, France, Italy and Greece. Who knows what Brexit will do to the UK economy. Lack of rule of law and corruption can be a problem in places like India and China.
Not to take away from the rest of you post, but note that the US has plentiful corruption ... by legalizing the act and calling it lobbying we cannot conveniently pretend it is less corrupt.

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Re: Why Mr. Bogle prefers U.S stocks

Post by UpsetRaptor » Wed Jul 31, 2019 10:48 pm

Forester wrote:
Wed Jul 31, 2019 12:16 am
All of the US outperformance is attributable to the period since 2009.
This “recency bias” hogwash keeps popping up in these threads, but it’s complete bubkus. 200 years ago the US was not even a top 10 economy, and even in the late 19th century it was still behind Britain. It has absolutely outperformed in the last 1-2 centuries.

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Re: Why Mr. Bogle prefers U.S stocks

Post by Alchemist » Wed Jul 31, 2019 10:59 pm

konic wrote:
Wed Jul 31, 2019 10:41 pm
Not to take away from the rest of you post, but note that the US has plentiful corruption ... by legalizing the act and calling it lobbying we cannot conveniently pretend it is less corrupt.
If you think that corruption issues in the U.S. are somehow equivalent to corruption issues in India and China; I am not sure we can have much of a productive conversation. Yes, corruption is a problem everywhere but comparing the U.S. to China/India is like comparing Apples to hand grenades.
willthrill81 wrote:
Wed Jul 31, 2019 10:14 pm
It (i.e. 2000-2009) was a dud for TSM, but it wasn't a bad decade for mid-caps (6.13% nominal CAGR) and small-caps (4.36%), both of which outperformed ex-U.S.'s 2.29%.
It is true that 2000-2009 was a dud for TSM. But it was also a dud for total international as Total U.S. bond beat total international by 3.77% CAGR during that time period.

https://www.portfoliovisualizer.com/bac ... total3=100

And as others have pointed out, TBM has beat international for the entire time that Vanguard has offered total international (23 years!).

https://www.portfoliovisualizer.com/bac ... total3=100

While this is a rather dramatic performance shortfall for Total International; I am avoiding it going forward largely due to demographics and geography which I have repeated in detail probably more often than anyone here is interested in reading again.

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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Wed Jul 31, 2019 11:11 pm

willthrill81 wrote:
Wed Jul 31, 2019 9:27 pm
Ex-U.S. stock had much better returns from 1986-1999 (earliest data in PV) but still lagged the U.S. significantly, 16.7% vs. 12.03%.

Apart from a few short periods, it's been over 30 years since ex-U.S. stock ownership would have been significantly benefited U.S. investors. But what the future holds, I have no idea.
No one knows the future, but the past does shed some light.

Beyond looking at the past, all I can do is look at what I'm actually investing in. As someone mentioned above, it's very hard to be bullish on Europe and Japan.

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Re: Why Mr. Bogle prefers U.S stocks

Post by MoneyMarathon » Wed Jul 31, 2019 11:19 pm

visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:

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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Wed Jul 31, 2019 11:25 pm

MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm
visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.

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Re: Why Mr. Bogle prefers U.S stocks

Post by MoneyMarathon » Wed Jul 31, 2019 11:34 pm

visualguy wrote:
Wed Jul 31, 2019 11:25 pm
MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm
visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.
Last edited by MoneyMarathon on Wed Jul 31, 2019 11:37 pm, edited 1 time in total.

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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Wed Jul 31, 2019 11:36 pm

unclescrooge wrote:
Wed Jul 31, 2019 9:59 pm
nedsaid wrote:
Sun Jul 28, 2019 6:36 pm
UpperNwGuy wrote:
Sun Jul 28, 2019 6:27 pm
Like it or not, international stocks are a drag on a portfolio, and I don't see that changing anytime soon. Full disclosure: international stocks comprise about 20-25% of my portfolio. I often wish I were all-US stocks. I would never go to full market weight on international.
You have it about right. There actually seems to be very little difference in the range from 20% to 50%. I have almost 30% of my stocks in International.

The thing is, if the US retains its competitive advantages in the world economy, these arguments are pretty mute. It should make little difference whether you invest internationally or not. I believe in American exceptionalism but don't know that it will last. Hence my "Britannia Rules The Waves" post above. Things do change, the UK was in our position at one time. Just seems prudent to hedge your bets.
What has changed about America's exceptionalism in the past decade? I'm asking because the decade before was a dud for US stocks.
It seems that a lot of cracks are showing up in the Pax Americana that has shaped the world since WWII. One thing is that while we are still the world's number one military power, the gap between us and peer competitors has shrunk, particularly with China. We can't seem to sustain 3% GDP growth on a sustained basis anymore and that is troublesome. Birth rates are low, that is also a worry. There also is a lack of discipline in fiscal policy, and while I have discussed Modern Monetary Theory and have a mostly benign view of deficit spending, even I am beginning to wonder if we can sustain this. So far, so good. A number of things concern me but hopefully we will bounce back stronger than ever before. We always have.

Your point about the 2000's and US Stocks is a good one. The US Stock Market was essentially flat from 2000-2012. Prudent to have International diversification.
A fool and his money are good for business.

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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Thu Aug 01, 2019 12:21 am

MoneyMarathon wrote:
Wed Jul 31, 2019 11:34 pm
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.
The thing is that these foreign P/E ratios aren't out-of-line with their historical values... Foreign ratios being lower than US is nothing new either, and there are a number of explanations such as sector composition differences, and increased risk and volatility. Basically, it doesn't look like there's anything out of the ordinary here, unfortunately.

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Re: Why Mr. Bogle prefers U.S stocks

Post by bluquark » Thu Aug 01, 2019 12:38 am

willthrill81 wrote:
Wed Jul 31, 2019 9:13 pm
nedsaid wrote:
Sun Jul 28, 2019 4:16 pm
I keep warning Bogleheads about performance chasing, which preference for US Stocks is.
I have no doubt that that's true for many U.S.-only investors, but I doubt that it's true of all of them. Many prefer to invest in 'what they know', others prefer to avoid currency risk and higher costs (e.g. taxes on foreign earnings), and others believe that the U.S. system is superior to that of other nations, none of which have anything to do with recency bias.
An interesting fact I read in a Vanguard paper (forget which) is that the most home-biased investors in the world, even today, are in Japan. Yes, after decades of abysmal stock market underperformance compared to the rest of the world, the average Japanese investor still wants to invest in what they know and trust.

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Re: Why Mr. Bogle prefers U.S stocks

Post by MoneyMarathon » Thu Aug 01, 2019 2:03 am

visualguy wrote:
Thu Aug 01, 2019 12:21 am
Basically, it doesn't look like there's anything out of the ordinary here, unfortunately.
I don't think there's anything out of the ordinary. They just fit the definition of "value."

Not everyone likes value, boring sectors, developed international, or other things with gloomy prospects. So:
visualguy wrote:
Thu Aug 01, 2019 12:21 am
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
The problems of Europe and Japan, such as low growth, are well known, and this has been priced in as... "value" (P/E or P/B).

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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Thu Aug 01, 2019 2:55 am

MoneyMarathon wrote:
Thu Aug 01, 2019 2:03 am
visualguy wrote:
Thu Aug 01, 2019 12:21 am
Basically, it doesn't look like there's anything out of the ordinary here, unfortunately.
I don't think there's anything out of the ordinary. They just fit the definition of "value."

Not everyone likes value, boring sectors, developed international, or other things with gloomy prospects. So:
visualguy wrote:
Thu Aug 01, 2019 12:21 am
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
The problems of Europe and Japan, such as low growth, are well known, and this has been priced in as... "value" (P/E or P/B).
Got it. Yes, I agree.

The thing that baffles me is why Vanguard is pushing ex-US so heavily, sometimes using valuation arguments which didn't work before, and without explaining why it would be different this time (next 10 years) when it's nothing new.

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Re: Why Mr. Bogle prefers U.S stocks

Post by lostdog » Thu Aug 01, 2019 7:53 am

visualguy wrote:
Tue Jul 30, 2019 8:55 pm
Artsdoctor wrote:
Tue Jul 30, 2019 6:53 pm
Investing is not an exact science. But so far, there are two pages of opinions only in this thread (and there will be more). When I choose my investment strategies, I try to have some sort of data to back up my decision, knowing that the data may not be complete. Why not start with a position paper published earlier this year by Vanguard which presents some reasoning behind their reasoning?

https://personal.vanguard.com/pdf/ISGGEB.pdf
It's still a matter of opinion whether their reasoning is convincing or not... In the long run, the under-performance of ex-US has been significant, while the diversification benefit in terms of volatility reduction has been quite small, and Vanguard concedes that correlations have increased (although not expected to become perfect), so not a convincing case there.

In terms of the future, Vanguard is expecting higher returns for ex-US over the next decade. The reasoning isn't all that clear. In some of their papers, they base it on current valuations, and in this paper it's based on some proprietary simulation model. No mention of whether the model has been validated in some way, etc.

I also don't like how they always seem to ignore the elephant in the room which is the significant long-term overall under-performance of ex-US. No attempt to explain that (or even just mention that), and no attempt to explain why this won't continue other than saying that the next 10 years in particular will be different. Ok, not sure about that, but even if you accept that, the longer term picture can still be as bad as the last 20 or 30 years, so not sure where that leaves us.
Novice investors should take the opinion of a large group of professionals at Vanguard over "arm chair" experts on boglehead.org.
VTWAX and chill.

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Re: Why Mr. Bogle prefers U.S stocks

Post by JoMoney » Thu Aug 01, 2019 8:28 am

lostdog wrote:
Thu Aug 01, 2019 7:53 am
visualguy wrote:
Tue Jul 30, 2019 8:55 pm
Artsdoctor wrote:
Tue Jul 30, 2019 6:53 pm
Investing is not an exact science. But so far, there are two pages of opinions only in this thread (and there will be more). When I choose my investment strategies, I try to have some sort of data to back up my decision, knowing that the data may not be complete. Why not start with a position paper published earlier this year by Vanguard which presents some reasoning behind their reasoning?

https://personal.vanguard.com/pdf/ISGGEB.pdf
It's still a matter of opinion whether their reasoning is convincing or not... In the long run, the under-performance of ex-US has been significant, while the diversification benefit in terms of volatility reduction has been quite small, and Vanguard concedes that correlations have increased (although not expected to become perfect), so not a convincing case there.

In terms of the future, Vanguard is expecting higher returns for ex-US over the next decade. The reasoning isn't all that clear. In some of their papers, they base it on current valuations, and in this paper it's based on some proprietary simulation model. No mention of whether the model has been validated in some way, etc.

I also don't like how they always seem to ignore the elephant in the room which is the significant long-term overall under-performance of ex-US. No attempt to explain that (or even just mention that), and no attempt to explain why this won't continue other than saying that the next 10 years in particular will be different. Ok, not sure about that, but even if you accept that, the longer term picture can still be as bad as the last 20 or 30 years, so not sure where that leaves us.
Novice investors should take the opinion of a large group of professionals at Vanguard over "arm chair" experts on boglehead.org.
And Vanguard says:
... In practice, many investors will consider an allocation to international equities well below global market-capitalization
weight based on their sensitivity to a number of considerations, including volatility reduction, implementation costs, taxes, regulation, and their own preferences...

...Real-world considerations may support allocations to international equities that differ from those suggested by market proportions or a minimum-variance analysis like the one used in Figures 3 and A-1. Broadly, such considerations involve barriers to investment, such as limitations on the repatriation of investment income, tax considerations, and higher transaction and friction costs (for instance, commissions, opportunity costs, and market-impact...

... Investors should carefully weigh the trade-offs, such as volatility reduction, implementation cost, tax considerations, and their own preferences...
As far as I can tell, the arguments for higher international allocations for U.S. investors seems to be performance chasing (based on various forecasts of future returns), a believe that they can find an optimal mix with some uncorrelated "diversification benefit" (despite no way of knowing what will be optimal), and some arguments that suggest since a global portfolio may be an improvement from the perspective in some places outside the U.S. then U.S. investors should ignore that they're in the U.S. and their own relative position/perspective and pretend they're some non-existant global amalgamation citizen with no home currency or laws
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

visualguy
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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Thu Aug 01, 2019 9:07 am

lostdog wrote:
Thu Aug 01, 2019 7:53 am
visualguy wrote:
Tue Jul 30, 2019 8:55 pm
Artsdoctor wrote:
Tue Jul 30, 2019 6:53 pm
Investing is not an exact science. But so far, there are two pages of opinions only in this thread (and there will be more). When I choose my investment strategies, I try to have some sort of data to back up my decision, knowing that the data may not be complete. Why not start with a position paper published earlier this year by Vanguard which presents some reasoning behind their reasoning?

https://personal.vanguard.com/pdf/ISGGEB.pdf
It's still a matter of opinion whether their reasoning is convincing or not... In the long run, the under-performance of ex-US has been significant, while the diversification benefit in terms of volatility reduction has been quite small, and Vanguard concedes that correlations have increased (although not expected to become perfect), so not a convincing case there.

In terms of the future, Vanguard is expecting higher returns for ex-US over the next decade. The reasoning isn't all that clear. In some of their papers, they base it on current valuations, and in this paper it's based on some proprietary simulation model. No mention of whether the model has been validated in some way, etc.

I also don't like how they always seem to ignore the elephant in the room which is the significant long-term overall under-performance of ex-US. No attempt to explain that (or even just mention that), and no attempt to explain why this won't continue other than saying that the next 10 years in particular will be different. Ok, not sure about that, but even if you accept that, the longer term picture can still be as bad as the last 20 or 30 years, so not sure where that leaves us.
Novice investors should take the opinion of a large group of professionals at Vanguard over "arm chair" experts on boglehead.org.
There is no consensus among "professionals". For example, the professionals at the well-known private bank that my dad uses have been allocating 15% to ex-US, and of course Bogle and Buffett recommended none. We know which professionals have been on the right side of history, and that should also count for something in terms of who has credibility.

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Re: Why Mr. Bogle prefers U.S stocks

Post by asif408 » Thu Aug 01, 2019 9:38 am

willthrill81 wrote:
Wed Jul 31, 2019 10:14 pm
It (i.e. 2000-2009) was a dud for TSM, but it wasn't a bad decade for mid-caps (6.13% nominal CAGR) and small-caps (4.36%), both of which outperformed ex-U.S.'s 2.29%.
Primarily because they also underperformed in the prior 15 years. Small stocks underperformed large stocks by about 7% CAGR from 1985-2000: https://www.portfoliovisualizer.com/bac ... 0&total3=0. And REITs, which were stars in the 2000-2002 bear market, did even worse leading up to 2000: https://www.portfoliovisualizer.com/bac ... total3=100. Name an asset class that did much better than the US stock market in the 2000s that didn't significantly underperform the US stock market in the prior 10-15 years.

Since the bottom in 2009, US large, mid, and small have all given 16-18% returns, so I wouldn't have faith in any significant US small or mid cap outperformance next decade if US large cap does poorly. The only segment of the US market that has really had any kind of struggle since 2009 is energy, so maybe there is some hope there.

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Re: Why Mr. Bogle prefers U.S stocks

Post by hagridshut » Thu Aug 01, 2019 10:48 am

JoMoney wrote:
Thu Aug 01, 2019 8:28 am
As far as I can tell, the arguments for higher international allocations for U.S. investors seems to be performance chasing (based on various forecasts of future returns), a believe that they can find an optimal mix with some uncorrelated "diversification benefit" (despite no way of knowing what will be optimal), and some arguments that suggest since a global portfolio may be an improvement from the perspective in some places outside the U.S. then U.S. investors should ignore that they're in the U.S. and their own relative position/perspective and pretend they're some non-existant global amalgamation citizen with no home currency or laws
I tend to agree with this.

Vanguard's own forecast projects higher returns over the next decade for International stocks vs. U.S. stocks. Changing asset allocation based on forecasts is performance chasing.

I believe that the only people who can claim they are not performance chasing, are those who are going global weight in stocks (roughly 55% U.S., 45% International) and leaving it at that. Or perhaps those who buy Target Retirement funds because they don't want to make decisions at all on allocations. I admit that my moderate U.S. tilt, at 60% U.S. and 40% International, is performance chasing based on my observation that the U.S. is likely, but not guaranteed, to stay the most innovative industrial economy in the near term.
First Principles: (1) Diversify (2) Low Cost (3) Stay the Course | 3-Fund Index Portfolio: S&P500; Intl; U.S.Bonds

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Re: Why Mr. Bogle prefers U.S stocks

Post by sschullo » Thu Aug 01, 2019 11:01 am

With all of the detailed and complicated comments on whether to invest in international or not, St. Jack did change to 20% allocation. Taylor did not mention it (heard it elsewhere) that I think his best argument for not having international exposure was to keep the investing process simple so that more people can invest with confidence. It is in this simplicity that he could also lower costs and thus accomplish two historical goals at once.
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Re: Why Mr. Bogle prefers U.S stocks

Post by vineviz » Thu Aug 01, 2019 11:11 am

visualguy wrote:
Thu Aug 01, 2019 9:07 am
There is no consensus among "professionals". For example, the professionals at the well-known private bank that my dad uses have been allocating 15% to ex-US, and of course Bogle and Buffett recommended none.
There is a pretty good chance that your dad's advisors are either telling him what they think he wants to hear or else are allocating in the rear view mirror.

In any case, there is virtually no field of human knowledge where consensus requires unanimity. There may be dissenters, but the truth is that the consensus among financial economists and asset allocation specialists is that investing in global equities is a critical piece of a diversified portfolio.

Take a look at the target date funds from Vanguard, American Funds, Fidelity, BlackRock, JPMorgan, TIAA-CREF, John Hancock, Schwab, Voya, State Street, DFA, MFA, Wells Fargo, etc. and see if you can find even one that allocates less than 35% of equities to ex-US stocks.

I doubt you'll find any. In fact, I'd be willing to bet over 95% of such funds will have at least 35% of stocks invested internationally. If that's not a sign of consensus, I don't know what would be.
"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: Why Mr. Bogle prefers U.S stocks

Post by rascott » Thu Aug 01, 2019 11:17 am

MoneyMarathon wrote:
Wed Jul 31, 2019 11:34 pm
visualguy wrote:
Wed Jul 31, 2019 11:25 pm
MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm
visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.

They are a value because developed ex-US is basically in a recession. With no end in sight. Those economies are down and what catalyst is there for them to get back up?

I'm OUT. I'll take some EMs...but the rest, no thanks.

asif408
Posts: 1838
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Re: Why Mr. Bogle prefers U.S stocks

Post by asif408 » Thu Aug 01, 2019 11:17 am

hagridshut wrote:
Thu Aug 01, 2019 10:48 am
JoMoney wrote:
Thu Aug 01, 2019 8:28 am
As far as I can tell, the arguments for higher international allocations for U.S. investors seems to be performance chasing (based on various forecasts of future returns), a believe that they can find an optimal mix with some uncorrelated "diversification benefit" (despite no way of knowing what will be optimal), and some arguments that suggest since a global portfolio may be an improvement from the perspective in some places outside the U.S. then U.S. investors should ignore that they're in the U.S. and their own relative position/perspective and pretend they're some non-existant global amalgamation citizen with no home currency or laws
I tend to agree with this.

Vanguard's own forecast projects higher returns over the next decade for International stocks vs. U.S. stocks. Changing asset allocation based on forecasts is performance chasing.

I believe that the only people who can claim they are not performance chasing, are those who are going global weight in stocks (roughly 55% U.S., 45% International) and leaving it at that. Or perhaps those who buy Target Retirement funds because they don't want to make decisions at all on allocations. I admit that my moderate U.S. tilt, at 60% U.S. and 40% International, is performance chasing based on my observation that the U.S. is likely, but not guaranteed, to stay the most innovative industrial economy in the near term.
If that is the case, why are there almost no investors here (even the pro international ones) with more than 50% of their allocation in foreign stocks? If what you say is true there would be people suggesting 60, 80, or even 100% international. But there is almost no one here I have seen suggesting that. I do, however, see the opposite suggestion (100% US) espoused here quite a bit.

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Re: Why Mr. Bogle prefers U.S stocks

Post by rascott » Thu Aug 01, 2019 11:20 am

MoneyMarathon wrote:
Wed Jul 31, 2019 11:34 pm
visualguy wrote:
Wed Jul 31, 2019 11:25 pm
MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm
visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.

They are a value because developed ex-US is basically in a recession. With no end in sight. Those economies are down and what catalyst is there for them to get back up?
Sub 1% growth, negative interest rates, and 8% unemployment. Bluck.

I'm OUT. I'll take some EMs...but the rest, no thanks.


Whoops..... somehow double posted!

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Artsdoctor
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Re: Why Mr. Bogle prefers U.S stocks

Post by Artsdoctor » Thu Aug 01, 2019 12:42 pm

vineviz wrote:
Thu Aug 01, 2019 11:11 am
visualguy wrote:
Thu Aug 01, 2019 9:07 am
There is no consensus among "professionals". For example, the professionals at the well-known private bank that my dad uses have been allocating 15% to ex-US, and of course Bogle and Buffett recommended none.
There is a pretty good chance that your dad's advisors are either telling him what they think he wants to hear or else are allocating in the rear view mirror.

In any case, there is virtually no field of human knowledge where consensus requires unanimity. There may be dissenters, but the truth is that the consensus among financial economists and asset allocation specialists is that investing in global equities is a critical piece of a diversified portfolio.

Take a look at the target date funds from Vanguard, American Funds, Fidelity, BlackRock, JPMorgan, TIAA-CREF, John Hancock, Schwab, Voya, State Street, DFA, MFA, Wells Fargo, etc. and see if you can find even one that allocates less than 35% of equities to ex-US stocks.

I doubt you'll find any. In fact, I'd be willing to bet over 95% of such funds will have at least 35% of stocks invested internationally. If that's not a sign of consensus, I don't know what would be.
Agreed.

It's an interesting phenomenon here. I can think of no other forum that stresses the importance of ignoring past returns in deciding how to allocate current resources, so using past performance as a reason to avoid internationals seems like an illogical choice. Additionally, the above posts are essentially all reiterating what people have heard from others without any data to support most of the hearsay. I don't have a dog in this fight but making a financial decision based on past performance and what you've heard in casual conversation seems to go against what we're trying to accomplish on the forum.

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hagridshut
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Re: Why Mr. Bogle prefers U.S stocks

Post by hagridshut » Thu Aug 01, 2019 12:51 pm

asif408 wrote:
Thu Aug 01, 2019 11:17 am
hagridshut wrote:
Thu Aug 01, 2019 10:48 am
Vanguard's own forecast projects higher returns over the next decade for International stocks vs. U.S. stocks. Changing asset allocation based on forecasts is performance chasing.

I believe that the only people who can claim they are not performance chasing, are those who are going global weight in stocks (roughly 55% U.S., 45% International) and leaving it at that. Or perhaps those who buy Target Retirement funds because they don't want to make decisions at all on allocations. I admit that my moderate U.S. tilt, at 60% U.S. and 40% International, is performance chasing based on my observation that the U.S. is likely, but not guaranteed, to stay the most innovative industrial economy in the near term.
If that is the case, why are there almost no investors here (even the pro international ones) with more than 50% of their allocation in foreign stocks? If what you say is true there would be people suggesting 60, 80, or even 100% international. But there is almost no one here I have seen suggesting that. I do, however, see the opposite suggestion (100% US) espoused here quite a bit.
My unconfirmed suspicion is that many people are still chasing U.S. performance. It is possible to move one's allocation towards International, because one believes that International stocks are likely to do better in the next few years, but simultaneously maintain overweight on U.S. stocks because they have done well in the past 10 years.

The "chasing" in this scenario takes into account the change in allocation, as well as the allocation percentages themselves.
First Principles: (1) Diversify (2) Low Cost (3) Stay the Course | 3-Fund Index Portfolio: S&P500; Intl; U.S.Bonds

lostdog
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Re: Why Mr. Bogle prefers U.S stocks

Post by lostdog » Thu Aug 01, 2019 2:18 pm

rascott wrote:
Thu Aug 01, 2019 11:17 am
MoneyMarathon wrote:
Wed Jul 31, 2019 11:34 pm
visualguy wrote:
Wed Jul 31, 2019 11:25 pm
MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm
visualguy wrote:
Wed Jul 31, 2019 11:11 pm
As someone mentioned above, it's very hard to be bullish on Europe and Japan.
It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.

They are a value because developed ex-US is basically in a recession. With no end in sight. Those economies are down and what catalyst is there for them to get back up?

I'm OUT. I'll take some EMs...but the rest, no thanks.
Did you say the same thing when U.S equities were at bottom in 2009? Heck, I'll take international at bottom. Actually it doesn't matter because I'm world market cap.
VTWAX and chill.

lostdog
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Re: Why Mr. Bogle prefers U.S stocks

Post by lostdog » Thu Aug 01, 2019 2:21 pm

Artsdoctor wrote:
Thu Aug 01, 2019 12:42 pm
vineviz wrote:
Thu Aug 01, 2019 11:11 am
visualguy wrote:
Thu Aug 01, 2019 9:07 am
There is no consensus among "professionals". For example, the professionals at the well-known private bank that my dad uses have been allocating 15% to ex-US, and of course Bogle and Buffett recommended none.
There is a pretty good chance that your dad's advisors are either telling him what they think he wants to hear or else are allocating in the rear view mirror.

In any case, there is virtually no field of human knowledge where consensus requires unanimity. There may be dissenters, but the truth is that the consensus among financial economists and asset allocation specialists is that investing in global equities is a critical piece of a diversified portfolio.

Take a look at the target date funds from Vanguard, American Funds, Fidelity, BlackRock, JPMorgan, TIAA-CREF, John Hancock, Schwab, Voya, State Street, DFA, MFA, Wells Fargo, etc. and see if you can find even one that allocates less than 35% of equities to ex-US stocks.

I doubt you'll find any. In fact, I'd be willing to bet over 95% of such funds will have at least 35% of stocks invested internationally. If that's not a sign of consensus, I don't know what would be.
Agreed.

It's an interesting phenomenon here. I can think of no other forum that stresses the importance of ignoring past returns in deciding how to allocate current resources, so using past performance as a reason to avoid internationals seems like an illogical choice. Additionally, the above posts are essentially all reiterating what people have heard from others without any data to support most of the hearsay. I don't have a dog in this fight but making a financial decision based on past performance and what you've heard in casual conversation seems to go against what we're trying to accomplish on the forum.
AND making future predictions. The most common one I see is predicting it's going to take 20 to 30 years for international to be attractive. Throwing the boglehead principles out the window. Every couple weeks starting new threads to reassure of their bias.
VTWAX and chill.

rascott
Posts: 1283
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Re: Why Mr. Bogle prefers U.S stocks

Post by rascott » Thu Aug 01, 2019 2:31 pm

lostdog wrote:
Thu Aug 01, 2019 2:18 pm
rascott wrote:
Thu Aug 01, 2019 11:17 am
MoneyMarathon wrote:
Wed Jul 31, 2019 11:34 pm
visualguy wrote:
Wed Jul 31, 2019 11:25 pm
MoneyMarathon wrote:
Wed Jul 31, 2019 11:19 pm


It's a value play. :wink:
I could buy that if ex-US valuations were low, but they aren't... It's surprising that this is the case after so many years of price stagnation, but it is what it is.
From Vanguard's website:

VTI (US - Vanguard Total Stock Market ETF)
P/E = 20.4 x
P/B = 3.0 x

VEA (Vanguard FTSE Developed Markets ETF)
P/E = 14.7 x
P/B = 1.5 x

Vanguard FTSE Europe ETF (VGK)
P/E = 16.1 x
P/B = 1.7 x

VPL (Vanguard FTSE Pacific ETF)
P/E = 13.2 x
P/B = 1.2 x

VWO (Vanguard FTSE Emerging Markets ETF)
P/E = 13.4 x
P/B = 1.7 x

And... if looking for value domestically...

VTV (Vanguard Value ETF)
P/E = 16.4 x
P/B = 2.2 x

When you can get entire regional or national markets for lower valuations than a typical US value fund, that's a value play.

They are a value because developed ex-US is basically in a recession. With no end in sight. Those economies are down and what catalyst is there for them to get back up?

I'm OUT. I'll take some EMs...but the rest, no thanks.
Did you say the same thing when U.S equities were at bottom in 2009? Heck, I'll take international at bottom. Actually it doesn't matter because I'm world market cap.

Not sure what I said exactly back then....but I do know I tripled my monthly savings rate into equities starting Jan 1, 2009. Looking back, I was doing 75/25 US/Intl at that point.

I'm eagerly awaiting any signs of momentum with intl equities. I've been waiting a long while.

asif408
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Re: Why Mr. Bogle prefers U.S stocks

Post by asif408 » Thu Aug 01, 2019 2:48 pm

hagridshut wrote:
Thu Aug 01, 2019 12:51 pm
My unconfirmed suspicion is that many people are still chasing U.S. performance. It is possible to move one's allocation towards International, because one believes that International stocks are likely to do better in the next few years, but simultaneously maintain overweight on U.S. stocks because they have done well in the past 10 years.

The "chasing" in this scenario takes into account the change in allocation, as well as the allocation percentages themselves.
I guess we have different definitions of chasing. I use the Merriam Webster definition for chasing: "an earnest or frenzied seeking after something desired". Not seeing international stocks as something "desired" or any frenzied seeking of foreign stocks. If there was earnest and frenzied seeking of international stocks, fund flows and AUM for international stocks should be higher than for US stocks.

MoneyMarathon
Posts: 556
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Re: Why Mr. Bogle prefers U.S stocks

Post by MoneyMarathon » Thu Aug 01, 2019 2:59 pm

rascott wrote:
Thu Aug 01, 2019 2:31 pm
I'm eagerly awaiting any signs of momentum with intl equities. I've been waiting a long while.
Yes, it hasn't been easy for US investors to feel good about diversifying internationally, for a while now.

After doing some reading up on the quality and momentum factors, I've been thinking about just using VIGI (the international dividend appreciation ETF) as my core international holding, in taxable. It has emerging markets in addition to developed, it has quality / momentum / low volatility exposure according to MSCI and factor regressions with data in PortfolioVisualizer, and it has a relatively low 0.25 expense ratio (for what it does) and is at Vanguard, which remits lending profits and is known for lowering fees over time. It also has a lower dividend yield than IXUS or VXUS (ex-US index funds), making it more tax efficient, so even if it just treads water with international equity, it's not bad in taxable, not bad at all (it could have a tiny negative alpha along with its higher expense ratio and still break even for me). At least, for those interested in the quality factor, which it scores highest for, and willing not to track the overall index. The top 10 portfolio holdings are weighty (30%), but they're also all names that I like holding (a lot being just highly profitable multinationals that happen to HQ in ex-US), and there are 400 holdings in total.

Combined with leveraged exposure to US equity, the fear of missing out on US stock market returns is greatly reduced. :wink:

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nedsaid
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Re: Why Mr. Bogle prefers U.S stocks

Post by nedsaid » Thu Aug 01, 2019 3:57 pm

JoMoney wrote:
Thu Aug 01, 2019 8:28 am

As far as I can tell, the arguments for higher international allocations for U.S. investors seems to be performance chasing (based on various forecasts of future returns), a believe that they can find an optimal mix with some uncorrelated "diversification benefit" (despite no way of knowing what will be optimal), and some arguments that suggest since a global portfolio may be an improvement from the perspective in some places outside the U.S. then U.S. investors should ignore that they're in the U.S. and their own relative position/perspective and pretend they're some non-existant global amalgamation citizen with no home currency or laws
Buying asset classes based upon future expected returns is not performance chasing. It seems like the definition has been turned on its head, I have always defined performance chasing as buying things that have performed well recently. I think of the chasing of the red hot High Tech/Internet stocks in the late 1990's. What you are talking about is simply buying cheaper assets. Sort of like saying Larry Swedroe was performance chasing Value stocks in 1998. US Stocks have been outperforming International Stocks since the 2008-2009 financial crisis, 12% to 16% annual performance compared to about 8% for International. Not much relative performance to chase.
A fool and his money are good for business.

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Forester
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Re: Why Mr. Bogle prefers U.S stocks

Post by Forester » Thu Aug 01, 2019 4:29 pm

stocknoob4111 wrote:
Wed Jul 31, 2019 9:18 pm
Infact, even Total US Bonds outperformed International quite a bit in the last 20 years. This is quite ridiculous, 2000-2019 with dividends re-invested, Total International had a Sharpe of 0.19 with a max drawdown of 58%!!! and Total Bond had a Sharpe of 0.93 and a max drawdown of 3.99%.

I have no biases against any asset class, I am purely looking at the numbers and Total International at least in the last 2 decades has been terrible. You're taking crazy amounts of risk for virtually no returns and WORSE returns than US bonds. Risk adjusted it's been a disaster.
I get a different result using stockcharts.com

Total return 3rd Jan 2000 to present

VGTSX +90%
VFINX +192%
FGOVX +83%

bluquark
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Re: Why Mr. Bogle prefers U.S stocks

Post by bluquark » Thu Aug 01, 2019 4:44 pm

I've watched my VTIAX be a dog for the last ten years and the temptation I have to resist is to go >50% international. And especially Developed, on the basis that sentiment is really negative and valuations have stayed low there, so it smells like a deal. I don't need a story about a "catalyst", you can only construct those stories after the fact anyway, all I need to like it is regression to the mean.

I looked closely at emerging market stock tilt and it just doesn't look like the exciting African/Indian/Indonesian economies that I expected to be in there -- they seem like economies that were "emerging" in the 90s but now are basically developed too and the name has stuck creating a false hype.

So I might be the only Boglehead bullish specifically on Europe/Japan. But, I still haven't acted on it because my IPS says to soberly hold world market cap unless I perceive some total insanity like the 1999 bubble.

visualguy
Posts: 1644
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Re: Why Mr. Bogle prefers U.S stocks

Post by visualguy » Thu Aug 01, 2019 5:27 pm

bluquark wrote:
Thu Aug 01, 2019 4:44 pm
I've watched my VTIAX be a dog for the last ten years and the temptation I have to resist is to go >50% international. And especially Developed, on the basis that sentiment is really negative and valuations have stayed low there, so it smells like a deal. I don't need a story about a "catalyst", you can only construct those stories after the fact anyway, all I need to like it is regression to the mean.
What is the mean that you think we will regress to? Ex-US valuations aren't low relative to their history. They are lower than the US, but that's nothing new either. Why would ex-US developed valuations suddenly climb without some big changes for the better in Europe and Japan?

bluquark
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Re: Why Mr. Bogle prefers U.S stocks

Post by bluquark » Thu Aug 01, 2019 6:58 pm

For starters, I see plenty of changes for the better. Looser central bank policy in Japan, the resolution of the Euro crisis and the end of austerity, and this incredible enthuasiasm and talent in the eastern European software industry, to name one sector I'm familiar with. I also see some changes for the worse in the US, which constitute an equally strong case for diversification. More fundamentally, I believe that economies are full of hidden currents and potentials and butterfly effects, initially obscure to a synoptic viewpoint and later realizing themselves in massive unexpected changes. If I could point to the change for the better, it would already be priced into the valuations.

As for mean, the mean in equity constantly grows, so it's hard to estimate. I guess my mental model is the current average between US and international is the mean. Why would they have the same mean? The same technology-related productivity factors affect both economies, for one. I won't defend this interpretation of the mean to the hilt, it's pretty simplistic, to be sure.

These are all rationalizations, though. My opinion boils down to the following observation. The US's exceptional position of having 55% of the equity and 24% of the GDP, prima facie, does not sound sustainable. The US having 24% of the GDP and 4.4% of the population also does not. Perhaps it will be sustained in my lifetime anyway, but that has a high burden of proof IMO.

The pro-home-bias case (aside from the legitimate currency concern) is based on equally handwavy and fragile narratives and indicators. I'm not expecting to convince anybody with this. In fact, in spelling out this array of explanations I've not even fully convinced myself -- instead I've more strongly convinced myself about my hold-the-course-on-market-cap actions.
Last edited by bluquark on Thu Aug 01, 2019 9:24 pm, edited 3 times in total.

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Forester
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Re: Why Mr. Bogle prefers U.S stocks

Post by Forester » Thu Aug 01, 2019 9:11 pm

A lot of this is about the US Dollar. Global stock markets were moving together after the GFC before the dollar began to strengthen in 2014.

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Re: Why Mr. Bogle prefers U.S stocks

Post by stocknoob4111 » Thu Aug 01, 2019 9:23 pm

Forester wrote:
Thu Aug 01, 2019 4:29 pm
I get a different result using stockcharts.com

Total return 3rd Jan 2000 to present

VGTSX +90%
VFINX +192%
FGOVX +83%
I used Total Bond in PV, in the asset classes section. One can also use VBMFX as a proxy. The one you are using is not analogous to Total Bond.

Bonds had a stellar run 2000-2009 actually beating out US Large Cap in 5 out of 10 of those years which is absolutely phenomenal for a near zero risk asset class!!

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Re: Why Mr. Bogle prefers U.S stocks

Post by SGM » Fri Aug 02, 2019 8:35 am

I am in general agreement with John Bogle and only have a small amount in international. It has been a drag on my portfolio. I don't care whether BHs or Vanguard disagrees with my AA. I only read posts on U.S. vs. International for amusement. Overall I am happy with my returns over the last 40 years so I am not going to change now, except that I am no longer 100% in stocks now that I have been retired for 5 years. :)

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Re: Why Mr. Bogle prefers U.S stocks

Post by vineviz » Fri Aug 02, 2019 11:52 am

bluquark wrote:
Thu Aug 01, 2019 4:44 pm
I looked closely at emerging market stock tilt and it just doesn't look like the exciting African/Indian/Indonesian economies that I expected to be in there -- they seem like economies that were "emerging" in the 90s but now are basically developed too and the name has stuck creating a false hype.
I'm not sure it would affect your conclusion either way, but keep in mind that the MSCI and FTSE classifications of "developed", "emerging", and "frontier" refer specifically to the securities markets and not to the economy as a whole. The determining factors are things like liquidity, transparency, investor protections, etc. and aren't really related to GDP growth rates or size.
"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: Why Mr. Bogle prefers U.S stocks

Post by vineviz » Fri Aug 02, 2019 12:20 pm

Artsdoctor wrote:
Thu Aug 01, 2019 12:42 pm
It's an interesting phenomenon here. I can think of no other forum that stresses the importance of ignoring past returns in deciding how to allocate current resources, so using past performance as a reason to avoid internationals seems like an illogical choice.
So true, and it's not merely an instance of ignoring all past returns: the "100% US because Jack said so" argument depends on selectively ignoring past returns from certain periods when international stocks outperformed US stocks.

And worse, the whole "US has outperformed International stocks" argument isn't merely period dependent: it's also completely irrelevant. The focus on a horse race between the two groups of stocks is a distraction from the most (arguably only) important consideration for a US investor: does holding some allocation of international stocks improve or worsen the overall performance of the portfolio.

I analyzed a group of portfolios using various combinations of US and ex-US stocks back to 1961, ranging from 0% international to 50% international.

Keeping in mind that during this period the US stocks outperformed international stocks (10.24% CAGR vs 9.9%) and had lower volatility (14.63% standard deviation vs 16.46%), here are some key portfolio metrics for the various asset allocations:

Image

In all cases over this period, due to the effect of diversification, the 50% US and 50% international portfolio had improved performance relative to the 100% US portfolio: higher absolute return, lower volatility, better risk-adjusted return, and greater levels of retirement income. I look at the evidence and feel confident in saying that an allocation between 40% and 50% would have improved investment outcomes for most investors, but honestly even a 20% allocation would been better than nothing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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