Vanguard: the case for global equity investing

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garlandwhizzer
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Vanguard: the case for global equity investing

Post by garlandwhizzer » Fri Oct 11, 2019 6:02 pm

Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer

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SimpleGift
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Re: Vanguard: the case for global equity investing

Post by SimpleGift » Fri Oct 11, 2019 6:42 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever.
On this subject, the chart below caught my eye. It appears the valuation of large-cap international stocks are trading at a 50-year low compared with large-cap U.S. stocks.
  • Image
    NOTE: The chart above shows the relative performance of US and international stock indexes, using one index
    divided by the other. When the blue line is rising international stocks are outperforming U.S. stocks. When the
    orange line is rising U.S. stocks are outperforming international stocks. They are mirror images of each other.
    Source: 13D Research
There may yet be hope for those of us who include international stocks in our equity allocation!
Last edited by SimpleGift on Fri Oct 11, 2019 6:47 pm, edited 1 time in total.

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Taylor Larimore
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Re: Vanguard: the case for global equity investing

Post by Taylor Larimore » Fri Oct 11, 2019 6:45 pm

Bogleheads:

Vanguard makes a persuasive case for global (U.S. plus foreign stocks) investing.

Several years ago I posted this link which reflects my own thinking:

How Much International Stock? A suggestion

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In my book, 'Bogle on Investing' (published in 1993), I said, for a lot of reasons, you don't need to own international stock." (So far, he's been right.)
"Simplicity is the master key to financial success." -- Jack Bogle

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sapphire96
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Re: Vanguard: the case for global equity investing

Post by sapphire96 » Fri Oct 11, 2019 7:00 pm

SimpleGift wrote:
Fri Oct 11, 2019 6:42 pm
garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever.
On this subject, the chart below caught my eye. It appears the valuation of large-cap international stocks are trading at a 50-year low compared with large-cap U.S. stocks.
  • Image
    NOTE: The chart above shows the relative performance of US and international stock indexes, using one index
    divided by the other. When the blue line is rising international stocks are outperforming U.S. stocks. When the
    orange line is rising U.S. stocks are outperforming international stocks. They are mirror images of each other.
    Source: 13D Research
There may yet be hope for those of us who include international stocks in our equity allocation!
To me, it appears countries go through decadal cycles of strong and weak performance relative to the international average. Unless the current US outperformance continues, which isn’t an impossibility, we could see a decadal-long reversal to the mean.

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1210sda
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Re: Vanguard: the case for global equity investing

Post by 1210sda » Fri Oct 11, 2019 7:41 pm

When considering going to a One-fund approach, the two funds that I considered were Vanguard Balanced Index Fund (VBIAX) and Vanguard Lifestrategy Moderate Growth Fund.

My comparison was as follows:
1) VBIAX has a lower er by 7bps and a greater return over past 10 years (9.5% avg annual return vs 7.88% for VSMGX.)
2) VSMGX was more diversified (included International stocks and bonds, not so for VBIAX).

Based on return, VBIAX was the obvious choice. Based on diversification, VSMGX was better.

Recency is a strong emotion. One wishes it would go on forever. More diversification should be my logical choice. But, 1.5% greater annual return is tough to forego.

Ultimately, my brain took over for my heart and I chose to go with VSMGX.

I'd be interested in your opinion of my analysis and final choice !!

1210

P.S. This is not my current portfolio. (currently, I'm in the 3FP). This is what I have as written guidance for my wife should I predecease her.

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Re: Vanguard: the case for global equity investing

Post by UpperNwGuy » Fri Oct 11, 2019 8:11 pm

Diversification might be best for those with a long investment horizon. Performance is probably better for those with a short investment horizon. I'm getting old, so I would probably have chosen VBIAX of those two alternatives.

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Re: Vanguard: the case for global equity investing

Post by johan851 » Fri Oct 11, 2019 9:29 pm

1210sda wrote:
Fri Oct 11, 2019 7:41 pm
More diversification should be my logical choice. But, 1.5% greater annual return is tough to forego.
This makes it sound like the greater past return was guaranteed going forward! 10 years is a pretty short timeframe for equities, all things considered. :)

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Re: Vanguard: the case for global equity investing

Post by Atticus » Fri Oct 11, 2019 9:38 pm

SimpleGift wrote:
Fri Oct 11, 2019 6:42 pm

On this subject, the chart below caught my eye. It appears the valuation of large-cap international stocks are trading at a 50-year low compared with large-cap U.S. stocks.
  • Image
    NOTE: The chart above shows the relative performance of US and international stock indexes, using one index
    divided by the other. When the blue line is rising international stocks are outperforming U.S. stocks. When the
    orange line is rising U.S. stocks are outperforming international stocks. They are mirror images of each other.
    Source: 13D Research
There may yet be hope for those of us who include international stocks in our equity allocation!
Can you elaborate on the data behind the chart? The legend suggests that one ratio is merely the inverse of the other. In that case, no surprise that they are nearly mirror images of each other. The actual values, however, don't appear to quite work out to be a simple inverse.

FWIW, I do believe the valuation spread will narrow at some time. I'm just having a hard time with the graph.

BH+
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Re: Vanguard: the case for global equity investing

Post by BH+ » Fri Oct 11, 2019 9:45 pm

The globally diversified equity portfolio produced the highest risk-adjusted return over the full analysis period
This sums it up very nicely.

petulant
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Re: Vanguard: the case for global equity investing

Post by petulant » Fri Oct 11, 2019 10:41 pm

Atticus wrote:
Fri Oct 11, 2019 9:38 pm
SimpleGift wrote:
Fri Oct 11, 2019 6:42 pm

On this subject, the chart below caught my eye. It appears the valuation of large-cap international stocks are trading at a 50-year low compared with large-cap U.S. stocks.
  • Image
    NOTE: The chart above shows the relative performance of US and international stock indexes, using one index
    divided by the other. When the blue line is rising international stocks are outperforming U.S. stocks. When the
    orange line is rising U.S. stocks are outperforming international stocks. They are mirror images of each other.
    Source: 13D Research
There may yet be hope for those of us who include international stocks in our equity allocation!
Can you elaborate on the data behind the chart? The legend suggests that one ratio is merely the inverse of the other. In that case, no surprise that they are nearly mirror images of each other. The actual values, however, don't appear to quite work out to be a simple inverse.

FWIW, I do believe the valuation spread will narrow at some time. I'm just having a hard time with the graph.
Exactly my concern

Ferdinand2014
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Re: Vanguard: the case for global equity investing

Post by Ferdinand2014 » Fri Oct 11, 2019 11:23 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer
I believe volatility is a poor measure of ones personal risk. For similar reasons I do not believe in percent asset allocations nor rebalancing.
Last edited by Ferdinand2014 on Sat Oct 12, 2019 2:21 pm, edited 1 time in total.
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Re: Vanguard: the case for global equity investing

Post by SimpleGift » Sat Oct 12, 2019 12:51 am

Atticus wrote:
Fri Oct 11, 2019 9:38 pm
Can you elaborate on the data behind the chart? The legend suggests that one ratio is merely the inverse of the other. In that case, no surprise that they are nearly mirror images of each other. The actual values, however, don't appear to quite work out to be a simple inverse.
Yes, though the two ratios mirror each other, they are not a simple inverse. This is just due to the value range differences of the two indexes I believe. For example, over the past year the MSCI EAFE Index has been trading in a value range of 1,700-1,900, while the MSCI USA Index has traded in the 2,500-2,800 value range.

When the values of both indexes are divided into each other, one then gets two different ranges of ratios over time — and two different Y axes are used on the chart, to make these two ratio ranges visually comparable to each other.
Last edited by SimpleGift on Sat Oct 12, 2019 7:54 am, edited 1 time in total.

lostdog
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Re: Vanguard: the case for global equity investing

Post by lostdog » Sat Oct 12, 2019 1:33 am

VT and BNDW. The 3 fund portfolio is out of date.

Simplicity....
Last edited by lostdog on Sat Oct 12, 2019 9:48 am, edited 1 time in total.
VTWAX and chill.

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Re: Vanguard: the case for global equity investing

Post by asset_chaos » Sat Oct 12, 2019 3:02 am

Had money earlier this week to go into stocks. Invested all in total world, as I've been doing for core stocks since it came out. Quite content to just have a global index of stocks. No energy expended on whether 36 or 35% in international is optimal; no interest in looking up what subsector of the global stock market did better or worse in the recent past. I already know that with total market I'll be invested at all times in the best and the worst performing subsectors. Total world suits my temperament and makes it easy for me to stay the course.
Regards, | | Guy

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Re: Vanguard: the case for global equity investing

Post by nps » Sat Oct 12, 2019 5:55 am

UpperNwGuy wrote:
Fri Oct 11, 2019 8:11 pm
Diversification might be best for those with a long investment horizon. Performance is probably better for those with a short investment horizon. I'm getting old, so I would probably have chosen VBIAX of those two alternatives.
Can you explain what you mean by performance?

UpperNwGuy
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Re: Vanguard: the case for global equity investing

Post by UpperNwGuy » Sat Oct 12, 2019 8:25 am

nps wrote:
Sat Oct 12, 2019 5:55 am
UpperNwGuy wrote:
Fri Oct 11, 2019 8:11 pm
Diversification might be best for those with a long investment horizon. Performance is probably better for those with a short investment horizon. I'm getting old, so I would probably have chosen VBIAX of those two alternatives.
Can you explain what you mean by performance?
Total return over a period of several decades.

David Althaus
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Re: Vanguard: the case for global equity investing

Post by David Althaus » Sat Oct 12, 2019 9:18 am

1. The chart referenced above causes one to make a casual assertion that the top for Ex US stocks coincided very closely to the fall of the Berlin Wall. To me, this demonstrates the value of determining your asset allocation and sticking with it. Could any of us honestly assert we picked that time to sell Ex US stocks?
2. We have 20% Ex US (experiencing daily angst) as per Taylor's splitting the difference between Vanguard and Jack Bogle. At 20% you also get something of a dollar hedge which is one more diversification tool.
3. Times change--but as someone who worked outside the US I fear Ex US stocks currently sell for about what they're worth. Or: maybe we're at an important bottom. CHUCKLE HERE. Time will tell but we are happy to forgo the gains that a 40% allocation would provide and stick with the country where business is seemingly in the genes. No value in making a 100 year wager but mine would be the US will outperform the rest of the world.

All the best

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Re: Vanguard: the case for global equity investing

Post by DaufuskieNate » Sat Oct 12, 2019 9:28 am

David Althaus wrote:
Sat Oct 12, 2019 9:18 am
No value in making a 100 year wager but mine would be the US will outperform the rest of the world.
I wouldn’t bet against China.

Atticus
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Re: Vanguard: the case for global equity investing

Post by Atticus » Sat Oct 12, 2019 9:44 am

SimpleGift wrote:
Sat Oct 12, 2019 12:51 am
Atticus wrote:
Fri Oct 11, 2019 9:38 pm
Can you elaborate on the data behind the chart? The legend suggests that one ratio is merely the inverse of the other. In that case, no surprise that they are nearly mirror images of each other. The actual values, however, don't appear to quite work out to be a simple inverse.
Yes, though the two ratios mirror each other, they are not a simple inverse. This is just due to the value range differences of the two indexes I believe. For example, over the past year the MSCI EAFE Index has been trading in a value range of 1,700-1,900, while the MSCI USA Index has traded in the 2,500-2,800 value range.

When the values of both indexes are divided into each other, one then gets two different ranges of ratios over time — and two different Y axes are used on the chart, to make these two ratio ranges visually comparable to each other.
Thanks.

I think that either ratio on its own tells us far more than the two compared. Looking at either ratio, an investor can make an evaluation of relative valuations. But plotting both invites the investor to make a judgement regarding correlation and causation, when in fact they're simply looking at a mathematical relationship. An inverse will always behave like an inverse.

Charts like this seem to be designed less to communicate useful information and more to provide confirmation for the creator's viewpoint.

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Re: Vanguard: the case for global equity investing

Post by Phineas J. Whoopee » Sat Oct 12, 2019 10:30 am

UpperNwGuy wrote:
Sat Oct 12, 2019 8:25 am
nps wrote:
Sat Oct 12, 2019 5:55 am
UpperNwGuy wrote:
Fri Oct 11, 2019 8:11 pm
Diversification might be best for those with a long investment horizon. Performance is probably better for those with a short investment horizon. I'm getting old, so I would probably have chosen VBIAX of those two alternatives.
Can you explain what you mean by performance?
Total return over a period of several decades.
Is that past performance measured by total return over several decades, or future?

PJW

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Re: Vanguard: the case for global equity investing

Post by SimpleGift » Sat Oct 12, 2019 11:00 am

Atticus wrote:
Sat Oct 12, 2019 9:44 am
Charts like this seem to be designed less to communicate useful information and more to provide confirmation for the creator's viewpoint.
Agree that any chart with a double Y axis should be immediately suspect, as most often they are employed to suggest correlations that are suspect or spurious.

But in this case, both Y axes start at 0 (which is always a good sign!), plus MSCI has used a consistent methodology in the construction of both their EAFE and USA indexes going back to 1970. So we can be more confident that we're on solid ground with their comparative valuation chart.

minimalistmarc
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Re: Vanguard: the case for global equity investing

Post by minimalistmarc » Sat Oct 12, 2019 11:41 am

Do you have edge?

Yes > overweight country or sector of your choice

No = buy world

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Re: Vanguard: the case for global equity investing

Post by visualguy » Sat Oct 12, 2019 12:29 pm

DaufuskieNate wrote:
Sat Oct 12, 2019 9:28 am
David Althaus wrote:
Sat Oct 12, 2019 9:18 am
No value in making a 100 year wager but mine would be the US will outperform the rest of the world.
I wouldn’t bet against China.
Right, but China isn't sharing its bounty much with us stock market index investors, and ex-US is mostly Europe and Japan.

TomCat96
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Re: Vanguard: the case for global equity investing

Post by TomCat96 » Sat Oct 12, 2019 3:01 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer

I'm 100% US equities, so if anyone is the target for this article, it's me.

Here are my thoughts. Is this actually true? Undoubtedly, it's true in one sense; i don't expect Vanguard to publish overtly fake data.
What I would look deeper into is whether or not there is a principled way of selecting Ex-US stocks?
This document is 206 pages, and I don't have time to go into it right now.

https://www.msci.com/eqb/methodology/me ... ct2019.pdf


And if this is true, do you bogleheads suggest I go all in on Ex-US?
Because again, I see this as "overdue theory"

Let's set forth the fact I'm unwilling to credit this fellow because 1) it's published on Vanguard and 2) he is a so called expert.
First, I don't give any credit to persuasiveness because of source or "Appeal to Authority." If I did, I wouldn't invest in index funds. I would have invested in loaded hedge funds pushed onto me by financial advisors. After all, who am I to know better? And therein lies the problem...

It's not about whether a person "dares to know better" than an expert. Wrong point to argue. The proper forum, is whether the expert wants to sell you something.

At first glance, when someone tries to sell me international equities, I see someone trying to sell me an index which has underperformed for the past 23 years relative to the US in a manner that is quite substantial. And worse, they're telling me it's going to turn around "any day now"

But of course they don't say it like that; after all, when I word it like that, it sounds preposterous.

They word it like this:

As recently discussed in Vanguard’s 2019 economic and market outlook, we expect global equity returns to be lower over the next 10 years. However, given the relative underperformance by international equities, they look more attractively valued compared to their U.S. counterparts. Based on that information, over the next 10 years we expect international equity returns to outpace U.S. market returns...

So before I buy into an asset class which has underperformed for the past 20+ years because it shined a little more brightly in the past, should I go all in on ex-US? I'm all in on US right now. Hell I'm all in on Midcaps and Small Caps.

Should I go all in on ex-US?

No. No one appears to be arguing for that. What they appear to be arguing for is this more tempered rationale.

Tomcat96, I'm positive enough to persuade you you should put 40% of your portfolio into ex-US, but not so positive arguing you should be 100%.
I'm positive enough for the 40% because I expect International equities to outperform. But under that same rationale, not so positive you should go 100%. You should go 40% because international will outperform. But you should not be 100% because "you never know"

Hmm....

Now here is my thought process, since yet again I'm the target customer I suppose.
------------------------
That's a bad argument. Terrible argument in fact.
But...as I know from my experience, bad arguments don't make a position necessarily wrong. It could just mean poor advocacy in the moment.

I have to find a way to parse some legitimate points out of what they are saying.
It doesn't help that in the past year or so I argued against International investing because of China, and now we're seeing China turn hard into an orwellian dystopia. It also doesn't help that advocates based on market theory claim without evidence that free markets can accurately price in any situation to the point where market regulation simply does not matter.

In fact, one of my concerns with the Ex-US argument expressly focused on Alibaba. Alibaba investors don't own stock in the same way US investors own stock---They own shares to a shell company in the carribbean with a promise from Alibaba for the profits, with no voting rights in the actual company itself, with no corporate governance.

That argument was never really rebutted by these threads...other than the fact that the market should price all that in. In other words, it's all the same buying a company with no corporate governance, and owning a shell company with rights to profit. That's the same thing as owning shares of a company where you can vote in and out the board, and have direct rights to dividends.

So let's look at this fellow again. No specifics. Doesn't help.

The primary argument of International equities as a diversifier exists. Can't argue against that. But that's too pie in the sky of a rationale for me to make a specific purchase. In fact that argument is so pie-in-the-sky, it's on the same level as those who advocate for gold because gold is a real hard asset that been treated as such for the past 5000 years. I can't argue with that fact either.

Unfortunately it's been pretty well established that the the precious metals markets have been manipulated in the past few years. Worse, every year the same arguments are repeated in favor of precious metals in spite of the rampant fraud is an appeal to Gold's past, which won't ever disappear. Suppose for instance Gold futures are manipulated such that it will underperform. Will it ever become false that Gold is not a hard asset that's "real money"?

Same goes for international. As a diversifier, the argument to invest in International won't ever disappear regardless of how badly it performs. In fact companies who choose inclusion of International firms in their indices can exhibit any degree of "undue" dilligence, and the argument remains---International outperformed during the 70s, therefore you should buy today. Moreover, ignore the two decade long underperformance because decade long periods of underperformance are insignificant in the grand scheme.

Both of those statements are true. But neither reflect a direct argument to invest in a specific international index today....

Therein lies the problem. It doesn't matter how poorly International ever performs, the reasons for it are pretty well divorced from specifics in the present.

Before I sink my money into an asset class which has underperformed for the past twenty years, I'm going to need something a little more concrete than evidence of past outperformance. Without more, the argument reduces into "overdue theory" International will outperform because it is overdue. It is overdue based on valuation system X, cape, Forward PE, Reversion to the mean, what have you.

I dont know what that will entail. It could for example be evidence further buttressing why the data from the 70s is particularly relevant today.
It could be information as to why, the international index selection is principled and not subject to manipulation.

I'm not going to invest in something because a more rosy past can be massaged out of the data. This is taking this into Hyperbole, but the basic argument is the same. I'm not going to invest in Italy because of its glorious past as the Roman Empire is overdue to return. And I'm not going to be persuaded by allegations of "who are you to know any better?"

I need more than a broad theoretical allegation. I need a rationale that is falsifiable.

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Re: Vanguard: the case for global equity investing

Post by vineviz » Sat Oct 12, 2019 3:19 pm

TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
At the end of the day, you either grasp the concept of diversification or you don’t.

If you do, you’ve got all the evidence you need to realize that a global equity portfolio is not diversified than an US-only portfolio.

If you don’t, no amount of legitimate evidence is going to convince you.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

TomCat96
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Re: Vanguard: the case for global equity investing

Post by TomCat96 » Sat Oct 12, 2019 3:48 pm

vineviz wrote:
Sat Oct 12, 2019 3:19 pm
TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
At the end of the day, you either grasp the concept of diversification or you don’t.

If you do, you’ve got all the evidence you need to realize that a global equity portfolio is not diversified than an US-only portfolio.

If you don’t, no amount of legitimate evidence is going to convince you.

I figured I would get an argument like this:

No amount of evidence will convince you.

That's not what I said. It's your imputation on my points. But it doesn't directly address any of my points. it is instead a complete dismissal of them.
Personally I think I have some pretty good points.

And no, I don't find a broad stroked characterization of my argument, namely that nothing will ever appease me, to be convincing.

In fact, I will now lodge the same argument at you. I wrote an awful lot up there and it got dismissed.

Nothing will ever convince you.

It appears we are at an impasse.

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Re: Vanguard: the case for global equity investing

Post by vineviz » Sat Oct 12, 2019 3:55 pm

TomCat96 wrote:
Sat Oct 12, 2019 3:48 pm
vineviz wrote:
Sat Oct 12, 2019 3:19 pm
TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
At the end of the day, you either grasp the concept of diversification or you don’t.

If you do, you’ve got all the evidence you need to realize that a global equity portfolio is not diversified than an US-only portfolio.

If you don’t, no amount of legitimate evidence is going to convince you.

I figured I would get an argument like this:

No amount of evidence will convince you.
As I said, you either grasp the concepts or you don’t. The evidence is obvious to those willing and able to consider it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

TomCat96
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Re: Vanguard: the case for global equity investing

Post by TomCat96 » Sat Oct 12, 2019 4:06 pm

vineviz wrote:
Sat Oct 12, 2019 3:55 pm
TomCat96 wrote:
Sat Oct 12, 2019 3:48 pm
vineviz wrote:
Sat Oct 12, 2019 3:19 pm
TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
At the end of the day, you either grasp the concept of diversification or you don’t.

If you do, you’ve got all the evidence you need to realize that a global equity portfolio is not diversified than an US-only portfolio.

If you don’t, no amount of legitimate evidence is going to convince you.

I figured I would get an argument like this:

No amount of evidence will convince you.
As I said, you either grasp the concepts or you don’t. The evidence is obvious to those willing and able to consider it.
There's an irony in saying no amount of evidence will convince me, when all my points were dismissed with a single sentence.
It makes me think that my points are falling on deaf ears and won't convince anyone.

As for the argument that I just don't get it, or as you put it: either you get the value of diversification or you don't.

Let's me counter that.

When is that argument not applicable? Is it completely agnostic to performance?
Let's say I'm a fund manager. I have connections in other countries. I tell them to start up some companies in other countries, just enough to get shill bid and included into international funds. Because these are the business laws of other countries, the process is opaque and hard to ferrett out for fraud. The international index therefore underperforms continually into the future. Is there a point where underperformance is so low than diversification is no longer a carrying argument?

Or is the rationale like Gold.

We ought to buy Gold because unlike those fiat currency, gold is real hard currency, accepted over 5000 years.
That was true in the 70s. It is true today. It will always be true regardless of how Gold performs into the future.

Is the rationale is an all weather rationale? regardless of performance argument that will always prevail?

The argument for international diversification will always be true. Always.

A rationale which can be used to justify an investment regardless of that investment's performance, makes me hesitate.

Not only do I think it might be exploited for profit, it should be exploited for profit, continually, in a free market.

Elysium
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Re: Vanguard: the case for global equity investing

Post by Elysium » Sat Oct 12, 2019 4:16 pm

TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer

I'm 100% US equities, so if anyone is the target for this article, it's me.

Here are my thoughts. Is this actually true? Undoubtedly, it's true in one sense; i don't expect Vanguard to publish overtly fake data.
What I would look deeper into is whether or not there is a principled way of selecting Ex-US stocks?
This document is 206 pages, and I don't have time to go into it right now.

https://www.msci.com/eqb/methodology/me ... ct2019.pdf


And if this is true, do you bogleheads suggest I go all in on Ex-US?
Because again, I see this as "overdue theory"

Let's set forth the fact I'm unwilling to credit this fellow because 1) it's published on Vanguard and 2) he is a so called expert.
First, I don't give any credit to persuasiveness because of source or "Appeal to Authority." If I did, I wouldn't invest in index funds. I would have invested in loaded hedge funds pushed onto me by financial advisors. After all, who am I to know better? And therein lies the problem...

It's not about whether a person "dares to know better" than an expert. Wrong point to argue. The proper forum, is whether the expert wants to sell you something.

At first glance, when someone tries to sell me international equities, I see someone trying to sell me an index which has underperformed for the past 23 years relative to the US in a manner that is quite substantial. And worse, they're telling me it's going to turn around "any day now"

But of course they don't say it like that; after all, when I word it like that, it sounds preposterous.

They word it like this:

As recently discussed in Vanguard’s 2019 economic and market outlook, we expect global equity returns to be lower over the next 10 years. However, given the relative underperformance by international equities, they look more attractively valued compared to their U.S. counterparts. Based on that information, over the next 10 years we expect international equity returns to outpace U.S. market returns...

So before I buy into an asset class which has underperformed for the past 20+ years because it shined a little more brightly in the past, should I go all in on ex-US? I'm all in on US right now. Hell I'm all in on Midcaps and Small Caps.

Should I go all in on ex-US?

No. No one appears to be arguing for that. What they appear to be arguing for is this more tempered rationale.

Tomcat96, I'm positive enough to persuade you you should put 40% of your portfolio into ex-US, but not so positive arguing you should be 100%.
I'm positive enough for the 40% because I expect International equities to outperform. But under that same rationale, not so positive you should go 100%. You should go 40% because international will outperform. But you should not be 100% because "you never know"

Hmm....

Now here is my thought process, since yet again I'm the target customer I suppose.
------------------------
That's a bad argument. Terrible argument in fact.
But...as I know from my experience, bad arguments don't make a position necessarily wrong. It could just mean poor advocacy in the moment.

I have to find a way to parse some legitimate points out of what they are saying.
It doesn't help that in the past year or so I argued against International investing because of China, and now we're seeing China turn hard into an orwellian dystopia. It also doesn't help that advocates based on market theory claim without evidence that free markets can accurately price in any situation to the point where market regulation simply does not matter.

In fact, one of my concerns with the Ex-US argument expressly focused on Alibaba. Alibaba investors don't own stock in the same way US investors own stock---They own shares to a shell company in the carribbean with a promise from Alibaba for the profits, with no voting rights in the actual company itself, with no corporate governance.

That argument was never really rebutted by these threads...other than the fact that the market should price all that in. In other words, it's all the same buying a company with no corporate governance, and owning a shell company with rights to profit. That's the same thing as owning shares of a company where you can vote in and out the board, and have direct rights to dividends.

So let's look at this fellow again. No specifics. Doesn't help.

The primary argument of International equities as a diversifier exists. Can't argue against that. But that's too pie in the sky of a rationale for me to make a specific purchase. In fact that argument is so pie-in-the-sky, it's on the same level as those who advocate for gold because gold is a real hard asset that been treated as such for the past 5000 years. I can't argue with that fact either.

Unfortunately it's been pretty well established that the the precious metals markets have been manipulated in the past few years. Worse, every year the same arguments are repeated in favor of precious metals in spite of the rampant fraud is an appeal to Gold's past, which won't ever disappear. Suppose for instance Gold futures are manipulated such that it will underperform. Will it ever become false that Gold is not a hard asset that's "real money"?

Same goes for international. As a diversifier, the argument to invest in International won't ever disappear regardless of how badly it performs. In fact companies who choose inclusion of International firms in their indices can exhibit any degree of "undue" dilligence, and the argument remains---International outperformed during the 70s, therefore you should buy today. Moreover, ignore the two decade long underperformance because decade long periods of underperformance are insignificant in the grand scheme.

Both of those statements are true. But neither reflect a direct argument to invest in a specific international index today....

Therein lies the problem. It doesn't matter how poorly International ever performs, the reasons for it are pretty well divorced from specifics in the present.

Before I sink my money into an asset class which has underperformed for the past twenty years, I'm going to need something a little more concrete than evidence of past outperformance. Without more, the argument reduces into "overdue theory" International will outperform because it is overdue. It is overdue based on valuation system X, cape, Forward PE, Reversion to the mean, what have you.

I dont know what that will entail. It could for example be evidence further buttressing why the data from the 70s is particularly relevant today.
It could be information as to why, the international index selection is principled and not subject to manipulation.

I'm not going to invest in something because a more rosy past can be massaged out of the data. This is taking this into Hyperbole, but the basic argument is the same. I'm not going to invest in Italy because of its glorious past as the Roman Empire is overdue to return. And I'm not going to be persuaded by allegations of "who are you to know any better?"

I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
You made some excellent points. The argument for additional diversification was always weak at best, and even more so with all the problems with corporate governance in countries like China, while developed Europe and Japan face their own unique problems that makes the U.S companies unique. This is the conclusion that Jack Bogle had come to after all the empirical evidence. If someone wish to include some Intl, sure, go ahead and add a bit, but something like 40% is nothing but an exercise in padding the pockets of companies that do not deserve it. As I have said before, capital is not to be given away freely, we need to be prudent about allocating our capital.

columbia
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Re: Vanguard: the case for global equity investing

Post by columbia » Sat Oct 12, 2019 4:19 pm

I’m ok with people keeping the price of the S&P500 down.

Please continue, if that’s your decision. :P

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Re: Vanguard: the case for global equity investing

Post by rkhusky » Sat Oct 12, 2019 4:27 pm

SimpleGift wrote:
Sat Oct 12, 2019 11:00 am
Atticus wrote:
Sat Oct 12, 2019 9:44 am
Charts like this seem to be designed less to communicate useful information and more to provide confirmation for the creator's viewpoint.
Agree that any chart with a double Y axis should be immediately suspect, as most often they are employed to suggest correlations that are suspect or spurious.

But in this case, both Y axes start at 0 (which is always a good sign!), plus MSCI has used a consistent methodology in the construction of both their EAFE and USA indexes going back to 1970. So we can be more confident that we're on solid ground with their comparative valuation chart.
The chart is simply plotting x and 1/x with different scales. I see no point in doing that. There is no point in comparing the two lines - one would have been enough.

edit: I see that the fine print does say that the two lines are mirror images of each other. In terms of seeing when the US out-performed, the first chart in the Vanguard article is easier to understand.

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Re: Vanguard: the case for global equity investing

Post by vineviz » Sat Oct 12, 2019 5:34 pm

TomCat96 wrote:
Sat Oct 12, 2019 4:06 pm

When is that argument not applicable? Is it completely agnostic to performance?
Diversification and expected return are, indeed, unrelated considerations. Both are important, but they aren’t the same.

So a complete rejection of international stocks requires a strong belief that you can accurately predict future stock market returns. Given all the evidence telling us how unlikely that is, believing it anyway seems to also require either ignorance of the evidence or enough hubris to conclude that the evidence doesn’t apply to you.
"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: Vanguard: the case for global equity investing

Post by TomCat96 » Sat Oct 12, 2019 5:37 pm

Elysium wrote:
Sat Oct 12, 2019 4:16 pm
TomCat96 wrote:
Sat Oct 12, 2019 3:01 pm
garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer

I'm 100% US equities, so if anyone is the target for this article, it's me.

Here are my thoughts. Is this actually true? Undoubtedly, it's true in one sense; i don't expect Vanguard to publish overtly fake data.
What I would look deeper into is whether or not there is a principled way of selecting Ex-US stocks?
This document is 206 pages, and I don't have time to go into it right now.

https://www.msci.com/eqb/methodology/me ... ct2019.pdf


And if this is true, do you bogleheads suggest I go all in on Ex-US?
Because again, I see this as "overdue theory"

Let's set forth the fact I'm unwilling to credit this fellow because 1) it's published on Vanguard and 2) he is a so called expert.
First, I don't give any credit to persuasiveness because of source or "Appeal to Authority." If I did, I wouldn't invest in index funds. I would have invested in loaded hedge funds pushed onto me by financial advisors. After all, who am I to know better? And therein lies the problem...

It's not about whether a person "dares to know better" than an expert. Wrong point to argue. The proper forum, is whether the expert wants to sell you something.

At first glance, when someone tries to sell me international equities, I see someone trying to sell me an index which has underperformed for the past 23 years relative to the US in a manner that is quite substantial. And worse, they're telling me it's going to turn around "any day now"

But of course they don't say it like that; after all, when I word it like that, it sounds preposterous.

They word it like this:

As recently discussed in Vanguard’s 2019 economic and market outlook, we expect global equity returns to be lower over the next 10 years. However, given the relative underperformance by international equities, they look more attractively valued compared to their U.S. counterparts. Based on that information, over the next 10 years we expect international equity returns to outpace U.S. market returns...

So before I buy into an asset class which has underperformed for the past 20+ years because it shined a little more brightly in the past, should I go all in on ex-US? I'm all in on US right now. Hell I'm all in on Midcaps and Small Caps.

Should I go all in on ex-US?

No. No one appears to be arguing for that. What they appear to be arguing for is this more tempered rationale.

Tomcat96, I'm positive enough to persuade you you should put 40% of your portfolio into ex-US, but not so positive arguing you should be 100%.
I'm positive enough for the 40% because I expect International equities to outperform. But under that same rationale, not so positive you should go 100%. You should go 40% because international will outperform. But you should not be 100% because "you never know"

Hmm....

Now here is my thought process, since yet again I'm the target customer I suppose.
------------------------
That's a bad argument. Terrible argument in fact.
But...as I know from my experience, bad arguments don't make a position necessarily wrong. It could just mean poor advocacy in the moment.

I have to find a way to parse some legitimate points out of what they are saying.
It doesn't help that in the past year or so I argued against International investing because of China, and now we're seeing China turn hard into an orwellian dystopia. It also doesn't help that advocates based on market theory claim without evidence that free markets can accurately price in any situation to the point where market regulation simply does not matter.

In fact, one of my concerns with the Ex-US argument expressly focused on Alibaba. Alibaba investors don't own stock in the same way US investors own stock---They own shares to a shell company in the carribbean with a promise from Alibaba for the profits, with no voting rights in the actual company itself, with no corporate governance.

That argument was never really rebutted by these threads...other than the fact that the market should price all that in. In other words, it's all the same buying a company with no corporate governance, and owning a shell company with rights to profit. That's the same thing as owning shares of a company where you can vote in and out the board, and have direct rights to dividends.

So let's look at this fellow again. No specifics. Doesn't help.

The primary argument of International equities as a diversifier exists. Can't argue against that. But that's too pie in the sky of a rationale for me to make a specific purchase. In fact that argument is so pie-in-the-sky, it's on the same level as those who advocate for gold because gold is a real hard asset that been treated as such for the past 5000 years. I can't argue with that fact either.

Unfortunately it's been pretty well established that the the precious metals markets have been manipulated in the past few years. Worse, every year the same arguments are repeated in favor of precious metals in spite of the rampant fraud is an appeal to Gold's past, which won't ever disappear. Suppose for instance Gold futures are manipulated such that it will underperform. Will it ever become false that Gold is not a hard asset that's "real money"?

Same goes for international. As a diversifier, the argument to invest in International won't ever disappear regardless of how badly it performs. In fact companies who choose inclusion of International firms in their indices can exhibit any degree of "undue" dilligence, and the argument remains---International outperformed during the 70s, therefore you should buy today. Moreover, ignore the two decade long underperformance because decade long periods of underperformance are insignificant in the grand scheme.

Both of those statements are true. But neither reflect a direct argument to invest in a specific international index today....

Therein lies the problem. It doesn't matter how poorly International ever performs, the reasons for it are pretty well divorced from specifics in the present.

Before I sink my money into an asset class which has underperformed for the past twenty years, I'm going to need something a little more concrete than evidence of past outperformance. Without more, the argument reduces into "overdue theory" International will outperform because it is overdue. It is overdue based on valuation system X, cape, Forward PE, Reversion to the mean, what have you.

I dont know what that will entail. It could for example be evidence further buttressing why the data from the 70s is particularly relevant today.
It could be information as to why, the international index selection is principled and not subject to manipulation.

I'm not going to invest in something because a more rosy past can be massaged out of the data. This is taking this into Hyperbole, but the basic argument is the same. I'm not going to invest in Italy because of its glorious past as the Roman Empire is overdue to return. And I'm not going to be persuaded by allegations of "who are you to know any better?"

I need more than a broad theoretical allegation. I need a rationale that is falsifiable.
You made some excellent points. The argument for additional diversification was always weak at best, and even more so with all the problems with corporate governance in countries like China, while developed Europe and Japan face their own unique problems that makes the U.S companies unique. This is the conclusion that Jack Bogle had come to after all the empirical evidence. If someone wish to include some Intl, sure, go ahead and add a bit, but something like 40% is nothing but an exercise in padding the pockets of companies that do not deserve it. As I have said before, capital is not to be given away freely, we need to be prudent about allocating our capital.
I am of Chinese descent. I don't know if that gives me special knowledge when it comes to China. I think it does somewhat, getting the perspectives of my family and community. So let me say this---the direction China has taken, doesn't surprise me one bit.

Is it my personal bias? Probably. To me, it always seemed asinine to assume that China was a free market in the same sense the US was/is and to further assume the market could and would correct for it. Do I have first hand knowledge of the effects of Chinese corruption? No. But my family does.

When John Paulson invested in Sino-forest and that went up in 2011 due to fraud, for which he was later sued over, my thoughts were...yeah.
Sounds about right. And I wouldn't be saying that if it was an investment that simply dropped in value. It wasnt that the stock went down. It was that he got defrauded.

https://www.reuters.com/article/us-paul ... 4D20120221
https://www.theguardian.com/business/20 ... ents-china

But yet, what I've stressed about China, I have not stressed about Europe or Australia, or Canada. I am not European/Canadian/ or Australian. I don't know enough about the culture, the people, the ins and outs to make judgment calls on those three places.


I want to say that I have never been adverse to the argument that International stocks provide diversification.
They clearly do. And I have no argument against Taylor Larimores argument that for Japanese investors in the 80s, international investing would have done them a world of good. It certainly would have.

So I am not adverse to the enterprise of International Investing.

But what I do have is reservations. Reservations that take things too far such as "the market will correct for everything", reservations against rationales like "who are you to know any better?" That's just taking things too far. And I can't jump on board.

And now, my reservation is investing based on a rationale that seems it will carry the day regardless of performance, regardless of objections concerning the "character" of the market.

One of those arguments is that the same argument is set forth for Gold, and Silver.

Just as it is always true International Stocks are good because they will diversify you, so too is it always true that Gold has stood the rest of time and is universally acknowledged as a real asset.

I look with suspicion towards investing my money into non-falsifiable rationales.

As for the Vanguard paper, I'm looking his reasons. I saw two.
1) That a 60/40 portfolio would have yielded the same performance with lower standard deviation. This is an interesting argument, it's worth looking more closely at, in particular for other time periods as well. Other bogleheads have not posted the same information.

2) The relative pricing argument, leading into the expectation that International will outperform in the next 10 years.
This I don't credit as much because he doesn't give good reasons. It's an "overdue" argument, and I would have liked to see some more support.

After all logic would dictate the proper course would be to go all in on exUS, not 60/40 if the rationale of outperformance for the next decade is to be taken seriously. Can we take that Vanguard CFA's argument seriously? How seriously? A little seriously? 40%? or alot seriously. 100%?

Insofar as I want to address his actual lack of support, I would say the international numbers he used since 1971--thats mostly europe isnt it?
But I'm guessing it's not anymore. I'm guessing Asia is now a large percentage of the International allocation.

Is there a principled way of making the transition? Should we have included China in the 1971 calculations? Can we do that with any fidelity? If not, does that not undercut the argument that the market can price in everything--namely that international investing cannot accurately price in state run industries of communist command economies?

I recognize that not every objection can or should be answered. But I'd like to listen to some responses.

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Re: Vanguard: the case for global equity investing

Post by TomCat96 » Sat Oct 12, 2019 5:50 pm

vineviz wrote:
Sat Oct 12, 2019 5:34 pm
TomCat96 wrote:
Sat Oct 12, 2019 4:06 pm

When is that argument not applicable? Is it completely agnostic to performance?
Diversification and expected return are, indeed, unrelated considerations. Both are important, but they aren’t the same.

So a complete rejection of international stocks requires a strong belief that you can accurately predict future stock market returns. Given all the evidence telling us how unlikely that is, believing it anyway seems to also require either ignorance of the evidence or enough hubris to conclude that the evidence doesn’t apply to you.
Yes I have hubris.
This argument now falls in the category of "Do you dare to know?"

Yes I do dare.

Daring to know. and being called someone who dares, is not a good justification in favor of.

For I can provide similar justifications for International investors who refuse to invest in the market cap of the universe of every other asset.

Suppose we have an individual who invests in every possible asset at the market cap. Is that person now the true boglehead, while the regular international investor who merely holds at standard market weight 55/45 but who refuses to dip his toes in derivatives the one with hubris?

Same as international bonds, REITS, cryptocurrencies, preferred stock, commodities, etc.

Who is the one who dares? Who is the one with hubris?
If I accept your argument, and then invest in the constellation of all global assets at market weight, do I get to say that you are the one with hubris? And will you then be convinced?

Do I get to challenge your hubris at not investing in derivatives at market weight? And If I do, is your hubris a good reason for you to in fact invest in other "exotics?"

I think that allegation of the other sides hubris is not a good justification to argue in favor of investing in a particular asset class.

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Re: Vanguard: the case for global equity investing

Post by TheNightsToCome » Sat Oct 12, 2019 6:01 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 6:02 pm
Vanguard shows that global equity (60 US/40 INTL) rather than US only equity has reduced volatility without decreasing returns in the period 1971- 2018. Certainly there is no question that over the past 10 years US only has hugely outperformed by a wide margin but clearly Vanguard does not expect this trend to continue forever. There is a lot of controversy on the Forum on this question of whether to hold INTL and if so, how much. Whatever your position on this issue, the following article is IMO worth reading. Comments?

https://vanguardblog.com/2019/02/14/the ... -marriage/

Garland Whizzer
"Comments?"

My equity portfolio is 100% ex-US. Valuation drives long-term returns.

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Re: Vanguard: the case for global equity investing

Post by FIREchief » Sat Oct 12, 2019 6:20 pm

TheNightsToCome wrote:
Sat Oct 12, 2019 6:01 pm
"Comments?"

My equity portfolio is 100% ex-US. Valuation drives long-term returns.
Well this is interesting!! I'm sure there have been others, but this is the first report I've seen of somebody eschewing US dominance altogether and betting it all on the other side. That's a heavy bet on the importance of "valuations." :beer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Vanguard: the case for global equity investing

Post by columbia » Sat Oct 12, 2019 6:25 pm

FIREchief wrote:
Sat Oct 12, 2019 6:20 pm
TheNightsToCome wrote:
Sat Oct 12, 2019 6:01 pm
"Comments?"

My equity portfolio is 100% ex-US. Valuation drives long-term returns.
Well this is interesting!! I'm sure there have been others, but this is the first report I've seen of somebody eschewing US dominance altogether and betting it all on the other side. That's a heavy bet on the importance of "valuations." :beer
A global value fund would probably be a better idea (given the apparent strategy), but there’s not much in the way offerings.

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Re: Vanguard: the case for global equity investing

Post by vineviz » Sat Oct 12, 2019 6:33 pm

TomCat96 wrote:
Sat Oct 12, 2019 5:50 pm
I think that allegation of the other sides hubris is not a good justification to argue in favor of investing in a particular asset class.
Indeed, and it wasn’t meant to be such a justification. The evidence supporting equity diversification is copious and unassailable. It’s important, though, that we understand just how overconfident someone would need to be to willfully ignore that evidence.
"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: Vanguard: the case for global equity investing

Post by bgf » Sat Oct 12, 2019 6:55 pm

David Althaus wrote:
Sat Oct 12, 2019 9:18 am
No value in making a 100 year wager but mine would be the US will outperform the rest of the world.
I'd take the field.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Re: Vanguard: the case for global equity investing

Post by abuss368 » Sat Oct 12, 2019 6:57 pm

Thank you for sharing. I will not be surprised if Vanguard eventually recommenced a 50% / 50% split.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Vanguard: the case for global equity investing

Post by Elysium » Sat Oct 12, 2019 8:37 pm

TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
I want to say that I have never been adverse to the argument that International stocks provide diversification.
They clearly do. And I have no argument against Taylor Larimores argument that for Japanese investors in the 80s, international investing would have done them a world of good. It certainly would have.

So I am not adverse to the enterprise of International Investing.

But what I do have is reservations. Reservations that take things too far such as "the market will correct for everything", reservations against rationales like "who are you to know any better?" That's just taking things too far. And I can't jump on board.
There is something to be said about American exceptionalism, there is no Japanese exceptionalism or Canadian exceptionalism. That doesn't sit very well with the academic community which is very deeply wedded to theories that places all countries on the same field and then assume the market has priced it all in. This is the problem with too much reliance on academic theories which are only intended to used as one of the aspects for investment decisions, not the only aspect.

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Re: Vanguard: the case for global equity investing

Post by columbia » Sat Oct 12, 2019 8:42 pm

Elysium wrote:
Sat Oct 12, 2019 8:37 pm
TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
I want to say that I have never been adverse to the argument that International stocks provide diversification.
They clearly do. And I have no argument against Taylor Larimores argument that for Japanese investors in the 80s, international investing would have done them a world of good. It certainly would have.

So I am not adverse to the enterprise of International Investing.

But what I do have is reservations. Reservations that take things too far such as "the market will correct for everything", reservations against rationales like "who are you to know any better?" That's just taking things too far. And I can't jump on board.
There is something to be said about American exceptionalism, there is no Japanese exceptionalism or Canadian exceptionalism. That doesn't sit very well with the academic community which is very deeply wedded to theories that places all countries on the same field and then assume the market has priced it all in. This is the problem with too much reliance on academic theories which are only intended to used as one of the aspects for investment decisions, not the only aspect.
Investing isn’t physics, so agreed.

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Re: Vanguard: the case for global equity investing

Post by lostdog » Sat Oct 12, 2019 9:31 pm

abuss368 wrote:
Sat Oct 12, 2019 6:57 pm
Thank you for sharing. I will not be surprised if Vanguard eventually recommenced a 50% / 50% split.
Or they'll replace total stock and total international with total world in their target date and life strategy funds.

I think this will happen maybe in a decade when the younger crowd takes over with more assets.
VTWAX and chill.

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Re: Vanguard: the case for global equity investing

Post by abuss368 » Sat Oct 12, 2019 9:54 pm

lostdog wrote:
Sat Oct 12, 2019 9:31 pm
abuss368 wrote:
Sat Oct 12, 2019 6:57 pm
Thank you for sharing. I will not be surprised if Vanguard eventually recommenced a 50% / 50% split.
Or they'll replace total stock and total international with total world in their target date and life strategy funds.

I think this will happen maybe in a decade when the younger crowd takes over with more assets.
I don’t know. That would result in the expense ratios for those funds going up.
John C. Bogle: "Simplicity is the master key to financial success."

Workable Goblin
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Re: Vanguard: the case for global equity investing

Post by Workable Goblin » Sat Oct 12, 2019 10:29 pm

TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
I'm guessing Asia is now a large percentage of the International allocation.
Well, you're guessing wrong, especially about China. Chinese stock markets make up only 3.4% of global stock market valuations (source), or about 7.3% of ex-U.S. stock market value. This, incidentally, is about the same as France. Japan is significantly more important--in fact, the second-largest market behind the U.S.--with 8.4% of global value and about 18% of ex-U.S. value, but even adding them together and taking into account smaller countries like Australia (2.2% of global value and 4.7% of ex-U.S.), it's hard to see "Asia" having more than about a third of the ex-U.S. pie (and again, about half of that is in Japan, not China).
Elysium wrote:
Sat Oct 12, 2019 8:37 pm
There is something to be said about American exceptionalism, there is no Japanese exceptionalism or Canadian exceptionalism.
You don't think Japan attacked Pearl Harbor without a story about how exceptional they were that they could beat the United States, no problem, do you? For that matter, in the 1980s the Japanese loved to talk about how great they were, how wonderful their industry was, and all that kind of thing. Most countries have their own stories about how they're exceptional and wonderful and just the best country in the world--but in most cases that story ran into reality somehow or another and they stopped talking about it so much. There's no reason to suppose that the United States is special in this regard, although of course "running into reality" might not happen for a very long time.

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Re: Vanguard: the case for global equity investing

Post by visualguy » Sun Oct 13, 2019 12:42 am

Workable Goblin wrote:
Sat Oct 12, 2019 10:29 pm
Most countries have their own stories about how they're exceptional and wonderful and just the best country in the world--but in most cases that story ran into reality somehow or another and they stopped talking about it so much. There's no reason to suppose that the United States is special in this regard, although of course "running into reality" might not happen for a very long time.
Even if the US stops being exceptional at some point, it doesn't follow that ex-US will outperform. At that point the US may start having a similar return to ex-US, and the outperformance we've seen over the last 20, 30, 50, 100 years will stop happening going forward. That still wouldn't be a cause for celebration for ex-US investors. You would need long-term outperformance by Europe, Japan, etc., not just the US getting dragged down to their level.

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Re: Vanguard: the case for global equity investing

Post by Workable Goblin » Sun Oct 13, 2019 1:08 am

visualguy wrote:
Sun Oct 13, 2019 12:42 am
Even if the US stops being exceptional at some point, it doesn't follow that ex-US will outperform.
It doesn't, but the point was that "American exceptionalism" is not really something unique to America.

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Re: Vanguard: the case for global equity investing

Post by Forester » Sun Oct 13, 2019 3:04 am

Elysium wrote:
Sat Oct 12, 2019 8:37 pm
TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
I want to say that I have never been adverse to the argument that International stocks provide diversification.
They clearly do. And I have no argument against Taylor Larimores argument that for Japanese investors in the 80s, international investing would have done them a world of good. It certainly would have.

So I am not adverse to the enterprise of International Investing.

But what I do have is reservations. Reservations that take things too far such as "the market will correct for everything", reservations against rationales like "who are you to know any better?" That's just taking things too far. And I can't jump on board.
There is something to be said about American exceptionalism, there is no Japanese exceptionalism or Canadian exceptionalism. That doesn't sit very well with the academic community which is very deeply wedded to theories that places all countries on the same field and then assume the market has priced it all in. This is the problem with too much reliance on academic theories which are only intended to used as one of the aspects for investment decisions, not the only aspect.

The US is no more exceptional than Denmark, New Zealand, Canada, South Africa etc... if you would care to look, long term returns have been very similar. For sure the US is in the top stack, but alongside other nations.

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Re: Vanguard: the case for global equity investing

Post by ignition » Sun Oct 13, 2019 3:53 am

TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
As for the Vanguard paper, I'm looking his reasons. I saw two.
1) That a 60/40 portfolio would have yielded the same performance with lower standard deviation. This is an interesting argument, it's worth looking more closely at, in particular for other time periods as well. Other bogleheads have not posted the same information.

2) The relative pricing argument, leading into the expectation that International will outperform in the next 10 years.
This I don't credit as much because he doesn't give good reasons. It's an "overdue" argument, and I would have liked to see some more support.

After all logic would dictate the proper course would be to go all in on exUS, not 60/40 if the rationale of outperformance for the next decade is to be taken seriously. Can we take that Vanguard CFA's argument seriously? How seriously? A little seriously? 40%? or alot seriously. 100%?
It's all about probabilities I guess. I think no one can be absolutely certain that ex-US will outperform or vice versa going forward.
TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
Insofar as I want to address his actual lack of support, I would say the international numbers he used since 1971--thats mostly europe isnt it?
But I'm guessing it's not anymore. I'm guessing Asia is now a large percentage of the International allocation.
Japan accounts for most of the outperformance during the 70's and 80's. At the end of the 80's Japan had a larger market cap than the US due to a huge stock market bubble.
TomCat96 wrote:
Sat Oct 12, 2019 5:37 pm
Is there a principled way of making the transition? Should we have included China in the 1971 calculations? Can we do that with any fidelity? If not, does that not undercut the argument that the market can price in everything--namely that international investing cannot accurately price in state run industries of communist command economies?

I recognize that not every objection can or should be answered. But I'd like to listen to some responses.
I think the Chinese stock market was only reopened in the 90's after having been closed in the 40's.

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Re: Vanguard: the case for global equity investing

Post by columbia » Sun Oct 13, 2019 6:18 am

johan851 wrote:
Fri Oct 11, 2019 9:29 pm
1210sda wrote:
Fri Oct 11, 2019 7:41 pm
More diversification should be my logical choice. But, 1.5% greater annual return is tough to forego.
This makes it sound like the greater past return was guaranteed going forward! 10 years is a pretty short timeframe for equities, all things considered. :)
I agree with your last sentence. “Recency bias” is used, but never properly defined. ie what constitutes “recent” in investing (for those who use that phrase)?

I’ve been investing since 1996 (a key point in that graph, by coincidence) and I do not consider 23 years to be recent.

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