Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

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invest2bfree
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Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by invest2bfree »

He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by z3r0c00l »

No other number makes sense in my mind. Even zero international isn't a special number, since you could potentially go below zero or above 100% domestic stock. Only market cap, in my mind, is defensible given the principles on investing around here. Anything else is claiming to know something about the future of stocks that is unknowable. For my part I split international/domestic giving a bit more hands-on control while re balancing but for sure, let the market decide.
lostdog
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by lostdog »

invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
What time in the video does he say this? I don't remember hearing it.
whereskyle
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by whereskyle »

invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
I agree. I'm holding 50% VT and 50% VTI. Only VT can make VTI seem risky 😆. I am very comfortable with these two funds because I know I can buy VT or VTI depending on however I'm feeling that day and I can't go wrong.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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invest2bfree
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by invest2bfree »

lostdog wrote: Sat Sep 19, 2020 8:34 am
invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
What time in the video does he say this? I don't remember hearing it.
He does not say that in that video but he did get into that in his interview here-

https://youtu.be/m7fwdo9t6gM
MNSooner
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by MNSooner »

I automatically disregard appeals for action based on vanity.

“You aren’t a REAL xxx if you do (or don’t) do yyy”
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Broken Man 1999 »

Market timer? So what. I've been called far worse.

Besides, there is some truth to me being a market timer. Though, I call it rebalancing. Apparently if you say (or write down) when you are going to market time, then you can call it rebalancing.

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Ferdinand2014
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Ferdinand2014 »

invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
The problem is that people from different countries have different laws, regulations and taxes as well as ones individual circumstances that could very well impact your investing decisions. I think this advice is generic and may be true at a conceptual level, but not true on an individual level. The idea that a citizen of the US living in a small town in northern Maine should invest in an identical way to a citizen of Nepal or Romania or India at market cap seems silly.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
lostdog
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by lostdog »

whereskyle wrote: Sat Sep 19, 2020 8:39 am
invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
I agree. I'm holding 50% VT and 50% VTI. Only VT can make VTI seem risky 😆. I am very comfortable with these two funds because I know I can buy VT or VTI depending on however I'm feeling that day and I can't go wrong.

It's kind if like you're trying to kick the home bias addiction but can't quite do it just yet. :wink:
lostdog
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by lostdog »

Ferdinand2014 wrote: Sat Sep 19, 2020 8:58 am
invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
The problem is that people from different countries have different laws, regulations and taxes as well as ones individual circumstances that could very well impact your investing decisions. I think this advice is generic and may be true at a conceptual level, but not true on an individual level. The idea that a citizen of the US living in a small town in northern Maine should invest in an identical way to a citizen of Nepal or Romania or India at market cap seems silly.
To some, undiversification seems silly.
Ferdinand2014
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Ferdinand2014 »

lostdog wrote: Sat Sep 19, 2020 9:04 am
Ferdinand2014 wrote: Sat Sep 19, 2020 8:58 am
invest2bfree wrote: Sat Sep 19, 2020 8:19 am He argues that market determines how much needs to go into international for any investor. Your asset allocation at least on the equity level should be the same for any investor in any country.Then he says you need to invest in your own currency for bonds or cash.

So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.


Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.

He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.

Only cheap investing fund you will ever need-

https://youtu.be/LwTHLtuToSY
The problem is that people from different countries have different laws, regulations and taxes as well as ones individual circumstances that could very well impact your investing decisions. I think this advice is generic and may be true at a conceptual level, but not true on an individual level. The idea that a citizen of the US living in a small town in northern Maine should invest in an identical way to a citizen of Nepal or Romania or India at market cap seems silly.
To some, undiversification seems silly.
As David Swenson has recommended in his book unconventional success, you must look at the whole picture to gauge where you invest. For me, owning global equities at market cap would make no sense based on my personal circumstances. You must consider tax laws, regulations, business ownership and where the revenue comes from, property (and location) as well as any other assets that contribute to the overall portfolio diversification and risks. Cookbook recommendations to invest in VT as a universal solution for everybody is silly.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
ChrisBenn
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by ChrisBenn »

invest2bfree wrote: Sat Sep 19, 2020 8:19 am (...)
So what does people who invest less than 42% international think of this?
As of right now VT is 58% US and 42% international.
(...)
US investors as of may held 73% domestic / 27% international. That makes way more sense to me than a global cap weight.

If each day I might randomly wake up living in and a citizen of another country then it would make sense to optimize for that. But I know I'm going to be US based, so I don't think there is a reason to hedge that.

I feel like looking at the us investors allocation is a great mechanism for letting the market answer some of those risks re: regulation, trade wars, differing domestic investing incentives, etc.

I do still hold the 30% international at global market cap though, as I don't have any information on US investors aggregate international holdings. If I did I would switch to that allocation.
Day9
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Day9 »

z3r0c00l wrote: Sat Sep 19, 2020 8:28 am No other number makes sense in my mind. Even zero international isn't a special number, since you could potentially go below zero or above 100% domestic stock. Only market cap, in my mind, is defensible given the principles on investing around here. Anything else is claiming to know something about the future of stocks that is unknowable. For my part I split international/domestic giving a bit more hands-on control while re balancing but for sure, let the market decide.
Maybe in theory but in practice there is a qualitative difference to commit to being unleveraged and long-only
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by rkhusky »

You are not a market timer unless you make investment decisions based on current or anticipated market conditions. And there must be some element of time variation in your investing.

If you maintain a fixed allocation to US, you are not market timing.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Day9 »

rkhusky wrote: Sat Sep 19, 2020 10:20 am You are not a market timer unless you make investment decisions based on current or anticipated market conditions. And there must be some element of time variation in your investing.

If you maintain a fixed allocation to US, you are not market timing.
I agree with you but you can be charitable and consider he used a word or phrase like "active management" instead of "market timing"
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Robot Monster »

Ferdinand2014 wrote: Sat Sep 19, 2020 9:56 am Cookbook recommendations to invest in VT as a universal solution for everybody is silly.
Did you mean "cookie cutter recommendations"? I tried googling "cookbook recommendations," but all I came up with were recommendations for cookbooks.
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vineviz
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by vineviz »

Day9 wrote: Sat Sep 19, 2020 10:22 am
rkhusky wrote: Sat Sep 19, 2020 10:20 am You are not a market timer unless you make investment decisions based on current or anticipated market conditions. And there must be some element of time variation in your investing.

If you maintain a fixed allocation to US, you are not market timing.
I agree with you but you can be charitable and consider he used a word or phrase like "active management" instead of "market timing"
He'd still be wrong. Choosing a fixed target allocation between US and ex-US stocks is no more (or less) "active management" than choosing to use the global market cap weights.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by cjg »

Why stop there? Should you also hold bonds, commodities, and other assets based on global market sizes?

I hold based on global market caps but don't think anyone choosing otherwise is necessarily making a mistake.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Anon9001 »

The most important risk of doing this is tracking error regret. If this fund under-performs your local index will you A) Sell it and move it 100% to local index or B) Stick to it hoping the recent out-performance of your local market will not last. If it is A) you should not do this regardless of where you are living in.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by stan1 »

He is Danish, is he speaking to Americans or the world at large?

I would not at this time advise Europeans to eschew American stocks. Total World seems appropriate.

For Americans over 50, given what I know today, I think they are OK being US only if that's a preference. Be honest with yourself about the reasons if political, social or religious beliefs are creeping into your investment plan.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by JohnDoh »

Anon9001 wrote: Sat Sep 19, 2020 11:40 am The most important risk of doing this is tracking error regret. If this fund under-performs your local index will you A) Sell it and move it 100% to local index or B) Stick to it hoping the recent out-performance of your local market will not last. If it is A) you should not do this regardless of where you are living in.
The development and popularization of a reputable WORLD EQUITY INDEX that supplemented/supplanted the Dow, S&P, FTSE, etc. would seem to solve the artificial problem of home country bias tracking error regret.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Rlew »

I invest in international at market weight, but I think investing at a lower weight is still very reasonable. Keep in mind that international holdings subject you to uncompensated currency risk, though over the course of an investor's lifetime I'm not convinced it matters all that much. Also a market weight fund such as VTWAX doesn't work quite as well as two funds such as VTSAX/VTIAX for tax loss harvesting - but that's an easy fix - just buy VTSAX/VTIAX using VTWAX's market weight (also allows for more tax efficient placement of funds)
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by lostdog »

stan1 wrote: Sat Sep 19, 2020 12:00 pm He is Danish, is he speaking to Americans or the world at large?

I would not at this time advise Europeans to eschew American stocks. Total World seems appropriate.

For Americans over 50, given what I know today, I think they are OK being US only if that's a preference. Be honest with yourself about the reasons if political, social or religious beliefs are creeping into your investment plan.
This is usually the case but hidden using other excuses.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Robot Monster »

lostdog wrote: Sat Sep 19, 2020 12:27 pm
stan1 wrote: Sat Sep 19, 2020 12:00 pm He is Danish, is he speaking to Americans or the world at large?

I would not at this time advise Europeans to eschew American stocks. Total World seems appropriate.

For Americans over 50, given what I know today, I think they are OK being US only if that's a preference. Be honest with yourself about the reasons if political, social or religious beliefs are creeping into your investment plan.
This is usually the case but hidden using other excuses.
Never read it, but the book Subliminal: How Your Unconscious Mind Rules Your Behavior discusses "how we misunderstand the reasons for our investment decisions." Written by the same dude who wrote The Drunkard's Walk: How Randomness Rules Our Lives.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by pasadena »

So he's saying that everybody should invest in International except Americans? How's that for "market timing" ? That basically means that everybody should invest in the American market.

Great way to say something and then immediately prove yourself wrong.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Robot Monster »

pasadena wrote: Sat Sep 19, 2020 12:49 pm So he's saying that everybody should invest in International except Americans? How's that for "market timing" ?
My impression is he's saying everyone should invest globally. US investors can get away with home country bias, but just because he's saying we can get away with it, doesn't mean he's recommending it.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by columbia »

Robot Monster wrote: Sat Sep 19, 2020 2:08 pm
pasadena wrote: Sat Sep 19, 2020 12:49 pm So he's saying that everybody should invest in International except Americans? How's that for "market timing" ?
My impression is he's saying everyone should invest globally. US investors can get away with home country bias, but just because he's saying we can get away with it, doesn't mean he's recommending it.

Satisficing led me to decide that it was indeed an acceptable choice.

https://en.m.wikipedia.org/wiki/Satisficing
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by arcticpineapplecorp. »

tell it to Vanguard and their target date retirement funds which hold 39% of the total stock allocation in total international stock market index fund:
https://investor.vanguard.com/mutual-fu ... file/VFIFX
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Forester »

His primary audience is UK investors. He is correct, the alternative would be a large or total FTSE 100 bias, or to be swayed by the Nasdaq's recent run and overweight US megacap. A global index fund should be the default.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by GaryA505 »

I think that theoretically everyone should invest by global market weight. But it's just a theory until proven. :wink:
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by flaccidsteele »

invest2bfree wrote: Sat Sep 19, 2020 8:19 am Now he does say that investors in USA can get away with home country bias with 100% in VTI because US is more diversified but for a Canadian or UK investor he recommends to stick with VT.
Canadians can get away with a pro-US bias imo

I have
invest2bfree wrote: Sat Sep 19, 2020 8:19 am He also argues your job, house and cash\bonds is too much concentrated in your local country, so international diversification is a must.
Replace “international” with “US” and, as a Canadian, I completely agree

International has no benefits for me
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by 000 »

No, this thinking ignores the confiscation risk which can reasonably be assumed to be a higher for a person holding equity in corporations domiciled outside his home country.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Robot Monster »

columbia wrote: Sat Sep 19, 2020 3:39 pm
Robot Monster wrote: Sat Sep 19, 2020 2:08 pm
pasadena wrote: Sat Sep 19, 2020 12:49 pm So he's saying that everybody should invest in International except Americans? How's that for "market timing" ?
My impression is he's saying everyone should invest globally. US investors can get away with home country bias, but just because he's saying we can get away with it, doesn't mean he's recommending it.

Satisficing led me to decide that it was indeed an acceptable choice.

https://en.m.wikipedia.org/wiki/Satisficing
Yes, I remember Nisiprius talking about satisficing in an excellent post that deserves revisiting.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by bogledogle87 »

Market timing? Not necessarily. Speculating? Perhaps. Especially if there is any argument to be made about past performance carrying forward.

I can understand setting a limit on international currency exposure. This is not something I care about, but I can understand the rationale.
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columbia
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by columbia »

Robot Monster wrote: Sat Sep 19, 2020 5:52 pm
columbia wrote: Sat Sep 19, 2020 3:39 pm
Robot Monster wrote: Sat Sep 19, 2020 2:08 pm
pasadena wrote: Sat Sep 19, 2020 12:49 pm So he's saying that everybody should invest in International except Americans? How's that for "market timing" ?
My impression is he's saying everyone should invest globally. US investors can get away with home country bias, but just because he's saying we can get away with it, doesn't mean he's recommending it.

Satisficing led me to decide that it was indeed an acceptable choice.

https://en.m.wikipedia.org/wiki/Satisficing
Yes, I remember Nisiprius talking about satisficing in an excellent post that deserves revisiting.
I had the great opportunity to take a class with Herb Simon as an undergraduate. Getting even more off topic, but his ideas have shaped my approach towards negotiating the complexity of the world over the last 30+ years.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Ferdinand2014 »

Robot Monster wrote: Sat Sep 19, 2020 10:53 am
Ferdinand2014 wrote: Sat Sep 19, 2020 9:56 am Cookbook recommendations to invest in VT as a universal solution for everybody is silly.
Did you mean "cookie cutter recommendations"? I tried googling "cookbook recommendations," but all I came up with were recommendations for cookbooks.
No, I meant cookbook. It is a common term used in my field to describe individuals who struggle to go beyond standard protocols of care and critically think.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Valuethinker »

columbia wrote: Sat Sep 19, 2020 6:09 pm
Robot Monster wrote: Sat Sep 19, 2020 5:52 pm
columbia wrote: Sat Sep 19, 2020 3:39 pm
Robot Monster wrote: Sat Sep 19, 2020 2:08 pm
pasadena wrote: Sat Sep 19, 2020 12:49 pm So he's saying that everybody should invest in International except Americans? How's that for "market timing" ?
My impression is he's saying everyone should invest globally. US investors can get away with home country bias, but just because he's saying we can get away with it, doesn't mean he's recommending it.

Satisficing led me to decide that it was indeed an acceptable choice.

https://en.m.wikipedia.org/wiki/Satisficing
Yes, I remember Nisiprius talking about satisficing in an excellent post that deserves revisiting.
I had the great opportunity to take a class with Herb Simon as an undergraduate. Getting even more off topic, but his ideas have shaped my approach towards negotiating the complexity of the world over the last 30+ years.
Dear God do I envy you.

Many brilliant minds are poor teachers but just to sit in the same room with the man.

Was this at Carnegie Mellon? Their economics department has been totally taken over by the ultra-rational macro crowd. I suspect a phd candidate there would never have even seen a Keynesian macro model.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Valuethinker »

Efficient Market theory says you should hold the market portfolio. EDIT Modern Portfolio Theory nit EMH.

The market portfolio includes international stocks. Home country bias is an error.

Your portfolio is thus a combination of the risk free asset (govt bonds) and the market portfolio (global equity portfolio). The percentage varies by the needs of the investor for risk v return.

That is true *for all investors*. From a sophisticated pension fund to a single household in Maine or Brighton W Sussex.

Caveats:

- the theory implies you hedge out all currency risk
- tax or transactions costs could tilt you towards home country bias

It just so happens because US index is c 60% of global equities (but w strong sectoral tilts) that the risk of a US home country bias is lower.

Any other arguments that "US is best" contravene Efficient Market theory because the market will have already priced that in to share prices if it is publicly available information.
Last edited by Valuethinker on Mon Sep 21, 2020 7:00 am, edited 1 time in total.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by vineviz »

Valuethinker wrote: Mon Sep 21, 2020 5:20 am Efficient Market theory says you should hold the market portfolio.
The efficient market hypothesis (EMH) says nothing of the sort.

EMH makes specific predictions about the way that a market incorporates new information into prices. It doesn’t prescribe that any particular investor should hold any particular portfolio.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by vineviz »

Valuethinker wrote: Mon Sep 21, 2020 5:20 am Your portfolio is thus a combination of the risk free asset (govt bonds) and the market portfolio (global equity portfolio). The percentage varies by the needs of the investor for risk v return.
Also, in modern portfolios theory (MPT) the market portfolio isn’t just an equity portfolio: it contains all marketable assets, including bonds.
"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: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Valuethinker »

vineviz wrote: Mon Sep 21, 2020 5:51 am
Valuethinker wrote: Mon Sep 21, 2020 5:20 am Efficient Market theory says you should hold the market portfolio.
The efficient market hypothesis (EMH) says nothing of the sort.

EMH makes specific predictions about the way that a market incorporates new information into prices. It doesn’t prescribe that any particular investor should hold any particular portfolio.
You are quite right. I was typing/ thinking in a hurry, never a good thing.

As per your next post MPT says it.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Valuethinker »

vineviz wrote: Mon Sep 21, 2020 5:56 am
Valuethinker wrote: Mon Sep 21, 2020 5:20 am Your portfolio is thus a combination of the risk free asset (govt bonds) and the market portfolio (global equity portfolio). The percentage varies by the needs of the investor for risk v return.
Also, in modern portfolios theory (MPT) the market portfolio isn’t just an equity portfolio: it contains all marketable assets, including bonds.
Agreed although in its original form it was an equity index portfolio (not yet available to investors, then).

tThe research done on "other" asset classes which *may* stretch the efficient frontier seem to show that post costs, these don't add to the average investors portfolio efficiency? See Larry Swedroes books for non technical summaries.

So holding anything other than risk free govt bonds means, simply you are adding credit risk, call risk etc without improving your portfolio.

With the possible exception of real estate that seems to be true of other "alternative" asset classes as well.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by grabiner »

There are two reasons that a US investor should overweight US stocks. Neither is market timing, because both are permanent expectations which are consistent with an efficient market.

Foreign stocks have more risk than US stocks, because of the additional currency risk.

Foreign stocks have a higher tax cost than US stocks, both in tax-advantaged accounts (lose the foreign tax credit) and in taxable accounts (higher dividend yields and more non-qualified dividends).

These are consistent with an efficient market because they are specific to US investors. European investors should overweight European stocks over US stocks, because they have currency risk for US stocks.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Robot Monster »

grabiner wrote: Tue Sep 22, 2020 8:44 pm ...Foreign stocks have more risk than US stocks, because of the additional currency risk.

...European investors should overweight European stocks over US stocks, because they have currency risk for US stocks.
That seems like it might be a good rule of thumb for a typical investor, but what I wonder is, what if someone has a much smaller stock allocation than what is normal.

Let me start by saying I presume some currency exposure is a good thing. After all, if it wasn't, then one might expect Total International Stock Market to be currency-hedged like Total International Bond is. (The cost of currency-hedging doesn't seem significant, going by the expense difference between Vanguard Global Minimum Volatility Fund Admiral Shares (VMNVX) and Vanguard Total World Stock Index Fund Admiral Shares (VTWAX): 0.14% vs 0.10%.)

If some currency exposure is, in fact, a good thing, an investor might want a certain amount of it relative to their overall portfolio, and therefore, if they have a smaller stock allocation than what is typical, they might want to overweight international?

Maybe that was a bit of a leap.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by grabiner »

Robot Monster wrote: Wed Sep 23, 2020 10:16 am
grabiner wrote: Tue Sep 22, 2020 8:44 pm ...Foreign stocks have more risk than US stocks, because of the additional currency risk.

...European investors should overweight European stocks over US stocks, because they have currency risk for US stocks.
That seems like it might be a good rule of thumb for a typical investor, but what I wonder is, what if someone has a much smaller stock allocation than what is normal.

Let me start by saying I presume some currency exposure is a good thing. After all, if it wasn't, then one might expect Total International Stock Market to be currency-hedged like Total International Bond is. (The cost of currency-hedging doesn't seem significant, going by the expense difference between Vanguard Global Minimum Volatility Fund Admiral Shares (VMNVX) and Vanguard Total World Stock Index Fund Admiral Shares (VTWAX): 0.14% vs 0.10%.)

If some currency exposure is, in fact, a good thing, an investor might want a certain amount of it relative to their overall portfolio, and therefore, if they have a smaller stock allocation than what is typical, they might want to overweight international?

Maybe that was a bit of a leap.
It's actually a good question. What is the correlation of foreign-currency returns with the excess of foreign over US stock market returns? That is, if the euro rises against the dollar (positive return on foreign currency, negative return on hedging), are European stocks likely to outperform US stocks, giving a positive correlation?

If the correlation is positive, then hedging currency in any portfolio gives a benefit (unless it adds to tax costs, which is one reason not to do it with foreign stock indexes). If the correlation is near zero, then hedging doesn't make much difference, and should be avoided in foreign stock funds. If the correlation is negative, then holding a small amount of unhedged foreign stocks decreases your portfolio risk compared to hedging, and hedging only becomes useful when you have a large foreign currency exposure.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by columbia »

One can...hedge their currency hedge though HFXI:
https://www.nylinvestments.com/IQetfs/e ... tional-ETF
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Big Dog »

rkhusky wrote: Sat Sep 19, 2020 10:20 am You are not a market timer unless you make investment decisions based on current or anticipated market conditions. And there must be some element of time variation in your investing.

If you maintain a fixed allocation to US, you are not market timing.
Exactly. If you never had had international and have no plans to buy it in the future, t = 0.

(Now, one could definitely say its mono-country bias, but it ain't timing.)
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by Uncorrelated »

grabiner wrote: Tue Sep 22, 2020 8:44 pm There are two reasons that a US investor should overweight US stocks. Neither is market timing, because both are permanent expectations which are consistent with an efficient market.

Foreign stocks have more risk than US stocks, because of the additional currency risk.

Foreign stocks have a higher tax cost than US stocks, both in tax-advantaged accounts (lose the foreign tax credit) and in taxable accounts (higher dividend yields and more non-qualified dividends).

These are consistent with an efficient market because they are specific to US investors. European investors should overweight European stocks over US stocks, because they have currency risk for US stocks.
Currency risk is not a valid reason to avoid international diversification because currency fluctuations only explain a negligible part of stock market volatility (vanguard research). Additionally with the cost of hedging being negligible compares to the cost of diversification, it wouldn't be a good argument anyway (Hedging costs <0.1% per year, according to Fama & French domestic markets must outperform international by between 2.5% and 4% per year to rationalize the market's aggregate home bias).
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by texanghost »

I respectfully disagree, but I think I disagree only on definition, not the overall point.

If you're investing according to a policy statement or set of rules and your rules have you with a domestic tilt for whatever reason, your policy isn't necessarily variable based on market conditions at a particular time. Reasons for a domestic tilt can include hedging against the risk of currency volatility, given you spend most of your money in your home currency, structural economic reasons, or a plain desire to support your country's economy.

Whether these are good reasons is questionable, but that's questioning of investment strategy, not criticism of market timing. I personally have a domestic US tilt (70 domestic, 30 international) for reasons of home currency and structural economic reasons that give US investments an advantage over international.
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Re: Lars Kroijer: If you are not in Total World (VT or VTWAX) you are market timing!

Post by abuss368 »

Ferdinand2014 wrote: Sat Sep 19, 2020 8:58 am
The problem is that people from different countries have different laws, regulations and taxes as well as ones individual circumstances that could very well impact your investing decisions. I think this advice is generic and may be true at a conceptual level, but not true on an individual level. The idea that a citizen of the US living in a small town in northern Maine should invest in an identical way to a citizen of Nepal or Romania or India at market cap seems silly.
I agree and in my opinion this is very good advice. There is too wide of a spectrum of shareholder rights, voting rights, securities enforcement, regulations, laws, and so forth. I am becoming increasingly concerned that there are too many unknowns with international investing.

Look at China! What exactly is a US investor investing in? A Chinese ADR on one of our stock exchanges for a company that will not allow our securities regulators and enforcers to view audited financial statements and other compliance and regulations? Shell companies in the Caymans?
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