Seriously, what is going on with international?

[abuss368]

You are welcome.

There's a lot of theorising on these threads why "US is best" which relies on things which the market will know. They are not trade secrets.

Conversely because there might be volatility which does not earn a return for US investors investing internationally, a full international market weight may not be appropriate. One has to resort to empirical data. Which suggests 20 to 40% as appropriate weightings.

And its also fair to take the Nisiprius line that in the long run it hasn't mattered much.

For foreign investors the risks of home country bias are much greater.

I believe weight of international markets (which moves daily) is approximately 40% of world markets presently correct?

[abuss368]

Like the UK . And Canada?

Seriously. Royal Dutch Shell and BP are over 10% of UK stock market combined. And 40% of Canadian index is natural resources mostly oil and gas.

Of course the USA is almost the worlds largest oil producer now (top 5 in gas). But its also the world's largest oil consumer so price falls cut both ways.

Where companies have their home listing is more than a bit arbitrary. Thus the UK has big oil even though its North Sea oil and gas production is fast depleting.

So what goes on economically in the world often does not drive the local stock market.

Imagine that! On another post, there was a discussion regarding home country bias, and specifically the US is lower in terms of that bias, than investors of other nations. Imagine a Canadian investor with home country bias. They would own a Total Canada Index Fund (which is small compared to the rest of world) with an additional 40% concentration in energy.

[kolder]

And yet somehow Warren Buffett thought it was a good idea to invest 6 billion in Japanese stocks this year ( Itochu, Marubeni, Mitsubishi, Mitsui & Co and Sumitomo).

I am not going to argue that but rather question it! Not you, but Warren Buffet! Mr. Buffett has said with Becky Quick on CNBC over many years “just buy the S&P 500” and he has also said “own a few index funds” (which is plural) but has never dived into any other details.

Yet, Berkshire Hathaway has investments in Israel, China, PetroBras, Europe, Japan, and other parts of the world.

I always look at some things as talk is cheap and put your money where your mouth is!

To his defense, I do think it's better for the average investor who doesn't know much to just own the S&P 500. The potential for tracking error regret, which causes people to sell at the lows of a market and buy in at the highs of another (which you see in this thread itself), is not something a lot of investors can deal with.

[abuss368]

And yet somehow Warren Buffett thought it was a good idea to invest 6 billion in Japanese stocks this year ( Itochu, Marubeni, Mitsubishi, Mitsui & Co and Sumitomo).

I am not going to argue that but rather question it! Not you, but Warren Buffet! Mr. Buffett has said with Becky Quick on CNBC over many years “just buy the S&P 500” and he has also said “own a few index funds” (which is plural) but has never dived into any other details.

Yet, Berkshire Hathaway has investments in Israel, China, PetroBras, Europe, Japan, and other parts of the world.

I always look at some things as talk is cheap and put your money where your mouth is!

To his defense, I do think it's better for the average investor who doesn't know much to just own the S&P 500. The potential for tracking error regret, which causes people to sell at the lows of a market and buy in at the highs of another (which you see in this thread itself), is not something a lot of investors can deal with.

I am certainly not attacking Warren Buffett! His advice is excellent for investors and I have that on my “Jack Bogle - Two Fund Portfolio” thread. Most investors would be wise and much better off to listen and follow Mf. Buffett’s advice. We have many posters who do that and are better off.

[canadianbacon]

Imagine that! On another post, there was a discussion regarding home country bias, and specifically the US is lower in terms of that bias, than investors of other nations. Imagine a Canadian investor with home country bias. They would own a Total Canada Index Fund (which is small compared to the rest of world) with an additional 40% concentration in energy.

Most Canadian investors have a home country bias. The Vanguard asset allocation funds in Canada even do, e.g. VGRO holds 24% Canadian equities: https://www.vanguardcanada.ca/advisors/ ... 9/balanced

A couple links:

https://canadiancouchpotato.com/2012/05 ... ake-sense/
https://www.canadianportfoliomanagerblo ... tion-etfs/

There has been a shift in recent years towards more global cap weighting but it frankly looks kind of like performance chasing to me. In the 2000s, Canadian equities did well and US equities did not, so home bias got better results. In the 2010s, it has been better to hold US equities, so people are discovering the theoretical advantage of a global cap weight . Home bias will stay out of fashion roughly until energy has another good run.

I have some home bias and hold 11% Canadian index. I underweight ex-NA international and hold US equities roughly to global cap weight.

[abuss368]

Imagine that! On another post, there was a discussion regarding home country bias, and specifically the US is lower in terms of that bias, than investors of other nations. Imagine a Canadian investor with home country bias. They would own a Total Canada Index Fund (which is small compared to the rest of world) with an additional 40% concentration in energy.

Most Canadian investors have a home country bias. The Vanguard asset allocation funds in Canada even do, e.g. VGRO holds 24% Canadian equities: https://www.vanguardcanada.ca/advisors/ ... 9/balanced

A couple links:

https://canadiancouchpotato.com/2012/05 ... ake-sense/
https://www.canadianportfoliomanagerblo ... tion-etfs/

There has been a shift in recent years towards more global cap weighting but it frankly looks kind of like performance chasing to me. In the 2000s, Canadian equities did well and US equities did not, so home bias got better results. In the 2010s, it has been better to hold US equities, so people are discovering the theoretical advantage of a global cap weight . Home bias will stay out of fashion roughly until energy has another good run.

I have some home bias and hold 11% Canadian index. I underweight ex-NA international and hold US equities roughly to global cap weight.

Thanks. So are you a Canadian investor who holds only Canada and US stocks? Do you invest in the rest of the world?

[canadianbacon]

Thanks. So are you a Canadian investor who holds only Canada and US stocks? Do you invest in the rest of the world?

I’m Canadian and hold 11% Canadian, 49% US, 17% International developed, and the rest bonds/FI/cash.

[abuss368]

Thanks. So are you a Canadian investor who holds only Canada and US stocks? Do you invest in the rest of the world?

I’m Canadian and hold 11% Canadian, 49% US, 17% International developed, and the rest bonds/FI/cash.

Interesting. Basically close to market weight of US plus Canada. Small allocation to rest of world.

Thanks!

[Stef]

I guess home bias makes sense if the local market has a great stock return history and you wan't to counter some of the FX risk. US, Switzerland, Canada and a couple of other contries. But yeah, nobody knows if the performance will be like that in the future.

[000]

It does not matter if there are reasons why US will outperform international.

In an efficient market, informationally efficient, you can't beat what the market as a whole knows. The price is set by the best-informed buyers and sellers. So the price of international stocks adjusts to reflect their lower earnings growth prospects. Otherwise it's all a bit random - to assume you can't beat the S&P500 index by stock picking, but on the other hand you can pick which country will be the best performing stock market in the 21st century.

In the last few years of that financial speculation went nuts. Because of cross shareholdings, the effect was self fulfilling- recursive. Classic bubble. Maybe the all time classic bubble (other than US Housing up to end of 2006).

China, right now, has potentially a bigger bubble in real estate than either USA 2006 or Japan 1990. The biggest bubble, perhaps, of all time.

Contradiction detected.

I am not arguing you can *act* on the information- shorting Chinese housebuilding, say.

Bubbles are interesting in the literature. Because it is blatantly obvious they take place BUT it is less obvious that you can call the turn.

It goes back to that famous paper by Schleifer about Inefficient Markets:
If you assume the existence of noise traders and limits to borrowing (shorting) then the rational thing for a hedge speculator to do when confronted w a forming bubble is to bet on that bubble getting worse *not* bet against it. Thus making the bubble self-fulfilling.

Soros does something similar in foreign exchange markets, which we pretty much know are not efficient, because there are major players (Central Banks) in FX who are not profit maximising.

Nothing you said here addresses the fact that the existence of such bubbles contradicts efficient markets, especially when one of those bubbles was in a liquid financial instrument (Japanese stocks) and lead to multi-decade negative returns (assuming a lump sum at the top).

Moreover you are missing the fact that a person takes on more uncompensated risk when investing in a market that is less friendly to his property rights than the cap-weighted average investor in that market, so the expected risk-adjusted return is less for that investor personally. To wit, a US person investing in China-domiciled stocks will (in the best case) get the same return as a Chinese investor, but takes on more political risk. There is no compensation for that risk because China-domiciled stocks are not priced (completely) for the risks of US persons investing in them.

[KyleAAA]

Behavior of international doesn't seem inconsistent with a random sequence.

[Uncorrelated]

Imagine that! On another post, there was a discussion regarding home country bias, and specifically the US is lower in terms of that bias, than investors of other nations. Imagine a Canadian investor with home country bias. They would own a Total Canada Index Fund (which is small compared to the rest of world) with an additional 40% concentration in energy.

Most Canadian investors have a home country bias. The Vanguard asset allocation funds in Canada even do, e.g. VGRO holds 24% Canadian equities: https://www.vanguardcanada.ca/advisors/ ... 9/balanced

FYI, it is rational to have a home country bias if you expect the home market to outperform domestic markets. Under normal circumstances (efficient markets), it's not a good idea to make that assumption. But if you are a Canadian citizen, Canadian stocks have tax advantages which means it *is* perfectly rational to expect higher return for the home market. I believe this is the rationale used by financial advisors to over-weight Canadian stocks.

[abuss368]

I guess home bias makes sense if the local market has a great stock return history and you wan't to counter some of the FX risk. US, Switzerland, Canada and a couple of other contries. But yeah, nobody knows if the performance will be like that in the future.

That is defiantly the risk and concern. Jack Bogle said no one knows what the future may bring and perhaps it could be different.

[abuss368]

Behavior of international doesn't seem inconsistent with a random sequence.

Interesting and would you mind please expanding on that.

[PicassoSparks]

Seriously, I have no idea what's going with international. Here are international p/e ratios: https://www.starcapital.de/en/research/ ... valuation/.

I keep myself diversified internationally because I know nothing. I don't want to end up in a situation holding all US if the US becomes Japan. I'd rather accept lower returns on international and remain hedged.

Whenever I start to doubt myself, I return to the callan periodic table of asset returns: https://www.callan.com/periodic-table/.

Thanks for these charts. Very helpful.

[abuss368]

Another problem is there does not appear to be as much difference in correlation between Total Stock and Total International. It appears when the market pullback, and Total Stock declines, that Total International declines as well, if not more.

It certainly feels as if this has changed over the years.

[abuss368]

I just read the Morningstar international predictions for the next few years with pretty much everyone predicting international stocks and bonds will out perform.

I certainly hope so! I would love to see a building pattern of returns and sustainability.

[rockstar]

I just read the Morningstar international predictions for the next few years with pretty much everyone predicting international stocks and bonds will out perform.

I certainly hope so! I would love to see a building pattern of returns and sustainability.

Why will it out perform? Ireland shutdown until December. The rest of the UK isn't doing much better. Europe most likely will have shutdowns as well. This is all worse than what we're seeing in the US.

[Stef]

Why will it out perform? Ireland shutdown until December. The rest of the UK isn't doing much better. Europe most likely will have shutdowns as well. This is all worse than what we're seeing in the US.

How is this related to longterm stock returns?

[rascott]

Non-US equities continue to underperform the often denigrated US small cap value offerings.

But one is "good" and one is "gambling"

[rascott]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

[rockstar]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

My take away from Bogle is to stick with low a ER S&P 500. That's it. I don't get where all the other stuff comes from.

[visualguy]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

My take away from Bogle is to stick with low a ER S&P 500. That's it. I don't get where all the other stuff comes from.

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

[whereskyle]

Stocks go up stocks go down. The market prices in expectations so the daily change in the market is by definition unexpected. That's how it's supposed to be.

So how is it, when I look at VTI, VXUS is worse almost every day? 8 or 9 times out of 10.

A random walk doesn't act like this. I shouldn't be able to predict the movement of a market with this much accuracy. And it is prediction, I've been saying aloud "how much worse is VXUS?" and behold, it's worse. I shouldn't be able to do that.

Different sectors outperform others over years or even decades, or in spikes over days, but this daily underperformance makes me suspicious.

My worry is not underperformance itself. Diversification means you'll always have a section of your portfolio underperforming. My worry is that international stock prices are being driven by something other than profit-seeking traders. Is there some law that requires european companies to invest in stocks for example? The same way a law that requires investment in bonds lead to negative-yielding bonds that peons like us should never buy? Government regulation can lead to worthless investments, could that be the case here?

Of course, the idea occurs that the reverse could be happening - that international stocks are being driven naturally but domestic stocks are being shoved off the rails by government. Either way would lead to bad mojo when it comes to long term returns. Either way, the consistency of behavior really freaks me out.

International stocks have gone nowhere in 20 years. This is not just one sector or region. This is representing 90% of the entire world's GDP. Has done nothing in 20 years. How is that possible?

Either:

1. Their profits are remaining at least steady, but P/E has gone way down over the time period, or
2. Their profits have managed to go down?? Over 20 years??

I can't find good historical data on international P/E so I don't know which is which

https://www.morningstar.com/articles/10 ... ost-decade

It's earnings growth. The most globally robust and simultaneously most lightweight companies have grown their profits more than the rest. I'm talking FAANG and other growth/tech companies, most of which are in the US. These companies are responsible for all the US outperformance.

[Stef]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

For the last xx years. There are 20-30 year periods where exUS outperformed. Recency bias all over the place.

[UpperNwGuy]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

For the last xx years. There are 20-30 year periods where exUS outperformed. Recency bias all over the place.

20-30 year periods? What periods would those have been?

[asif408]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

For the last xx years. There are 20-30 year periods where exUS outperformed. Recency bias all over the place.

20-30 year periods? What periods would those have been?

From 1970-1994 EAFE outperformed the S&P by 3% CAGR (Source is Peter Bernstein's Against the Gods book). In the last 25 years the opposite has occurred. So which 25 year period should I weigh more when looking at expected future returns, the most recent one or the previous one? Or just split the difference?

Or if I look by decade from 1970-2020 EAFE outperformed in 3 of those 5 (1970s, 1980s, 2000s). What should I take away from that?

[hightower]

Stocks go up stocks go down. The market prices in expectations so the daily change in the market is by definition unexpected. That's how it's supposed to be.

So how is it, when I look at VTI, VXUS is worse almost every day? 8 or 9 times out of 10.

A random walk doesn't act like this. I shouldn't be able to predict the movement of a market with this much accuracy. And it is prediction, I've been saying aloud "how much worse is VXUS?" and behold, it's worse. I shouldn't be able to do that.

Different sectors outperform others over years or even decades, or in spikes over days, but this daily underperformance makes me suspicious.

My worry is not underperformance itself. Diversification means you'll always have a section of your portfolio underperforming. My worry is that international stock prices are being driven by something other than profit-seeking traders. Is there some law that requires european companies to invest in stocks for example? The same way a law that requires investment in bonds lead to negative-yielding bonds that peons like us should never buy? Government regulation can lead to worthless investments, could that be the case here?

Of course, the idea occurs that the reverse could be happening - that international stocks are being driven naturally but domestic stocks are being shoved off the rails by government. Either way would lead to bad mojo when it comes to long term returns. Either way, the consistency of behavior really freaks me out.

International stocks have gone nowhere in 20 years. This is not just one sector or region. This is representing 90% of the entire world's GDP. Has done nothing in 20 years. How is that possible?

Either:

1. Their profits are remaining at least steady, but P/E has gone way down over the time period, or
2. Their profits have managed to go down?? Over 20 years??

I can't find good historical data on international P/E so I don't know which is which

We live in a global society. The US and World economy is dominated by a handful of US mega-corporations and these mega-corporations do business all over the world. That's enough "international" exposure for me.

[z3r0c00l]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

For the last xx years. There are 20-30 year periods where exUS outperformed. Recency bias all over the place.

20-30 year periods? What periods would those have been?

From 1970-1994 EAFE outperformed the S&P by 3% CAGR (Source is Peter Bernstein's Against the Gods book). In the last 25 years the opposite has occurred. So which 25 year period should I weigh more when looking at expected future returns, the most recent one or the previous one? Or just split the difference?

Split the difference, the only sure thing is that you can capture the return of the market for a low cost. You can gamble and either outperform it or under-perform, odds something like 50/50 in the case of domestic vs international. I don't plan to gamble with my retirement.

[UpsetRaptor]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

For the last xx years. There are 20-30 year periods where exUS outperformed. Recency bias all over the place.

20-30 year periods? What periods would those have been?

Pretty much any 20-30 year period that captures the majority of Japan’s hyper bubble.

[KyleAAA]

Behavior of international doesn't seem inconsistent with a random sequence.

It's only underperformed for 10, 20, 30 , 40 and 50 years.

Pretty random.

Always gives me a kick when this site, that uses his name......tosses away Bogle's best advice. .... which was don't buy international equities.

Why would underperforming for 50 years be indicative of non-randomness? Not buying international certainly wasn't Bogle's best advice.

[abuss368]

I just read the Morningstar international predictions for the next few years with pretty much everyone predicting international stocks and bonds will out perform.

I certainly hope so! I would love to see a building pattern of returns and sustainability.

Why will it out perform? Ireland shutdown until December. The rest of the UK isn't doing much better. Europe most likely will have shutdowns as well. This is all worse than what we're seeing in the US.

That has been my dilemma for many years! Vanguard has been saying consistently for many years that international will outperform.

If something is said enough times it may be right at some point!

[rockstar]

I just read the Morningstar international predictions for the next few years with pretty much everyone predicting international stocks and bonds will out perform.

I certainly hope so! I would love to see a building pattern of returns and sustainability.

Why will it out perform? Ireland shutdown until December. The rest of the UK isn't doing much better. Europe most likely will have shutdowns as well. This is all worse than what we're seeing in the US.

That has been my dilemma for many years! Vanguard has been saying consistently for many years that international will outperform.

If something is said enough times it may be right at some point!

Maybe. I keep hearing the same stuff. If I was going to go international, I might be tempted to buy emerging market debt.

[000]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

[000]

Pretty much any 20-30 year period that captures the majority of Japan’s hyper bubble.

Ironic that the only period since WWII of significant ex-US relative performance was due to asset mispricing.

[visualguy]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

I didn't want to mention that, but, that's right - he sold his ex-US...

The thing is that even he, the 3-fund inventor, has been advising 20% in ex-US, not 40% or market cap. Not sure where the belief in high ex-US allocations comes from. Maybe all the pushing Vanguard has been doing on this for years now. It makes me want to ask them if that's how they invest their own personal savings

[abuss368]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

[willthrill81]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

If Taylor really wanted ex-U.S. stock, he would own it.

[abuss368]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

If Taylor really wanted ex-U.S. stock, he would own it.

I believe Taylor still believes and recommends the Three Fund Portfolio for simplicity and diversification. Taylor did “write the book on it” to support the John C. Bogle Center.

Taylor has often recommended a 20% stock allocation to Total International because of what happened to Japan during the 1990s.

[visualguy]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

If Taylor really wanted ex-U.S. stock, he would own it.

I believe Taylor still believes and recommends the Three Fund Portfolio for simplicity and diversification. Taylor did “write the book on it” to support the John C. Bogle Center.

Taylor has often recommended a 20% stock allocation to Total International because of what happened to Japan during the 1990s.

Why recommend 20% to others, but own 0% in his own portfolio? That's not a sign of strong conviction in that 20%. As willthrill81 said, if Taylor really wanted ex-US stock, he would own it. It's perfectly fine that he doesn't own it (I don't either), but why preach it if you don't practice it?

[abuss368]

Why recommend 20% to others, but own 0% in his own portfolio? That's not a sign of strong conviction in that 20%. As willthrill81 said, if Taylor really wanted ex-US stock, he would own it. It's perfectly fine that he doesn't own it (I don't either), but why preach it if you don't practice it?

Do you invest in international?

[000]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

Tax avoidance in taxable account I believe was the stated reason.

[abuss368]

Right, the ex-US part of the 3-fund portfolio didn't come from Bogle. He was against it.

And the guy who invented the 3-fund portfolio no longer has any ex-US!

Taylor? If so I believe this was an RMD related matter with an IRA.

Tax avoidance in taxable account I believe was the stated reason.

I believe that is correct. Total Stock may have large capital gains in a taxable account after many years. It would make no sense when considering the gains will not be taxable at death as a result of the “step up” in basis.

[Stef]

I still don't get why diversification is a good thing, but only in the US. Why performance chasing is a bad thing, but only if you aren't chasing US performance.

What's also funny: in European forums they discuss how much they should overweight EM and that 60% US is way too risky. Most people have a 70/30 World/EM allocation, leading to only be invested 45% in the US. And here you get the feeling that only US stocks are good stocks and exUS is just total garbage.

[spdoublebass]

I still don't get why diversification is a good thing, but only in the US. Why performance chasing is a bad thing, but only if you aren't chasing US performance.

I don't understand either. All of these type of threads...what's going on with this or that...it doesn't make sense to me.

International isn't doing well, so what? Why is that such a big deal? This type of thinking makes you always want to pick the "winner". It's exactly why the people who dumped international had no problem selling low. I'm not in International so I can start a thread saying I told you so. I'm in International because I want the diversification.

If you ask me to put $20 on which will outperform over the next ten years I'd put my $20 on US. I'm not going to put my retirement on it though. I would not be able to sleep well at night being US only. Even if that means I underperform a US only portfolio and have to save a little more.

During Bogle's early years, it would have been hard to invest in international. By the time international was cheap to invest in, he probably already had enough. That's why Bogle said "If there's one place I don't want people to take my advice it's international. I want you to think it through for yourself."

I do not believe thinking it through is stating Bogle did it when he started out.

[Stef]

I think we all agree on a couple of investing principles:

- Diversification is key
- Own the whole haystack
- Don't chase past winners
- Ignore news, the media and what any person is saying
- Stay the course
- Nobody knows nothing

So how is it possible to arrive to conclusions like:

- Look at the past performance, why shouldn't I invest only in that?
- Person xyz said that 20% xyz is enough.
- Only the xyz haystack is a good haystack, the rest is garbage.

[langlands]

I still don't get why diversification is a good thing, but only in the US. Why performance chasing is a bad thing, but only if you aren't chasing US performance.

What's also funny: in European forums they discuss how much they should overweight EM and that 60% US is way too risky. Most people have a 70/30 World/EM allocation, leading to only be invested 45% in the US. And here you get the feeling that only US stocks are good stocks and exUS is just total garbage.

Yes, you're right that diversifiable risk should always be eliminated, all else equal. Accordingly, the "blank slate" Efficient Markets view says that everyone should invest in all markets according to market cap weighting. Practically though, there are diminishing returns to diversification. Hence, most investors except the most extreme purists would say that S&P 500 is close enough to Total US stock market.

It's hard for a Canadian or a Spanish investor to justify 100% domestic. That's because their markets are quite small and they are exposing themselves to a lot of unnecessary idiosyncratic risk. The US market is massive, over half of the entire world capitalization. At this point, an investor's views on US vs. ex-US return begins playing a non-negligible role. Again, if you're an EMH purist, you'd just invest in Total World perhaps weighted somewhat towards domestic because of tax efficiency reasons etc.

But if you have a view that US is going to outperform ex-US, this view might override the relatively modest diversification benefit you get from investing in ex-US. Personally, I find it hard to believe that even the most die-hard US homer can't find even a few ex-US companies to invest in. Certainly you'd have to be very biased to think "exUS is just total garbage." I'd personally advocate for US homers to think about why they think international will underperform or which parts of it will underperform, and pick out a few companies/regions that should perform well. Then you get the diversification benefit without (your perceived) reduction in performance.

Anyway, obviously you're not a US homer (probably the opposite?) but hopefully this gives some insight into a rational thought process for a heavy US tilt.

[000]

I still don't get why diversification is a good thing, but only in the US. Why performance chasing is a bad thing, but only if you aren't chasing US performance.

What's also funny: in European forums they discuss how much they should overweight EM and that 60% US is way too risky. Most people have a 70/30 World/EM allocation, leading to only be invested 45% in the US. And here you get the feeling that only US stocks are good stocks and exUS is just total garbage.

The fact that ex-US investors are underweighting US versus world market cap (as you claim from forums you read) is more evidence that US investors overweighting US is unlikely to be a big problem, i.e. demand for US stocks may not be as crowded as some would suggest. If the reason for the Euro underweight of US stocks is anti-US bias, that is even more optimism that US stocks are fairly valued or undervalued.

[Valuethinker]

I still don't get why diversification is a good thing, but only in the US. Why performance chasing is a bad thing, but only if you aren't chasing US performance.

What's also funny: in European forums they discuss how much they should overweight EM and that 60% US is way too risky. Most people have a 70/30 World/EM allocation, leading to only be invested 45% in the US. And here you get the feeling that only US stocks are good stocks and exUS is just total garbage.

The fact that ex-US investors are underweighting US versus world market cap (as you claim from forums you read) is more evidence that US investors overweighting US is unlikely to be a big problem, i.e. demand for US stocks may not be as crowded as some would suggest. If the reason for the Euro underweight of US stocks is anti-US bias, that is even more optimism that US stocks are fairly valued or undervalued.

No it is the Availability heuristic.

Those "rules of thumb" that evolution has evolved our brain to do, to live through every day.

In this case, Availability bias is about familiarity. Easy recognition. If you live in Europe Credit Suisse or UBS or Nestle are not unknown names. Food retailers. Banks. etc.

Retail financial markets are also quite inefficient in Europe compared to USA. There's very little investor education. Products tend to be of bancassurance model - so emphasis on the insurance aspect. Expense ratios are high.

[Stef]

The fact that ex-US investors are underweighting US versus world market cap (as you claim from forums you read) is more evidence that US investors overweighting US is unlikely to be a big problem, i.e. demand for US stocks may not be as crowded as some would suggest. If the reason for the Euro underweight of US stocks is anti-US bias, that is even more optimism that US stocks are fairly valued or undervalued.

It's backed my academic research too. All European investors have a rather high home country bias, leading to underweighting the US. Lets take Swiss investors for example, this is from the latest Vanguard paper I could find on home bias:



So Swiss people will invest 20% at the most in US stocks. But you see this all over the world. Canadian investors invest 60% in Canadian stocks for example. The US is massively underweight by the majority of exUS investors. Despite the great performance of US stocks.

This makes me wonder if the market is truely efficient. People here tell me that I'm crazy for being invested 60% in US stocks lol. Despite just aiming for a market cap weighted portfolio. They totally ignore how great the returns were and still are.