International (Non-US) versus US Equities (The "Arguments")

CraigTester · Post by **CraigTester** » Sun Jul 23, 2023 3:43 pm

The Arguments (9/17/2023)

100% US'rs.

American exceptionalism/Structural Advantages - Including technological leadership, business environment (tax policy, regulation, ability of corporations to influence gov't policy), culture (dominance of individualism over collectivism, widespread entrepreneurship), geography (weak neighbors, isolated from rivals, resource rich) & relative ease of integrating immigrants into society (allowing top talent to more consistently rise to top).
10% CAGR (last 100 years) says US is all you need.
Int’l has NOT proven itself in the long run…, so what if it occasionally outperforms..
US Government has proven its willingness and ability to support its interests with massive cash infusions. (Translates to US Stock support)
Valuations Aren’t Actionable
Foreign-Stock ETF’s tend to have a bit higher tax-cost ratio than U.S. stock ETFs because foreign companies often pay higher dividends than U.S companies. Per Morningstar.
US companies do business around the world so the S&P 500 is actually a global index under governance by US regulation.
Maximizing shareholder returns may not be the highest priority for some International markets. Examples like China with Alibaba and S. Korea with its Chaebols create a lot of concern.

20% Int’l "The Compromise"

"Taylor’s compromise" between Bogles (0-20) and VG (20-40)
A slightly toned down version of 100% US'rs
Some believe holding a little Int’l is like adding insurance or a bond to one's portfolio.
A 20% allocation may harvest a good fraction of the diversification benefits of exUS”
Valuations Aren’t Actionable

40% Int’l. "The Global Market Cappers"

Let the market decide who wins.
1970-2012 US, Int'l CAGR's = 9.7%, 9.6%, respectively (https://awealthofcommonsense.com/2023/0 ... ification/ )
2013-2023 US Out-performance largely attributable to Valuation and Currency changes (both at historical highs in favor of US).
==> (E.g. NOT Earnings growth and Dividends). See Vanguard explanation below:
https://corporate.vanguard.com/content/ ... tions.html
US valuation "increases" can't continue to outpace Int'l "forever". US CAPE = 31.5 (96th percentile), Dev. Ex-US CAPE = 18.1 (37th percentile)
US dollar has increased since 2008, to an inflation adjusted level not seen since the early 1980's. It can't increase forever.
Vanguard/Fidelity forecast Int’l outperformance, who am I to argue?
If I knew how to pick the next winner, I would have put it all in Apple a long time ago.
QE (2008-2022), coincided with a period of extreme US out-performance - but it has ended.
From 1990-2022, US Valuations rose 3X Int’l, accounting for most of the US outperformance. US seems a likely candidate for reversion, Asness et al.
While global diversification may not provide protection from the initial crash, it does create the potential for a significantly faster recovery. Asness et al.
Best to trade single-country Black-Swan Risk for multi-country. (e.g. invest globally lest a Japan-like scenario happens again).
Valuations "Might" or "Might Not" Matter, so don't tilt.

60% Int’l. "Buy low, Sell High".

Valuation differences are too good to pass up
Reversion to the mean always happens eventually (e.g. currency, valuation, opinion)
US is at 60% global market cap already - Trees don’t grow to the sky.
I’m paid in US dollars, hedge that risk with my investments
Increased risk, which is diversified, tends to lead to higher outcomes
Int'l includes a very long list of world class companies - Someday this will again become obvious

100% Int’l, "Everything In 60% Int’l..., Plus"

We have reached full capitulation in Int’l -
US is priced for perfection. Int'l is priced to fail. All Int'l has to do is "show up" to beat US

Note 1: The attached link has an MSCI EAFE Index (1970) calculator about halfway down the post:
https://www.mindfullyinvesting.com/hist ... al-stocks/

Note2: The Boglehead Forum prohibits the discussion of politics, economic policy, and religion. It should therefore be recognized that the above list of “Arguments” attempts to not reflect any personal biases anyone may have on these topics. However, an investor may be influenced by personal biases when deciding International and US asset allocations. Rationale for selecting this allocation should be documented in an IPS (Investment policy statement) which can be updated if the investor’s personal bias changes.

-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Original Post is below:
----------------------------
During a recent related thread, I did a quick scan of all the threads debating International vs US stock allocations.

I didn't count them, but it is truly amazing how many times this topic has been debated on this forum!

And yet, I can't point to one where any widely accepted conclusion was reached....

Other than, pretty much everyone must decide for themselves...

So, assuming that we will continue to get more of these types of threads, I thought it might be useful to capture the range of arguments used to support the various positions...

To be clear, the intent of this thread is NOT to decide the appropriate balance between International versus US stock AA.

Rather it is to capture the various categories of arguments made to support the wide range of positions...

In my very unscientific approach, the types of arguments seem to mostly boil down to the following:

Question: Did I miss any?

1. Appeals to authority (Buffett, Bogle, Vanguard, et al)

2. Cherry-picked charts to show periods of either US or Int'l outperforming, or sometimes to establish the "seesaw" pattern.

3. Published forecasts by one firm or another to show bull or bear cases for either position...

4. American Exceptionalism vs This-time-is-different vs Recency-bias...

5. Discredit-the-witness type comments in attempts to "win" a particular debate against a particularly stubborn "opponent"

6. Stay-the-course versus You-have-to-pick-the-right-course

7. Nobody-knows-nutt'n versus How-do-you-know

8. Compromise is best versus Compromise-between-which-alternatives.

9. ??

P.S. The thinking is that once we have our list, we can refer any future debates on this topic to the master list of "The Arguments" (Linked at top of this post).... One can then just grab the argument that resonates the best with their world view....because as a great man once said, invest we must...

BizarroJerry · Post by **BizarroJerry** » Sun Jul 23, 2023 6:05 pm

The P/E ratio/value/reversion to the mean argument due to long period of over/underperformance

Beensabu · Post by **Beensabu** » Sun Jul 23, 2023 6:08 pm

CraigTester wrote: ↑Sun Jul 23, 2023 3:43 pm The thinking is that once we have our list, we can refer any future debates on this topic to the "Master list".... One can then just grab the argument that resonates the best with their world view....because as a great man once said, invest we must...

Nah. Let's set out to kill the arguments once and for all, so nobody on either "side" ever trots them out again.

1. Appeals to authority (Buffett, Bogle, Vanguard, et al)

Everyone stop appealing to any kind of authority. Use your own brain.

2. Cherry-picked charts to show periods of either US or Int'l outperforming, or sometimes to establish the "seesaw" pattern.

No more growth of $10,000 charts. No more PV links allowed!

3. Published forecasts by one firm or another to show bull or bear cases for either position...

This is also appeal to authority. Let's knock that off.

4. American Exceptionalism vs This-time-is-different vs Recency-bias...

Only 800-year growth charts allowed!

5. Discredit-the-witness type comments in attempts to "win" a particular debate against a particularly stubborn "opponent"

Everyone start reporting everyone for personal attacks, so the thread can get shut down immediately.

6. Stay-the-course versus You-have-to-pick-the-right-course

It's your course - you picked it, and that's on you.

7. Nobody-knows-nutt'n versus How-do-you-know

Trust nobody, not even yourself.

8. Compromise is best versus Compromise-between-which-alternatives.

Just split everything in half and then in half again. That's what I do!

9. ??

You forgot "international revenues are included in the revenues of US-based multinationals vs. US revenues are included in the revenues of non-US-based multinationals but in different currencies".

And therefore also "currency risk vs. currency diversification".

Only the world governments combined can solve this one... We're gonna need one world currency, government, and legal/regulatory system.

While we're at it, all global multinationals are going to have to combine into one gigantic omnicorp. That'll end the debate for good.

km91 · Post by **km91** » Sun Jul 23, 2023 6:56 pm

Diversification

martincmartin · Post by **martincmartin** » Sun Jul 23, 2023 7:23 pm

This is why I prefer data. With arguments, enough effort can convince yourself of one side. Then, with the opposite kind of effort, you can convince yourself of the opposite.

Bill Bernstein has pointed out (and this is a reference to his data, not to his authority) that historically international has kind of broken even compared to US. So it works as a diversifier.

jeffyscott · Post by **jeffyscott** » Sun Jul 23, 2023 7:53 pm

How about the "it's a result of sector differences" argument? (e.g. US has outperformed when tech has done so)

Or is that already covered by 2 and/or 4?

Florida Orange · Post by **Florida Orange** » Sun Jul 23, 2023 8:36 pm

More diversification is always better vs. more diversification is not necessarily better for every investor.

000 · Post by **000** » Sun Jul 23, 2023 11:24 pm

Foreign currency risk vs diversification (e.g. domestic inflation)

Differing institutional / legal frameworks

Differing investor participation rates

Whether international can actually diversify seriously poor US stock returns

scout1 · Post by **scout1** » Mon Jul 24, 2023 12:08 am

If you can’t pick a stocks, sectors, or factors, why pick countries? You think you have some kind of edge in picking countries?

Also, people think that the US being the market means it can’t be priced in. There’s a reason intl trades at 15x and the US at 25x. Everyone knows the US is the best. Everything can be priced in.

Ping Pong · Post by **Ping Pong** » Mon Jul 24, 2023 4:55 am

An argument that used to be brought up that I haven’t seen recently is that a country’s stock market performance is negatively correlated with its GDP growth.

CraigTester · Post by **CraigTester** » Mon Jul 24, 2023 8:44 am

Some great additions above…(How could I have forgotten “diversification”..?

)

Here’s several more:

Trees don’t grow to the sky, US already at 60% global market cap… Versus... They said the same thing about Apple when it hit $1T, it’s now at $3T

There is always a temporary reason when one takes a multi-year lead (e.g. BOJ manipulation in the 80’s, Dot.com in the 90’s, Global QE in the 2010’s) versus everything is already priced in ….

CraigTester · Post by **CraigTester** » Mon Jul 24, 2023 9:36 am

stan1 wrote: ↑Mon Jul 24, 2023 8:55 am The US Government time and time again takes actions of significant benefit to US companies (a realists view of American exceptionalism, but different enough to be separate -- not that America is best but our Government has the willingness and ability to keep our businesses out of trouble when there is a major or even minor need)

Yes, that’s a big one…Would the “Versus” be fear of re-sparking inflation and too much debt?

CraigTester · Post by **CraigTester** » Mon Jul 24, 2023 10:20 am

BizarroJerry wrote: ↑Sun Jul 23, 2023 6:05 pm The P/E ratio/value/reversion to the mean argument due to long period of over/underperformance

Yes, have seen this one many times.... !

What Is the "Versus"....?

e.g. I've heard the counter-argument that "there is no mean"...

arcticpineapplecorp. · Mon Jul 24, 2023 10:30 am

thank you for doing this. after this list is completed can you do the same for discussions in favor of/against tilting to small cap and/or value?

CraigTester · Post by **CraigTester** » Mon Jul 24, 2023 1:44 pm

arcticpineapplecorp. wrote: ↑Mon Jul 24, 2023 10:30 am thank you for doing this. after this list is completed can you do the same for discussions in favor of/against tilting to small cap and/or value?

Some topics seem to be so much more than a "taste-great, less-filling" debate... or a simple math exercise, don't they...

BH is (possibly) like a mini-portal on how the broader market figures these controversial things out....

It doesn't really matter if you or I really, really believe we're "right" based on the argument we believe to be the defining dimension...

Because there may be a consensus building on some other dimension that we may not even deem relevant to the discussion....

But if enough people think it's important, it's important (at least in the short term)...

HanSolo · Post by **HanSolo** » Mon Jul 24, 2023 1:45 pm

CraigTester wrote: ↑Sun Jul 23, 2023 3:43 pm And yet, I can't point to one where any widely accepted conclusion was reached....

Other than, pretty much everyone must decide for themselves...

Ding ding ding! That's really the bottom line. The rest is paralysis of analysis.

Cheers!

CraigTester · Post by **CraigTester** » Mon Jul 24, 2023 1:48 pm

CraigTester wrote: ↑Mon Jul 24, 2023 1:44 pm
arcticpineapplecorp. wrote: ↑Mon Jul 24, 2023 10:30 am thank you for doing this. after this list is completed can you do the same for discussions in favor of/against tilting to small cap and/or value?

Some topics seem to be so much more than a "taste-great, less-filling" debate... or a simple math exercise, don't they...

BH is (possibly) like a mini-portal on how the broader market figures these controversial things out....

It doesn't really matter if you or I really, really believe we're "right" based on the argument we believe to be the defining dimension...

Because there may be a consensus building on some other dimension that we may not even deem relevant to the discussion....

But if enough people think it's important, it's important (at least in the short term)...

P.S. Do you have any to add to the list that we missed...?

Northern Flicker · Post by **Northern Flicker** » Mon Jul 24, 2023 1:55 pm

Craigtester wrote: Did I miss any?

Yes.

The purpose of int'l diversification to diversify certain risks a catch-all for which would be long-term underperformance of one's home country's equity.

Int'l diversification reduces the risk of robust home country inflation that is not part of global inflation.

Int'l diversification may reduce sector concentration risk by better aligning a portfolio with global GDP.

Tamalak · Post by **Tamalak** » Mon Jul 24, 2023 2:44 pm

Good reason to include international:
Diversification

Bad reason to include international:
Low P/E or CAPE ratio

Good reasons to avoid international:
Taxation increases effective ER by ~30 points
Uncompensated currency volatility

Bad reasons to avoid international:
Recent underperformance
"Mr Bogle said international isn't needed" - lots of things aren't "needed" to make money.

Northern Flicker · Post by **Northern Flicker** » Mon Jul 24, 2023 2:59 pm

Tamalak wrote: Taxation increases effective ER by ~30 points

Various factors affect the tax drag of ex-US equity-- state and federal tax brackets, tax efficiency of the fund(s) used, the foreign tax credit, and whether you are in accumulation or decumulation.

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 3:44 pm

You forgot:

1. "3,500 stocks in your own currency, with lower cost is good enough.

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 3:48 pm

The bottom line is, I've been all US since my first investment in 1988 and I'm laughing all the way to the bank.

So you guys knock yourselves out.

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 3:52 pm

All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.

Beensabu · Post by **Beensabu** » Mon Jul 24, 2023 3:53 pm

CraigTester wrote: ↑Mon Jul 24, 2023 3:42 pm But to make sure I'm understanding the argument, what is the other side?

Said differently, what is the objective reason that this may not play out the same way for the next problem.....

Policy change

jginseattle · Post by **jginseattle** » Mon Jul 24, 2023 4:22 pm

Many investors do seem to like "stories."

secondopinion · Post by **secondopinion** » Mon Jul 24, 2023 4:39 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.

Almost 2% positive real returns a year for a bad date? Even with currency problems? Even with policy problems? Even with a lot of cap tied up in a highly bubbled country? Even with some countries that have little respect for foreign investors? You seem to think that this is a failure.

If you dropped emerging markets (which I consider hardly any in practice) and Japan (because it was bubbly and would have never entered my scope of viable options until it was not so), the results would have been quite a bit better. Maybe lagging the US, but the results would have been pretty decent anyway (4-5% or so real). Or do you think this is unacceptable returns? I do not need to accept international at market-weight across "just because". If dropping Japan and emerging markets seems arbitrary, then so is tilting towards the US.

Let me be frank, if 4-5% real a year is all I get from stocks after the next 35 years, then that would make me happy; I can retire at that point without adding a single dime to my portfolio going forward.

km91 · Post by **km91** » Mon Jul 24, 2023 5:16 pm

"Many shall be restored that now are fallen, and many shall fall that now are in honor"

Trance · Post by **Trance** » Mon Jul 24, 2023 5:20 pm

I think the biggest argument is that the market is beta. We should hold international for the same reason we hold the total market or the S&P 500 in America. It's easy to look at the past decade and go "why hold anything but the tech sector?" but we all know why that's bad. Diversification and the the fact that the market is efficient. But for some reason when it becomes domestic vs international the core philosophy of bogleheads goes out the window for some people.

Beensabu · Post by **Beensabu** » Mon Jul 24, 2023 5:54 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 3:48 pm The bottom line is, I've been all US since my first investment in 1988 and I'm laughing all the way to the bank.

So you guys knock yourselves out.

Weren't you in Wellington fund for awhile? I think ~10% of the equity allocation for that fund is ex-US.

Nathan Drake · Post by **Nathan Drake** » Mon Jul 24, 2023 7:02 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.

US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 7:11 pm

Nathan Drake wrote: ↑Mon Jul 24, 2023 7:02 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.
US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context

Valuations are meaningless.

arcticpineapplecorp. · Mon Jul 24, 2023 7:12 pm

Beensabu wrote: ↑Mon Jul 24, 2023 5:54 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:48 pm The bottom line is, I've been all US since my first investment in 1988 and I'm laughing all the way to the bank.

So you guys knock yourselves out.
Weren't you in Wellington fund for awhile? I think ~10% of the equity allocation for that fund is ex-US.

7.1% (source: https://investor.vanguard.com/investmen ... omposition) but who's counting?

Nathan Drake · Post by **Nathan Drake** » Mon Jul 24, 2023 7:16 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 7:11 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:02 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.
US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context
Valuations are meaningless.

They accounted for the vast majority of your “superior” US returns

unwitting_gulag · Post by **unwitting_gulag** » Mon Jul 24, 2023 7:22 pm

I'd aver that all pro/con arguments ultimately devolve to American exceptionalism. If we disbelieve in exceptionalism, the result becomes some form of embrace of reversion to the mean. We then dismiss any bout of American equity outperformance as cherry-picking or recency bias, or the result of temporary American government policy, and note that proper diversification ought to give decent weighting to international stocks. If on the contrary we're zealous about American exceptionalism, then for US-based investors to invest overseas would be a needless risk and "diworsefication", in the sense of Peter Lynch.

The topic is fraught, because the idea of exceptionalism is necessarily political and emotional. Every country has its national epic, praising itself and exalting itself above others; such inevitably is the nature of tribal identity. But most countries realize that their self-promition, while cute and perhaps of pedagogical value to their children, must be tempered by objectivity. Objectivity would say, for example, that a landlocked country probably doesn't have a strong navy... things like that. Sometimes, however, one or another nation builds its entire creed, its entire identity, by exalting itself above others. We are wary of this, noting that most such examples end badly. And yet, things like miles of railroad or tonnage of coal, are right there in the history books, as flinty facts, about which to crow and to pound chests proudly. So which is it? Is exceptionalism dangerous and gauche hubris? Or is it a justifiable summing-up of historical inevitability? If we can't agree on that, we probably won't agree, on how to invest.

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 7:25 pm

Nathan Drake wrote: ↑Mon Jul 24, 2023 7:16 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 7:11 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:02 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.
US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context
Valuations are meaningless.
They accounted for the vast majority of your “superior” US returns

Because the market recognizes the superior value of US companies and prices them accordingly. This is not complicated.

Nathan Drake · Post by **Nathan Drake** » Mon Jul 24, 2023 7:33 pm

unwitting_gulag wrote: ↑Mon Jul 24, 2023 7:22 pm I'd aver that all pro/con arguments ultimately devolve to American exceptionalism. If we disbelieve in exceptionalism, the result becomes some form of embrace of reversion to the mean. We then dismiss any bout of American equity outperformance as cherry-picking or recency bias, or the result of temporary American government policy, and note that proper diversification ought to give decent weighting to international stocks. If on the contrary we're zealous about American exceptionalism, then for US-based investors to invest overseas would be a needless risk and "diworsefication", in the sense of Peter Lynch.

The topic is fraught, because the idea of exceptionalism is necessarily political and emotional. Every country has its national epic, praising itself and exalting itself above others; such inevitably is the nature of tribal identity. But most countries realize that their self-promition, while cute and perhaps of pedagogical value to their children, must be tempered by objectivity. Objectivity would say, for example, that a landlocked country probably doesn't have a strong navy... things like that. Sometimes, however, one or another nation builds its entire creed, its entire identity, by exalting itself above others. We are wary of this, noting that most such examples end badly. And yet, things like miles of railroad or tonnage of coal, are right there in the history books, as flinty facts, about which to crow and to pound chests proudly. So which is it? Is exceptionalism dangerous and gauche hubris? Or is it a justifiable summing-up of historical inevitability? If we can't agree on that, we probably won't agree, on how to invest.

Exceptionalism isn’t sufficient; it needs to be more exceptional than what’s priced by the market already

Nathan Drake · Post by **Nathan Drake** » Mon Jul 24, 2023 7:36 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 7:25 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:16 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 7:11 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:02 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.
US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context
Valuations are meaningless.
They accounted for the vast majority of your “superior” US returns
Because the market recognizes the superior value of US companies and prices them accordingly. This is not complicated.

It HAS

Doesn’t say anything on what WILL happen

Maybe that narrative stops being “true”, like what happened in many other richly valued markets/countries

Northern Flicker · Post by **Northern Flicker** » Mon Jul 24, 2023 7:43 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.

What was your glide path? I added ex-US in 2001, and because my glide path had a much larger percentage in stocks during the ex-US outperformance of 2002-2007, the change resulting in (slightly) higher portfolio performance than a US-only portfolio would have delivered.

unwitting_gulag · Post by **unwitting_gulag** » Mon Jul 24, 2023 7:49 pm

Nathan Drake wrote: ↑Mon Jul 24, 2023 7:33 pm Exceptionalism isn’t sufficient; it needs to be more exceptional than what’s priced by the market already

Yes. that's a good point. If the market - I mean the global set of investors everywhere - collectively tilts towards more American exceptionalism, then it should follow, that American equity P/E would sustainably rise; and vice versa. So we have to think about the direction of exceptionalism, and not just its amount at the moment.

abuss368 · Post by **abuss368** » Mon Jul 24, 2023 7:51 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.

Hi Charles -

Enjoyed this post and thank you.

Wow!
Tony

abuss368 · Post by **abuss368** » Mon Jul 24, 2023 7:52 pm

Charles Joseph wrote: ↑Mon Jul 24, 2023 7:25 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:16 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 7:11 pm
Nathan Drake wrote: ↑Mon Jul 24, 2023 7:02 pm
Charles Joseph wrote: ↑Mon Jul 24, 2023 3:52 pm All US since 1988: CAGR 10.58%

Global Ex-US since 1988: CAGR 4.77%

This is based on my own investment experience, which is the only reason I picked 1988 as the starting point. Go ahead and pick it apart. You'll find your decades. But you can't turn a skunk into a raccoon. US has crushed ex-US.
US CAPE in 1988 - 15
ExUS CAPE in 1988 - 40

US CAPE in 2021 - 40
ExUS CAPE in 2021 - 15

Not wise to extrapolate the future from the past without context
Valuations are meaningless.
They accounted for the vast majority of your “superior” US returns
Because the market recognizes the superior value of US companies and prices them accordingly. This is not complicated.

Jack Bogle often said during interviews (please see You Tube) that “perhaps there is a reason international stocks are that cheap”.

He would also say that perhaps the future may be different. Who knows what will happen.

Best.
Tony

abuss368 · Post by **abuss368** » Mon Jul 24, 2023 7:54 pm

So where does one draw the line with international? Once Mars is colonized, does that become part of the international index and we need to hold the market weight for proper diversification and risk adjusted returns?

Seriously!
Tony

000 · Post by **000** » Mon Jul 24, 2023 7:58 pm

The highest point is just before the decline.

Nathan Drake · Post by **Nathan Drake** » Mon Jul 24, 2023 8:06 pm

abuss368 wrote: ↑Mon Jul 24, 2023 7:54 pm So where does one draw the line with international? Once Mars is colonized, does that become part of the international index and we need to hold the market weight for proper diversification and risk adjusted returns?

Seriously!
Tony

Where do we draw the line with US?

QQQ?

Top 7?

km91 · Post by **km91** » Mon Jul 24, 2023 8:14 pm

abuss368 wrote: ↑Mon Jul 24, 2023 7:52 pm Jack Bogle often said during interviews (please see You Tube) that “perhaps there is a reason international stocks are that cheap”.

He would also say that perhaps the future may be different. Who know what will happen.

Best.
Tony

Common sense says that if you are focused on maximizing net worth you should buy cheap things

Charles Joseph · Post by **Charles Joseph** » Mon Jul 24, 2023 8:19 pm

Beensabu wrote: ↑Mon Jul 24, 2023 5:54 pm Weren't you in Wellington fund for awhile? I think ~10% of the equity allocation for that fund is ex-US.

Yes before I went 100% index I did hold Wellington (and at another point Wellesley). Wellington was, from memory, about 15 percent of my portfolio. So 15% x 65% = 9.75% of my stock allocation, x 7% = international being 0.6825% of my equity allocation at the time.

I could have that all wrong though, including the math? I dunno. I'm bad at math. But it weren't much.

abuss368 · Post by **abuss368** » Mon Jul 24, 2023 8:32 pm

km91 wrote: ↑Mon Jul 24, 2023 8:14 pm
abuss368 wrote: ↑Mon Jul 24, 2023 7:52 pm Jack Bogle often said during interviews (please see You Tube) that “perhaps there is a reason international stocks are that cheap”.

He would also say that perhaps the future may be different. Who know what will happen.

Best.
Tony
Common sense says that if you are focused on maximizing net worth you should buy cheap things

In my opinion, common sense would look at an investment in terms of the current price in relation to future expected returns.

Not sure when international will have its day in the sun!

Tony

splat789 · Post by **splat789** » Mon Jul 24, 2023 8:43 pm

Just because an asset exists doesn't mean you should diversify into it...I doubt many here are diversified into fine art or precious metals. A broad portfolio of US stocks was the baseline for US investors up until the 2000's. Ex-US stocks were difficult to invest in, and hardly anyone bought into them. US investors who ignored the siren song of the Ex-US stock hype and stayed the course with US stock have been richly rewarded just as Jack Bogle said they would be.

donaldfair71 · Post by **donaldfair71** » Mon Jul 24, 2023 8:46 pm

Unless I missed it, we’re in to page 2 with no argument that “US is diversified because X% of profits come from overseas”. Disappointing.

splat789 · Post by **splat789** » Mon Jul 24, 2023 8:51 pm

km91 wrote: ↑Mon Jul 24, 2023 8:14 pm
abuss368 wrote: ↑Mon Jul 24, 2023 7:52 pm Jack Bogle often said during interviews (please see You Tube) that “perhaps there is a reason international stocks are that cheap”.

He would also say that perhaps the future may be different. Who know what will happen.

Best.
Tony
Common sense says that if you are focused on maximizing net worth you should buy cheap things

The problem with this is the word "cheap" is meaningless. US stocks are likely the cheapest they will ever be, and I guarantee you that they will be worth more than they are now in 10 years. Just because Ex-US stocks are priced lower than US stocks doesn't mean they are valued cheaply...rather they are likely valued fairly compared to their expected future performance.