Forbes Article on '6 Reasons Why I Don't Invest In The U.S.'

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InvestoGuy
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Forbes Article on '6 Reasons Why I Don't Invest In The U.S.'

Post by InvestoGuy » Wed Jun 20, 2012 10:10 am

Folks:
Just saw this arcticle on Forbes on '6 Reasons Why I Don't Invest In The U.S. Stock Market': http://www.forbes.com/sites/ericsavitz/ ... ck-market/
The author Auren Hoffman sites 6 reasons on why one should not be in the US Stock market. He sites supply and demand as one of the main pivot points stating that as people start or come closer to retirement they will move out of equities and go to more safe investments, thus causing lesser demand and lower prices for equities. Globalization, Technology Companies etc. are used as other pivot points to argue against US Equities.

Obvioulsy, this holds againsts the Boglehead principles of investing based on Assest Allocation, wherein, US Equities are a major assest class.
Would like to know what other Bogleheads think about this article?
Regards.

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by BYUvol » Wed Jun 20, 2012 10:25 am

This is knowledge is already priced into the equity market. The only case where it isn't adequately priced is if expectations differ from what actually occurs in the future... but that could work either for or against the market.

*edit* So the only way to make any money off this without inside, private knowledge, is to either (a) have a crystal ball and know if expectations are too optimistic or pessimistic or (b) take a gamble one way or the other. Neither of which are investing.
Last edited by BYUvol on Wed Jun 20, 2012 10:28 am, edited 1 time in total.

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by HardKnocker » Wed Jun 20, 2012 10:26 am

It's nonsense because most major US corporations already have substantial business interests in foreign markets. Buying large US companies gives you international exposure.

I'd be more worried right now about buying strictly European and Asian equities.
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by hlfo718 » Wed Jun 20, 2012 10:30 am

Since his crystal ball is tell him to sell US securities he should also tell us what the next Power Ball winning numbers will be for the next drawing. So glad I don't waste my money subscribing to Forbes and Fortune mags any more.

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by chaz » Wed Jun 20, 2012 10:42 am

Thanks for the link.
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by nisiprius » Wed Jun 20, 2012 10:52 am

Let's start with the first sentence: "It has been conventional wisdom for the last 50 years that if you are a long-term investor, your best return will be in stocks." Let's look at something written in 1979, just 33 years ago:
Younger investors, in particular, are avoiding stocks.... Only the elderly who have not understood the changes in the nation's financial markets, or who are unable to adjust to them, are sticking with stocks.... "People no longer think of stocks as an inflation hedge, and based on experience, that's a reasonable conclusion for them to have reached," says Richard Cohn, an associate professor of finance at the University of Illinois.
When the first sentence is that wrong, it doesn't motivate me to take the rest of the article very seriously.

The quotation is from the now-famous Businessweek article, "The Death of Equities: How inflation is destroying the stock market."
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by Jerry_lee » Wed Jun 20, 2012 10:56 am

InvestoGuy wrote:Folks:
Just saw this arcticle on Forbes on '6 Reasons Why I Don't Invest In The U.S. Stock Market': http://www.forbes.com/sites/ericsavitz/ ... ck-market/
The author Auren Hoffman sites 6 reasons on why one should not be in the US Stock market. He sites supply and demand as one of the main pivot points stating that as people start or come closer to retirement they will move out of equities and go to more safe investments, thus causing lesser demand and lower prices for equities. Globalization, Technology Companies etc. are used as other pivot points to argue against US Equities.

Obvioulsy, this holds againsts the Boglehead principles of investing based on Assest Allocation, wherein, US Equities are a major assest class.
Would like to know what other Bogleheads think about this article?
Regards.
As Fama would say, "garbage". Any pessimism about the future state of our economy is already in prices, and low prices = higher expected returns (just think about the next decade of returns from buying EM stocks in the middle of the Asian Crisis in '97-'98).

An investment portfolio is nothing other than a basket of future consumption or transfer. Given that for most investors, the former will take place largely in our own domestic economy, it makes sense to match future liabilities to future growth potential. Imagine the opposite: retiring 25 years ago in the US and holding 80% in Japan stocks (actually, based on past returns, many people wanted to do this). Their economy has stalled badly, they have had persistent deflation, and below average equity returns while our economy and markets have done better. How difficult would it be to hedge US liabilities and rising purchasing power with the predominance of an investment portfolio in a market/markets that have experienced the exact opposite fate?

On the other side of the spectrum, I am not so sure a Japanese investor needed runaway market returns, as deflation acted as a cap on their need to grow purchasing power, and we all know inflation (and increases in your standard of living) are the major reasons why future appreciation is necessary.

PS--I didn't read the article :happy
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by arcticpineapplecorp. » Wed Jun 20, 2012 11:14 am

There are many things wrong with this article:
1. I think this writer doesn’t understand the way the stock market works. First and foremost, it is earnings that drive the prices of stocks. So if stock prices are flat over the next 30 years (as he’s predicting), that’s only because of companies inability to increase its earnings over time. Secondly, for all of the baby boomers who will supposedly be selling, there is someone on the other side, willing to buy these flat or declining assets because they expect them to rise in the future.
2. The writer likes to quote Warren Buffett, but forgets to mention a more relevant Buffett quote “Be fearful when others are greedy and be greedy when others are fearful.” The writer is telling everyone to go in the same direction as everyone else in the market, which is the opposite of what Warren and other successful investors have done. It is very difficult to be contrarian and sometimes requires great intestinal fortitude, but going AGAINST the crowd/herd is how you make money (over time), not following the crowd as he is advising. Ask anyone who added money in 2008-2009 rather than selling during that time. They are quite pleased they did.
3. The writer states “there will be fewer younger investors to buy those securities, keeping a lid on prices.” I believe he is only taking into account workers in the U.S. In his next point he talks about globalization…wouldn’t it make sense that as other countries get wealthier, they will want to invest in US (just as we invest internationally) for diversification (unless you’re forbidden from investing internationally like Chinese citizens who can only invest in the Chinese market).
4. Globalization – as the rest of the world gets wealthier, they may in fact want to buy American. This writer is trying to say that faster growing countries make for good investments, but ask how good the Chinese stock market has been for investors? I believe Larry Swedroe and others have said there is not always a strong correlation between a country’s growth in GDP and that country’s stock market.
5. interest rates will likely rise in the future, no one knows when, how high, or for how long. Regardless of this, a rise in interest rates does negatively affect stock prices, but more so in the short term. Companies can pass the increase in prices onto consumers and the effect of inflation on stocks for the long term is not as negative as this writer is claiming. Vanguard just had a podcast on inflation and this point was made very well.
The takeaway, is the same as it always has been. Don’t worry about what prognosticators will tell you (remember this person had an incentive to write this article in the first place and it’s usually monetary), figure out an asset allocation you’re comfortable with and stay the course. This writer has less than 10% of his money in equities and that’s his choice. However, we don’t know anything about his circumstances. Maybe he has enough savings to not take on any additional risk. Maybe he should have more in equities and will be disappointed or not have enough when he needs it? Who knows. What’s right for him may not be right for you…everyone’s situation is different. Good luck on your path.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by Stryker » Wed Jun 20, 2012 11:16 am

I'm Canadian, but I've witnessed a time in my investing life where you shouldn't be invested in U.S. equities because of the Japanese business invasion. That ended badly, but not for the Americans.

There was a period during the 1987 crash where commentators were saying to get out and stay out of the stock market. The Wall Street Journal even printed a chart that eerily compared the 1987 crash with 1929. I didn't listen to them, but I've never been more scared in my investing life. Never been scared of the market since.

Now whenever anyone tries to forecast based on a foggy future as to how investors should invest, I just shrug my shoulders and carry on with the same percentages in the asset classes I originally targeted based on my risk tolerance. Nothing else. The professionals have failed at asset and sector rotation over a long time span, and I have no interest in following their lead.

In my mind, you just have to take Jason Zweig's advice from over a decade ago, and every day repeat to yourself regarding the market, a few simple words.

I don't know, I don't care

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by nisiprius » Wed Jun 20, 2012 11:40 am

(Must stop editing posts when I just meant to quote from them. Gone. Sorry.)
Last edited by nisiprius on Wed Jun 20, 2012 2:08 pm, edited 3 times in total.
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by abuss368 » Wed Jun 20, 2012 12:21 pm

InvestoGuy wrote:Folks:
Just saw this arcticle on Forbes on '6 Reasons Why I Don't Invest In The U.S. Stock Market': http://www.forbes.com/sites/ericsavitz/ ... ck-market/
The author Auren Hoffman sites 6 reasons on why one should not be in the US Stock market. He sites supply and demand as one of the main pivot points stating that as people start or come closer to retirement they will move out of equities and go to more safe investments, thus causing lesser demand and lower prices for equities. Globalization, Technology Companies etc. are used as other pivot points to argue against US Equities.

Obvioulsy, this holds againsts the Boglehead principles of investing based on Assest Allocation, wherein, US Equities are a major assest class.
Would like to know what other Bogleheads think about this article?
Regards.
Hi InvestoGuy,

My initial thoughts:

1) Would this not already be priced into the market?

2) Would this not provide a great opportunity for the long haul in terms of value?

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by G-Money » Wed Jun 20, 2012 12:27 pm

nisiprius wrote:What's conspicuous in the article is a failure to explain what he does invest in. He says stocks are <10%. I don't get the impression he's investing heavily in bonds. I have the feeling this article is a pitch for something, but I'm not sure what.
10% stocks, 90% meaningful, engaging experiences, perhaps?

From the article (emphasis mine):
Auren Hoffman is founder and CEO of Rapleaf and venture partner at Founders Fund. You can follow him on his blog (Summation), on Twitter (@auren), and Facebook (aurenh).
From Rapleaf.com:
We’re a San Francisco-based startup with an ambitious vision: we want every person to have a meaningful, engaging experience – whether online or offline.
Don't assume I know what I'm talking about.

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nisiprius
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Re: Forbes Article on '6 Reasons Why I Don't Invest In The U

Post by nisiprius » Wed Jun 20, 2012 2:07 pm

G-Money wrote:
nisiprius wrote:What's conspicuous in the article is a failure to explain what he does invest in. He says stocks are <10%. I don't get the impression he's investing heavily in bonds. I have the feeling this article is a pitch for something, but I'm not sure what.
Auren Hoffman is founder and CEO of Rapleaf and venture partner at Founders Fund.
Yeah, I followed the links, but still couldn't quite make out what the pitch is. Is he just saying, sincerely, "don't invest in stocks, put every penny you've got into your very own entrepreneurial venture instead?" I did not sense that he was saying "don't invest in stocks, put every penny you've got ventures like mine," but maybe that was the subtext.

Even here, there's sloppy phrasing. This is fundamentally wrong, too: "The best way to get massive returns is to invest in yourself. Start a business, join a fast-growing company, or become the newest singing sensation. If you believe in yourself and your talents, focus on things you can control rather than things, like the stock market, that you can’t."

"Becoming the newest singing sensation" is a hoped-for outcome, not an "thing you can control." You can become a singer, but you cannot become a singing sensation. You can join a fast-growing company, only to see it become a fast-shrinking company (been there, done that). As for starting a business, Google finds me an article with a chart of Proportion of New Businesses Founded in 1992 Still Alive By Year.
Image
In short, all of his recommendations are for risky actions. Do they have a better risk-adjusted reward than Scott Adams' "invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement?" Can he prove it?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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