Time to abandon a global portfolio?

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pop77
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Time to abandon a global portfolio?

Post by pop77 » Sun Aug 18, 2013 11:21 am

Excellent research paper from Gerstein-Fischer.

http://gersteinfisher.com/wp-content/up ... mestic.pdf

Courtesy: Wealthtrack.

Much needed reassurance for many on this forum. It would have been great if they had included Inflation protected bonds,Emerging Markets Bonds and Infrastructure in this study :wink:

jimbojones
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Re: Time to abandon a global portfolio?

Post by jimbojones » Sun Aug 18, 2013 11:32 am

OP- Is this the conclusion you reached? From the article:
The recent strong performance of US stock markets has caused many American investors to feel anxious about international investing and to question the merit of globally diversified portfolios. We believe at some point other global asset classes will take the baton from domestic stocks, but the timing of that transition is difficult or impossible to predict in advance. A review of extended investment time frames, such as 10-year rolling periods, reveals that global diversification has consistently produced superior returns for domestic investors.

Call_Me_Op
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Re: Time to abandon a global portfolio?

Post by Call_Me_Op » Sun Aug 18, 2013 12:12 pm

Pop77, this paper does nothing but state the obvious. What new information did you learn from this?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Noobvestor
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Re: Time to abandon a global portfolio?

Post by Noobvestor » Sun Aug 18, 2013 12:42 pm

Call_Me_Op wrote:Pop77, this paper does nothing but state the obvious. What new information did you learn from this?
Obvious to some, but as we know from another ongoing thread, not obvious to all :sharebeer
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

animule
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Re: Time to abandon a global portfolio?

Post by animule » Sun Aug 18, 2013 2:07 pm

If anything, the paper is a contrarian indicator. You would most likely see articles like this, and sentiment like this, after a long period of underperformance by international stocks. Seasoned investors know that this is often a sign of an asset class that may have room to run. This year alone, Vanguard's 500 fund has something like triple the return of the Total International fund. And international stocks did not really recover that well from the Great Recession. I don't ever recall seeing a performance gap since around 2008 so greatly in favor of domestic stocks, vs. international stocks. Collectively, these are signs that it is probably as good a time as ever to buy international, if your allocation in these stocks is lower than it should be.

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nedsaid
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Re: Time to abandon a global portfolio?

Post by nedsaid » Sun Aug 18, 2013 2:07 pm

It was a good article.

A globally diversified portfolio is the way to go. You not only get geographic diversification, you get currency diversification. You also should be diversified across asset classes.

The article also explained why you want to measure performance over longer time periods. One year or even three years is not long enough.

So the answer is no. It is not time to abandon a global portfolio.
A fool and his money are good for business.

pop77
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Re: Time to abandon a global portfolio?

Post by pop77 » Sun Aug 18, 2013 4:39 pm

Pop77, this paper does nothing but state the obvious. What new information did you learn from this?
As I mentioned in the post, it was more of reinforcement. The chart on page 2 is golden. I am going to print it and stick it at my desk.

I have been wondering whether commodities is a worth investing as an asset class (there have been many discussions in this forum). Similarly EM Stocks and EM Bonds are taking a beating now and for a long time. This is a time where many talking heads question EM as an asset class. They would bring all sorts of statistic that may argue against EM as an asset class (the statistics are genuine in many cases) but does it lay a case for abandoning them as an asset class.

Articles like this just provide me the assurance to stay diversified.
OP- Is this the conclusion you reached? From the article:

The recent strong performance of US stock markets has caused many American investors to feel anxious about international investing and to question the merit of globally diversified portfolios. We believe at some point other global asset classes will take the baton from domestic stocks, but the timing of that transition is difficult or impossible to predict in advance. A review of extended investment time frames, such as 10-year rolling periods, reveals that global diversification has consistently produced superior returns for domestic investors.
Yes. This article just reinforces it.

Beagler
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Re: Time to abandon a global portfolio?

Post by Beagler » Sun Aug 18, 2013 4:55 pm

pop77 wrote:
Much needed reassurance for many on this forum....
Reassurance is NOT synonymous with reinforcement.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

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zaboomafoozarg
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Re: Time to abandon a global portfolio?

Post by zaboomafoozarg » Sun Aug 18, 2013 5:19 pm

pop77 wrote:Time to abandon a global portfolio?
Image

Beagler
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Re: Time to abandon a global portfolio?

Post by Beagler » Sun Aug 18, 2013 10:18 pm

pop77 wrote:
Pop77, this paper does nothing but state the obvious. What new information did you learn from this?
...The chart on page 2 is golden. I am going to print it and stick it at my desk....
The Callen table has been much-discussed on this forum. No sense in re-inventing the wheel. :happy

http://bit.ly/18ECkUZ
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

garlandwhizzer
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Re: Time to abandon a global portfolio?

Post by garlandwhizzer » Mon Aug 19, 2013 3:58 am

International stocks have underperformed in recent years and by some measures for many years, but as a result their valuations are currently fairly attractive relative to US stocks. While no one knows the future most would argue that the time to trim exposure to any asset class is not when it is under pressure but rather when all is rosy and it is fully valued. It probably makes more sense to rebalance into international equities now rather than abandoning them. Currently Vanguard's TISM fund has a better dividend yield, PE ratio, and much better P/BV than their TSM fund. Many of these large international companies are serving not just their own countries but the very same worldwide markets that large US companies are serving and you're buying them more cheaply than their US counterparts. I think international diversification with some portion of your portfolio (mine is 30%) is preferable to putting all your eggs into one basket, the US, even if the US is the most attractive basket at present.

Garland Whizzer

Tigermoose
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Re: Time to abandon a global portfolio?

Post by Tigermoose » Mon Aug 19, 2013 8:38 am

We should rebalance because our IPS tells us to so that we keep our risk tolerance at our set allocation. We should not be trying to "value" the current assets and make decisions based on the perceived value of the assets -- no matter how low we "think" a price is relative to its recent or historic performance.
Institutions matter

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rustymutt
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Re: Time to abandon a global portfolio?

Post by rustymutt » Mon Aug 19, 2013 8:45 am

Tigermoose wrote:We should rebalance because our IPS tells us to so that we keep our risk tolerance at our set allocation. We should not be trying to "value" the current assets and make decisions based on the perceived value of the assets -- no matter how low we "think" a price is relative to its recent or historic performance.


Plus one me on this. Slow, steady, saving & investing over long periods of time, and watching withdraws. Only remove that you must have.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

staythecourse
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Re: Time to abandon a global portfolio?

Post by staythecourse » Mon Aug 19, 2013 10:42 am

My personal opinion,
I see folks having trouble with increasing international diversification for several reasons:

1. Fear of foreign countries. Many just are too afraid in the accounting and markets in other countries.
2. They don't want currency diversification. This one is what I find the oddest. Asset Allocation (which I presume everyone on this board believes) is all about diversifying you money into different areas as to minimize a chance of a large loss. Then the same folks have no problem putting all their money in a single currency. The usual answer is "well I live and will retire in America so I should want everything in the U.S. Dollar". Many of our esteemed writers make the same comments. Me personally, I do not want dollars, I want the highest returning currency because I know whatever it is currency is very liquid and can easily be converted to my home currency minus a small transaction spread at a currency exchange. Of course, no one knows which currency will come out on top so the only thing to do is invest in whole bunch of currencies.
3. Then there is the usual "I have always done well in U.S. only investing so why change now?". Just not sure if these folks would be saying the same thing if they were born back in the days and domiciled in Egypt's market or currently in Japan last 20 yrs. I've said this before, but if Mr. Bogle was born in Japan then in the U.S. NO ONE would have thought twice of his investing prowess having such a strong home country bias.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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midareff
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Re: Time to abandon a global portfolio?

Post by midareff » Mon Aug 19, 2013 10:52 am

Tigermoose wrote:We should rebalance because our IPS tells us to so that we keep our risk tolerance at our set allocation. We should not be trying to "value" the current assets and make decisions based on the perceived value of the assets -- no matter how low we "think" a price is relative to its recent or historic performance.
+1

AND

Balance bands, balance bands, balance bands.............................. :moneybag

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nisiprius
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Re: Time to abandon a global portfolio?

Post by nisiprius » Mon Aug 19, 2013 11:47 am

Everyone has got to go look at the... amazing... Wells Fargo piece tigermoose turned up, in the thread Interesting paper on why the U.S. rocks. I can't quite come up with the right adjectives for this one. Ah, I think I have it. (Thanks, Noobvestor.)

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Tigermoose
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Re: Time to abandon a global portfolio?

Post by Tigermoose » Mon Aug 19, 2013 11:51 am

Careful. Noobvestor's blood pressure might get out of hand when reading that paper :P
Institutions matter

gkaplan
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Re: Time to abandon a global portfolio?

Post by gkaplan » Mon Aug 19, 2013 12:04 pm

Tigermoose wrote:Careful. Noobvestor's blood pressure might get out of hand when reading that paper :P
I didn't read it. You have your sources of confirmation bias. I have mine.
Gordon

Tigermoose
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Re: Time to abandon a global portfolio?

Post by Tigermoose » Mon Aug 19, 2013 12:09 pm

gkaplan wrote:
Tigermoose wrote:Careful. Noobvestor's blood pressure might get out of hand when reading that paper :P
I didn't read it. You have your sources of confirmation bias. I have mine.
LOL. I don't take mine seriously. I give myself a 50/50 chance of being right. I just stick to my IPS. Sure, my bias was built into the original structuring of the IPS, but as long as I stick to the plan I'll be fine. Same goes for you. I'm not here to convince you otherwise.
Institutions matter

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Index Fan
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Re: Time to abandon a global portfolio?

Post by Index Fan » Mon Aug 19, 2013 1:19 pm

zaboomafoozarg wrote:
pop77 wrote:Time to abandon a global portfolio?
Image

I vote this for the Best Post Of 8/18/13!
"Optimum est pati quod emendare non possis." | -Seneca

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Noobvestor
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Re: Time to abandon a global portfolio?

Post by Noobvestor » Mon Aug 19, 2013 7:51 pm

Tigermoose wrote:Careful. Noobvestor's blood pressure might get out of hand when reading that paper :P
Not at all ... a mildly fascinating piece of pro-America fluff that focuses only on the positives and is designed to sell investors on something - nothing a sensible Boglehead would take seriously, regardless of their position on US/ex-US investing. 8-)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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zaboomafoozarg
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Re: Time to abandon a global portfolio?

Post by zaboomafoozarg » Mon Aug 19, 2013 9:57 pm

Index Fan wrote:I vote this for the Best Post Of 8/18/13!
Thanks, engie! :beer

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