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LTC lost about 1 billion over 6 weeks. 680k was from EM, including Russia. 420m was from increasing spreads on the on-the-run/off-the-run US Treasuries.nisiprius wrote: ↑Mon Apr 09, 2018 2:57 pmI can't say whether or not the market has properly priced in the risks of Russian corruption. But I certainly remember that in 1997 issues with Russian bonds brought down Long-Term Capital Management and nearly brought down the US financial system with it. If the Nobel laureates at Long-Term Capital Management couldn't accurately assess the risk of Russian financial assets, I doubt that I can.
Didn't they return 50% in 2016?asif408 wrote: ↑Mon Apr 09, 2018 12:26 pmI don't think Russian stocks are any more attractive today than they were 2,3,4, or 5 years ago. So if you were willing to invest in them then you should still now. Now, they are certainly more attractive than they were in 2007 and 2008, when the Russian CAPE ratio was higher than the US. But that's been true for a number of years, and hasn't panned out.
It just depends on how much risk you are willing to take and long you are willing to wait until things pan out (if they do at all).
If you watch the movie, that doesn't seem to be the issue.golfCaddy wrote: ↑Wed Apr 11, 2018 10:38 pmXi Jinping seems to be making a serious effort to cleanup corruption in China. While SOEs may pursue China's geopolitical goals at the expense of its minority shareholders, I would be less concerned about embezzlement and bribes detracting from performance than say Russia.Valuethinker wrote: ↑Mon Apr 09, 2018 12:03 pmIf I contrasted them to Chinese companies, having seen the movie "The China Hussle" recently, I'd suggest that the risks in China re governance are there (if not to the same degree), and the valuation risks are much greater.
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
- US or world economic, political, tax, health care and climate policies
- conspiracy theories of any type
- discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
LadyGeek wrote: ↑Sat Apr 14, 2018 3:52 pmPlease stay focused on the investing aspects. Opinions of the political process, corruption, etc. are off-topic. See: Non-actionable (Trolling) TopicsIf readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
- US or world economic, political, tax, health care and climate policies
- conspiracy theories of any type
- discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Karamatsu wrote: ↑Sat Apr 14, 2018 4:34 amI think the idea that national markets can be evaluated by the same metrics as US companies is likely to be fundamentally flawed. There are far more variables, far more unknowns, countries are so different, and their equity markets used for such different purposes that except in very stable, culturally similar, situations that allow the same kind of data fitting, I doubt it's possible to make meaningful comparisons and say that country A is overvalued while B is undervalued. And then, as a reformed value trader, just because your model says that stock X is undervalued absolutely does not mean that the market will ever wake up to share your opinion.
Finally, having just come back from Ukraine and talks with investors there, anyone contemplating an investment in Ukraine, Russia, or any of the former Soviet countries (or in some cases even the satellites) should heed the old advice about poker: if you don't know who the sucker is at the table, it's you. Take care.
https://www.investopedia.com/university ... quotes.asp“And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful” – 2004 Annual Shareholder Letter.
In context, he may have been talking about a different stock market...denovo wrote: ↑Mon Apr 16, 2018 4:03 amhttps://www.investopedia.com/university ... quotes.asp“And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful” – 2004 Annual Shareholder Letter.
So go long on Russia?
Warren Buffett in 2004 annual letter wrote: http://berkshirehathaway.com/letters/2004ltr.pdf
... American business has delivered terrific results. It should therefore have been
easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a
diversified, low-expense way. An index fund that they never touched would have done the job. Instead
many investors have had experiences ranging from mediocre to disastrous.
There have been three primary causes: first, high costs, usually because investors traded
excessively or spent far too much on investment management; second, portfolio decisions based on tips and
fads rather than on thoughtful, quantified evaluation of businesses; and third, a start-and-stop approach to
the market marked by untimely entries (after an advance has been long underway) and exits (after periods
of stagnation or decline). Investors should remember that excitement and expenses are their enemies. And
if they insist on trying to time their participation in equities, they should try to be fearful when others are
greedy and greedy only when others are fearful.
Well investing in Russia is supported by a pretty simple quantitative argument as far as I understand : Russia has a CAPE of about 6 and a P/E of 7, so you will earn 1$/year for every 6-7 $ you invest in it, assuming that earnings stay constant and that valuation multiples don't change and remain as low as they are now. In fact they are so low that if you believe in mean reversion they are more likely to go up than down, so this will result in extra gains if multiple expansion indeed occurs.
Lauretta wrote: ↑Mon Apr 16, 2018 10:07 amWell investing in Russia is supported by a pretty simple quantitative argument as far as I understand : Russia has a CAPE of about 6 and a P/E of 7, so you will earn 1$/year for every 6-7 $ you invest in it, assuming that earnings stay constant and that valuation multiples don't change and remain as low as they are now. In fact they are so low that if you believe in mean reversion they are more likely to go up than down, so this will result in extra gains if multiple expansion indeed occurs.
Also, my understanding is that it's so cheap precisely because noone wants to buy, as they are afraid and so both the stock market and the ruble are cheap; so far from being a fad, it is the very opposite of it. Be as it may; I just bought some more today![]()
It probably does not matter much. you might avoid some of the obvious (to insiders) fraudulent cases.BuyAndHoldOn wrote: ↑Mon Apr 16, 2018 3:06 pmLauretta wrote: ↑Mon Apr 16, 2018 10:07 amWell investing in Russia is supported by a pretty simple quantitative argument as far as I understand : Russia has a CAPE of about 6 and a P/E of 7, so you will earn 1$/year for every 6-7 $ you invest in it, assuming that earnings stay constant and that valuation multiples don't change and remain as low as they are now. In fact they are so low that if you believe in mean reversion they are more likely to go up than down, so this will result in extra gains if multiple expansion indeed occurs.
Also, my understanding is that it's so cheap precisely because noone wants to buy, as they are afraid and so both the stock market and the ruble are cheap; so far from being a fad, it is the very opposite of it. Be as it may; I just bought some more today![]()
Don't encourage us with sensible arguments like that. I posted [in] this thread originally so people would talk me out of a potentially risky investment choice.
That said:
1) Are you using an Index type product, or active fund for investing in Russia?
Russian index is mostly about natural resources (+ some financials and other stocks). And those natural resources are worth something if world prices are high enough. That's their global competitive advantage-- they have something the world wants. The domestic stocks-- well, it's a tough place to compete as a foreign company, so probably they have an advantage there, too. There's nothing wrong with practical monopolies, from a shareholder viewpoint.2) What industries or companies are you encouraged about within Russia? That is a hold up for me: I don't see much innovation or value add that competes on a global scale. I think other companies can do what the [big, Index dominant] Russian companies do. (If they are allowed to, within Russia).
Just FYI, changing your allocation is NOT "rebalancing".
Do you believe the earnings numbers though? If Russia overstates earnings by 2x on average, then the actual P/E would be 14, and it looks like less of a bargain.Lauretta wrote: ↑Mon Apr 16, 2018 10:07 amWell investing in Russia is supported by a pretty simple quantitative argument as far as I understand : Russia has a CAPE of about 6 and a P/E of 7, so you will earn 1$/year for every 6-7 $ you invest in it, assuming that earnings stay constant and that valuation multiples don't change and remain as low as they are now. In fact they are so low that if you believe in mean reversion they are more likely to go up than down, so this will result in extra gains if multiple expansion indeed occurs.
Also, my understanding is that it's so cheap precisely because noone wants to buy, as they are afraid and so both the stock market and the ruble are cheap; so far from being a fad, it is the very opposite of it. Be as it may; I just bought some more today![]()
Ah ok I didn't think of that; seems like that would be very dishonest though (when I think of Russia I think of Tolstoy and he was a very ethical man
1) I am using an index ETFBuyAndHoldOn wrote: ↑Mon Apr 16, 2018 3:06 pm
Don't encourage us with sensible arguments like that. I posted [in] this thread originally so people would talk me out of a potentially risky investment choice.
That said:
1) Are you using an Index type product, or active fund for investing in Russia?
2) What industries or companies are you encouraged about within Russia? That is a hold up for me: I don't see much innovation or value add that competes on a global scale. I think other companies can do what the [big, Index dominant] Russian companies do. (If they are allowed to, within Russia).
Amazon cashflow increased tenfold over the last ten years, but earnings increased only fivefold because most of the money was used to expand the business. So the idea is that at the moment Amazon is not profitable but people expect it to continue to expand in the future and become a larger and larger monopoly, at which point (perhaps in 10, 20 years) it can increase its margins and finally become profitable. To me there are a lot of assumptions with this argument, and lots of things that can go wrong on the way. So I am more confortable with low PE stocks.boglerdude wrote: ↑Tue Apr 17, 2018 2:40 amAs mentioned above, Russia has a PE of 7, so you will earn $1/year for every $7 you invest in it. It will take 7 years to earn back your investment.
Amazon has a PE of 314, so you will earn $1/year for every $314 you invest in it. It will take 314 years to earn back your investment.
But there's no free lunch, so the market expects more earnings (net profit) increase from Amazon. 314/7=45x.
So the market expects Amazon's earnings to increase to 45x that of Russia's, each year, on average over 7 years.
Is this right? Other ways to think about it?
That is a good point james, and one I have been giving some thought to. If you look at StarCapital's forecasts, they assume that CAPE will revert to the same global average, regardless of country (thus Italy and EM have the same expected returns in their estimates, because they have the same CAPE). I haven't made up my mind yet as to whether their assuption is reasonable. If what you say is correct though, Sweden should have very high expected returns since their CAPE has been much above average during the last 40 years.
If price weakens 3% allocation may become 2% of portfolio.HomerJ wrote: ↑Mon Apr 16, 2018 3:57 pmJust FYI, changing your allocation is NOT "rebalancing".
Rebalancing is balancing back to your original allocation.
For instance if your AA is 50/50 and stocks are up 15% in a year, and bonds are up 3%, you may need to sell some stocks and buy some bonds to get back to 50/50. Switching to 30/70 or 70/30 is not "rebalancing".
Yes but no but yes.HongKonger wrote: ↑Tue Apr 17, 2018 4:51 amIf the rouble is down but Russia sells oil in dollars isn't that better for them? Just thinking out loud here.
What funds did you use for Brazil, Poland, Italy, and Spain, and what is the average ER of those funds? How does it compare to the ER of GVAL?asif408 wrote: ↑Mon Apr 09, 2018 3:51 pmI think its a legitimate strategy, the question is are you willing to hold it long enough to benefit and would you be ok if "expected" is not "realized"? I personally do tilt using a low CAPE strategy, which includes Russia, but I also include other low CAPE countries both developed and emerging in my tilt, such as Brazil, Poland, Italy, and Spain. I did the math and my tilt adds approximately 10-12 bps to my expenses. That is a trade-off I can live with. So I think it's ok if it is part of a basket of countries you are tilting with, and done as cheaply as possible and with broad based index funds. That way if it doesn't pan out at least you have minimized your expenses doing it, which is one aspect which you can control.
...
Do you have evidence for your argument that "transparency, stability, effective legal protections" affects fair valuations, or is it just what you intuitively think "should" be the case? I thought research has shown that, if anything, it is the expected future positive or negative change of those parameters that affects valuations.whodidntante wrote: ↑Mon Apr 16, 2018 8:55 pmIf Russia had transparency, stability, effective legal protections of foreign investor interests and corporate interests, and a diversified economy, then it would be a screaming buy at these valuations. But as it is today, it's one of the places in the world where you could actually lose 100% of whatever you invest, and it has happened before. I think it would be fine to overweight Russia, and I would say the expected returns are quite high from here. But I wouldn't go crazy with it.
The IShares country ETFs. Average ER is about 0.56%. GVAL is 0.68% I believe. Another factor is that GVAL is not commission free where I am investing and the iShares ETFs I used were, so that adds more cost.comeinvest wrote: ↑Thu Apr 19, 2018 4:10 amWhat funds did you use for Brazil, Poland, Italy, and Spain, and what is the average ER of those funds? How does it compare to the ER of GVAL?asif408 wrote: ↑Mon Apr 09, 2018 3:51 pmI think its a legitimate strategy, the question is are you willing to hold it long enough to benefit and would you be ok if "expected" is not "realized"? I personally do tilt using a low CAPE strategy, which includes Russia, but I also include other low CAPE countries both developed and emerging in my tilt, such as Brazil, Poland, Italy, and Spain. I did the math and my tilt adds approximately 10-12 bps to my expenses. That is a trade-off I can live with. So I think it's ok if it is part of a basket of countries you are tilting with, and done as cheaply as possible and with broad based index funds. That way if it doesn't pan out at least you have minimized your expenses doing it, which is one aspect which you can control.
...
Point well taken, I too am a penny-pincher when it comes to money, but commissions really do not matter for most buy-and-hold strategies, in relation to any other ongoing expenses, capital allocation, or effectiveness of strategies. My commission is typically less than $1 per trade of a few thousand $.asif408 wrote: ↑Thu Apr 19, 2018 7:20 amThe IShares country ETFs. Average ER is about 0.56%. GVAL is 0.68% I believe. Another factor is that GVAL is not commission free where I am investing and the iShares ETFs I used were, so that adds more cost.comeinvest wrote: ↑Thu Apr 19, 2018 4:10 amWhat funds did you use for Brazil, Poland, Italy, and Spain, and what is the average ER of those funds? How does it compare to the ER of GVAL?asif408 wrote: ↑Mon Apr 09, 2018 3:51 pmI think its a legitimate strategy, the question is are you willing to hold it long enough to benefit and would you be ok if "expected" is not "realized"? I personally do tilt using a low CAPE strategy, which includes Russia, but I also include other low CAPE countries both developed and emerging in my tilt, such as Brazil, Poland, Italy, and Spain. I did the math and my tilt adds approximately 10-12 bps to my expenses. That is a trade-off I can live with. So I think it's ok if it is part of a basket of countries you are tilting with, and done as cheaply as possible and with broad based index funds. That way if it doesn't pan out at least you have minimized your expenses doing it, which is one aspect which you can control.
...
These are in an HSA, and over 90% of my investments are in tax deferred accounts, so I do not consider tax implications for these strategies. If I ever get to the point where I have a large enough taxable account I'll definitely put more thought into what you say. But at this point I can't even max out my tax deferred space, so I'm some time away from that problem.comeinvest wrote: ↑Sun Apr 22, 2018 3:04 amRegarding the low CAPE strategy: You saved 0.12% in expense ratio vs. GVAL. However, have you considered this: When it comes time to rebalance within your strategy as country valuations change, you will incur capital gains tax if your account is taxable, on the whole appreciation of the countries to be rebalanced out of. If you replicate the strategy with GVAL, my understanding is that typically ETFs don't make capital gains distributions even if appreciated positions of the ETF were disposed of, because ETFs can do this via redemption units. I don't know the details of this mechanism, but I checked a few Vanguard, iShares and WisdomTree ETFs and almost none had any capital gains distributions over the last few years, although there was turnover in the funds. I do not know what the average estimated capital gains tax distributions are in the long run. I think there were boglehead discussions regarding this a long time ago on this forum. But I would think the savings from deferred capital gains tax would be higher than the difference in expense ratios. The numbers depend on country turnover, performance, and other factors, but I would estimate the tax drag from capital gains tax in the 0.5%-1% p.a. range based on total capital invested in the strategy.
May I ask what the rationale is for buying an EM Dividend ETF (as opposed to a simple market cap weighted one)? I saw e.g. that iShares SEDY (listed in Europe) has ongoing charges of 0.65% (as opposed to 0.2% for the cheaper market cap weighted ETFs, making it a pretty big difference in the long run). So what would the likely advantages be?Valuethinker wrote: ↑Mon Apr 09, 2018 12:03 pmwell represented in an Emerging Market Dividend ETF that I bought (European listed, but ishares)
You should not be investing in Russia (or many emerging markets) if you are surprised that corruption and dishonesty exists.Lauretta wrote: ↑Mon Apr 16, 2018 11:39 pmAh ok I didn't think of that; seems like that would be very dishonest though (when I think of Russia I think of Tolstoy and he was a very ethical man) and I don't know whether such huge manipulation is even possible to do. A money manager once told me they don't invest in Russia after a European car manufacturer opened a branch there and cars started to diasapper from inside the factory (people were somehow stealing them) so probably some disgree of dishonesty exists, but I didn't think of that when considering the numbers
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but why are they more corrupt or dishonest than developed countries?HomerJ wrote: ↑Sun Apr 22, 2018 10:55 amYou should not be investing in Russia (or many emerging markets) if you are surprised that corruption and dishonesty exists.Lauretta wrote: ↑Mon Apr 16, 2018 11:39 pmAh ok I didn't think of that; seems like that would be very dishonest though (when I think of Russia I think of Tolstoy and he was a very ethical man) and I don't know whether such huge manipulation is even possible to do. A money manager once told me they don't invest in Russia after a European car manufacturer opened a branch there and cars started to diasapper from inside the factory (people were somehow stealing them) so probably some disgree of dishonesty exists, but I didn't think of that when considering the numbers
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you mean that Russians are much more dishonest (assuming that's possible) than say Madoff or Kenneth Lay?
I am hoping that you are being rhetorical and the flaws in that of reasoning (Reasoning by False Analogy) are obvious to you?
This is nonsense, and it's condescending to boot. A central idea* behind the Boglehead approach to investing is that individual investors should buy the market because they do not have the resources to beat the market. There's a lot of the market that we cannot know. I reserve the right to be surprised when I find out about shoddy security practices at Equifax or criminally misguided incentives at Wells Fargo, just as I'll excuse people who are shocked to learn that Facebook is recklessly loose with your PII. That doesn't mean that we should avoid buying them. Hell, one can't even avoid Russian corruption by avoiding funds that own Russian stocks. Look at Deutsche Bank.
Precisely....While it doesn't make sense to talk honest/dishonest from an Ethical standpoint, the "Systemic" differences between countries matter.Valuethinker wrote: ↑Sun Apr 22, 2018 11:28 amI am hoping that you are being rhetorical and the flaws in that of reasoning (Reasoning by False Analogy) are obvious to you?
https://en.wikipedia.org/wiki/Bill_Browder
read that
That's very different from 2 people who committed crimes and were sentenced to very long prison terms for defrauding investors.
There's a difference between a systemically corrupt system where external minority shareholders simply have no effective rights and one which has pockets of malfeasance and corruption.
... but corrupt or not, it appears that due to low valuations, Russia generates more earnings, and Russia returns to me more dividend dollars for every dollar invested, than e.g. the U.S. market. If due to corruption, corporate assets were constantly misappropriated ("stolen") or misallocated, wouldn't it already be reflected in earnings and cash flow numbers? Earnings could be manipulated, but not dividend cash. The end result is what matters, or not? I understand that return on equity is also a factor, but I'm not skilled enough in accounting to pinpoint which numbers the "slippage" due to corruption would be reflected in. If I'm not mistaken, growth measures usually favor Russia too vs. the U.S.BuyAndHoldOn wrote: ↑Sun Apr 22, 2018 6:48 pmPrecisely....While it doesn't make sense to talk honest/dishonest from an Ethical standpoint, the "Systemic" differences between countries matter.Valuethinker wrote: ↑Sun Apr 22, 2018 11:28 amI am hoping that you are being rhetorical and the flaws in that of reasoning (Reasoning by False Analogy) are obvious to you?
https://en.wikipedia.org/wiki/Bill_Browder
read that
That's very different from 2 people who committed crimes and were sentenced to very long prison terms for defrauding investors.
There's a difference between a systemically corrupt system where external minority shareholders simply have no effective rights and one which has pockets of malfeasance and corruption.
Madoff and Kenneth Lay - eventually, once discovered/uncovered - were reprimanded by the legal process. Both are still in Prison (I believe).
Dishonest and other less-than chivalrous traits abound in Emerging and Developed markets, but there are fewer "checks and balances" in the legal/regulatory frameworks of many Emerging markets to counter them.
...and I [personally] have leaned away for doing more with Russia outside of traditional indexes. More worried about my bond portfolio at the moment![]()