It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

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wesgreen
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by wesgreen » Wed Oct 10, 2018 8:40 pm

Or if you compare it to TSM.

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unclescrooge
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by unclescrooge » Thu Oct 11, 2018 3:50 am

Lauretta wrote:
Wed Oct 10, 2018 4:28 am
unclescrooge wrote:
Tue Oct 09, 2018 8:39 pm
Lauretta wrote:
Sun Oct 07, 2018 1:04 pm
Valuethinker wrote:
Sun Oct 07, 2018 12:46 pm


I can explain the PE of European markets vs USA pretty well on sectoral and GDP growth grounds.

I struggle to explain Japan though
I am wondering, can you tells us more about how you do that? I read some articles according to which the effect of sectors goes some way towards explaining the US higher valuations; but significant differences subsist (relative to Europe too) even after accounting for the effect of sectors. Also, Mr Swedroe wrote to me that valuations are the best predictor of future returns, independently of sectors.

Image
I wonder how a strategy of shorting the red counties and going long the blue ones would've worked over the past 10 years.
10 years ago the red countries were not red. As a matter of fact the US would have looked very blue...
Yes, one would rebalance every 12 months.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by cjking » Thu Oct 11, 2018 6:00 am

ge1 wrote:
Sat Oct 06, 2018 8:37 pm
I don’t have the numbers in front me, but I’m pretty sure 5 years ago those P/E ratios were very similar.
Looking at the below chart, over the last 5 years S&P 500 prices have increased by more than (ten year average of) earnings. It is more expensive now than it was five years ago.

http://www.multpl.com/shiller-pe/

I've looked up the exact figures in Shiller's data, the CAPE for 2018-09 is 33.18 and that for 2013-09 was 23.44.

I'm sure someone will correct me if I'm not making sense, but I think that means that ((33.18/23.44)^(1/5)-1) = 7.2% a year of returns over the last five years have been due to the S&P 500 getting more expensive. I call that 7.2% returns due to luck, or the speculative component of return.

The calculator below gives the annualised inflation-adjusted total return as 11.9% over the time period, so the fundamental component of return has been 11.9%-7.2%=4.7%.

https://dqydj.com/sp-500-return-calculator/

Five years ago a simple prediction for fundamental return would have been 1/23.44=4.3%. Now the prediction for fundamental return would be 1/33.18=3.0%.

(For forecasting purpose I always assume a distribution for speculative returns centred on 0%. So for me, fundamental return and overall return predictions are the same number. Other people think when shares are expensive you should use a negative figure, but I prefer to be neutral when it comes to predicting changes in valuations.)

Taking figures from my spreadsheet, which has slightly more up-to-date prices and valuations, I have current predictions (of type 1/CAPE) of 3.3% for US equities and 5.5% for rest-of-the-world equities.

columbia
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by columbia » Sun Oct 14, 2018 7:56 am

I do find it curious that Vanguard doesn’t offer a currency hedged version of VT. (The ETF would own VT + hedging mechanics.)

Then again, iShares used to offer that exact type of product and it no longer exists....

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Sun Oct 14, 2018 10:43 am

cjking wrote:
Thu Oct 11, 2018 6:00 am
ge1 wrote:
Sat Oct 06, 2018 8:37 pm
I don’t have the numbers in front me, but I’m pretty sure 5 years ago those P/E ratios were very similar.
Looking at the below chart, over the last 5 years S&P 500 prices have increased by more than (ten year average of) earnings. It is more expensive now than it was five years ago.

http://www.multpl.com/shiller-pe/

I've looked up the exact figures in Shiller's data, the CAPE for 2018-09 is 33.18 and that for 2013-09 was 23.44.

I'm sure someone will correct me if I'm not making sense, but I think that means that ((33.18/23.44)^(1/5)-1) = 7.2% a year of returns over the last five years have been due to the S&P 500 getting more expensive. I call that 7.2% returns due to luck, or the speculative component of return.

The calculator below gives the annualised inflation-adjusted total return as 11.9% over the time period, so the fundamental component of return has been 11.9%-7.2%=4.7%.

https://dqydj.com/sp-500-return-calculator/

Five years ago a simple prediction for fundamental return would have been 1/23.44=4.3%. Now the prediction for fundamental return would be 1/33.18=3.0%.

(For forecasting purpose I always assume a distribution for speculative returns centred on 0%. So for me, fundamental return and overall return predictions are the same number. Other people think when shares are expensive you should use a negative figure, but I prefer to be neutral when it comes to predicting changes in valuations.)

Taking figures from my spreadsheet, which has slightly more up-to-date prices and valuations, I have current predictions (of type 1/CAPE) of 3.3% for US equities and 5.5% for rest-of-the-world equities.
It's actually (1+ .119)/(1+ .072) -1 But that shouldn't make much odds.

The Fisher formula in other words applies in All these return calculations

As long as you take the cape10 returns as real returns not nominal that looks fairly good.

US market probably has a permanent premium in cape10 terms for various structural reasons.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Thu Oct 18, 2018 1:23 pm

cjking wrote:
Thu Oct 11, 2018 6:00 am
ge1 wrote:
Sat Oct 06, 2018 8:37 pm
I don’t have the numbers in front me, but I’m pretty sure 5 years ago those P/E ratios were very similar.
Looking at the below chart, over the last 5 years S&P 500 prices have increased by more than (ten year average of) earnings. It is more expensive now than it was five years ago.

http://www.multpl.com/shiller-pe/

I've looked up the exact figures in Shiller's data, the CAPE for 2018-09 is 33.18 and that for 2013-09 was 23.44.

I'm sure someone will correct me if I'm not making sense, but I think that means that ((33.18/23.44)^(1/5)-1) = 7.2% a year of returns over the last five years have been due to the S&P 500 getting more expensive. I call that 7.2% returns due to luck, or the speculative component of return.

The calculator below gives the annualised inflation-adjusted total return as 11.9% over the time period, so the fundamental component of return has been 11.9%-7.2%=4.7%.

https://dqydj.com/sp-500-return-calculator/

Five years ago a simple prediction for fundamental return would have been 1/23.44=4.3%. Now the prediction for fundamental return would be 1/33.18=3.0%.

(For forecasting purpose I always assume a distribution for speculative returns centred on 0%. So for me, fundamental return and overall return predictions are the same number. Other people think when shares are expensive you should use a negative figure, but I prefer to be neutral when it comes to predicting changes in valuations.)

Taking figures from my spreadsheet, which has slightly more up-to-date prices and valuations, I have current predictions (of type 1/CAPE) of 3.3% for US equities and 5.5% for rest-of-the-world equities.
Thanks, very helpful.

I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.

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watchnerd
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by watchnerd » Thu Oct 18, 2018 4:14 pm

ge1 wrote:
Thu Oct 18, 2018 1:23 pm
cjking wrote:
Thu Oct 11, 2018 6:00 am
ge1 wrote:
Sat Oct 06, 2018 8:37 pm
I don’t have the numbers in front me, but I’m pretty sure 5 years ago those P/E ratios were very similar.
Looking at the below chart, over the last 5 years S&P 500 prices have increased by more than (ten year average of) earnings. It is more expensive now than it was five years ago.

http://www.multpl.com/shiller-pe/

I've looked up the exact figures in Shiller's data, the CAPE for 2018-09 is 33.18 and that for 2013-09 was 23.44.

I'm sure someone will correct me if I'm not making sense, but I think that means that ((33.18/23.44)^(1/5)-1) = 7.2% a year of returns over the last five years have been due to the S&P 500 getting more expensive. I call that 7.2% returns due to luck, or the speculative component of return.

The calculator below gives the annualised inflation-adjusted total return as 11.9% over the time period, so the fundamental component of return has been 11.9%-7.2%=4.7%.

https://dqydj.com/sp-500-return-calculator/

Five years ago a simple prediction for fundamental return would have been 1/23.44=4.3%. Now the prediction for fundamental return would be 1/33.18=3.0%.

(For forecasting purpose I always assume a distribution for speculative returns centred on 0%. So for me, fundamental return and overall return predictions are the same number. Other people think when shares are expensive you should use a negative figure, but I prefer to be neutral when it comes to predicting changes in valuations.)

Taking figures from my spreadsheet, which has slightly more up-to-date prices and valuations, I have current predictions (of type 1/CAPE) of 3.3% for US equities and 5.5% for rest-of-the-world equities.
Thanks, very helpful.

I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Well, for comparison, that's better than SPY from 1998 - 2008, which was about -15%.
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visualguy
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Oct 18, 2018 5:29 pm

ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.

I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by visualguy » Thu Oct 18, 2018 5:31 pm

watchnerd wrote:
Thu Oct 18, 2018 4:14 pm
Well, for comparison, that's better than SPY from 1998 - 2008, which was about -15%.
There was a huge financial crisis in 2008, while there's nothing horrible going on right now.

ge1
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Thu Oct 18, 2018 6:10 pm

visualguy wrote:
Thu Oct 18, 2018 5:29 pm
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.

I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...
Exactly right. We have been in the midst of a global growth phase, just imagine what stock prices will do if we see a global slowdown.

I wouldn‘t mind the lagging performance if international stock were now a screaming bargain - but that doesn‘t seem to be the case. As I mentioned in an earlier post, the dividend yield has barely increased, so that tells me that not only prices didn‘t go anywhere, but so did earnings and dividends. Lost decade indeed.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by columbia » Thu Oct 18, 2018 6:22 pm

Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by rudeboy » Thu Oct 18, 2018 6:24 pm

ge1 wrote:
Thu Oct 18, 2018 6:10 pm
visualguy wrote:
Thu Oct 18, 2018 5:29 pm
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.

I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...
Exactly right. We have been in the midst of a global growth phase, just imagine what stock prices will do if we see a global slowdown.

I wouldn‘t mind the lagging performance if international stock were now a screaming bargain - but that doesn‘t seem to be the case. As I mentioned in an earlier post, the dividend yield has barely increased, so that tells me that not only prices didn‘t go anywhere, but so did earnings and dividends. Lost decade indeed.
Markets can go sideways for over a decade -- look at the US from late 60s-early 80s. Then what happened?

I think Bill Bernstein said, "To get the risk premium, you really do have to take the risk."

I say to buy low and sell high, you really do have to buy low...

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by watchnerd » Thu Oct 18, 2018 6:26 pm

ge1 wrote:
Thu Oct 18, 2018 6:10 pm
visualguy wrote:
Thu Oct 18, 2018 5:29 pm
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.

I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...
We have been in the midst of a global growth phase, just imagine what stock prices will do if we see a global slowdown.
No, we haven't. It's been pretty 'iffy' in many markets.

Europe has not bounced back from the financial crisis as fast as the US, still keeping QE place for a little longer because of it, Chinese economy is not in great shape.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by michaeljc70 » Thu Oct 18, 2018 7:25 pm

One person's "disaster" is another person's diversification. :D

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Thu Oct 18, 2018 7:41 pm

columbia wrote:
Thu Oct 18, 2018 6:22 pm
Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.
Agree. And adding the fact that ex-US is heavy in Financials, which are with 26% by far the biggest sector. Anyone keen to bet on Chinese, British and European Banks?

At least there should be less of a currency headwind going forward, I forgot how much most major currencies depreciated over the last 10 years vs the USD (Euro down 22%, GBP down 30%, Yen down 19%).

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by columbia » Thu Oct 18, 2018 7:51 pm

ge1 wrote:
Thu Oct 18, 2018 7:41 pm
columbia wrote:
Thu Oct 18, 2018 6:22 pm
Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.
Agree. And adding the fact that ex-US is heavy in Financials, which are with 26% by far the biggest sector. Anyone keen to bet on Chinese, British and European Banks?

At least there should be less of a currency headwind going forward, I forgot how much most major currencies depreciated over the last 10 years vs the USD (Euro down 22%, GBP down 30%, Yen down 19%).
If I were betting, I’d bet on China, Hong Kong and Singapore: classic high risk/high reward scenarios...but I’m no longer a gambler and will take what my 25% international gives me.

Either way, I’d rather have dog-like performance in my own currency; adding too much of that unrewarded risk is not for me.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by cjking » Fri Oct 19, 2018 5:52 am

ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend.
The longest comparison (in multiples of 5 year periods) I can do is 15 years, and I have to use FTSE 100 rather than the whole of non-US. The figures I've managed to cobble together from a variety of sources, for the period June 2003 to June 2018, are:-

SP 500 vs FTSE 100
Cape 2018 31.6 vs 16.4
Cape 2003 24.8 vs 16.1
Total Return (CPI-adjusted) 7.0% vs 5.4%
Speculative return 1.6% vs 0.1%
Fundamental return 5.3% vs 5.3%

On these figures, there was no difference in the underlying returns of the companies in the two different indexes. Investors in the S&P 500 got 1.6% per year higher returns over 15 years, all of this was speculative return.

What made the US stock-market a better bet was nothing to do with the economic performance of its companies, it was entirely to do with the increase in the amount investors were willing to pay to own those companies. The S&P 500 went from roughly 50% more expensive than the FTSE 100 to roughly 100% more expensive.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Fri Oct 19, 2018 6:09 am

watchnerd wrote:
Thu Oct 18, 2018 6:26 pm


Europe has not bounced back from the financial crisis as fast as the US, still keeping QE place for a little longer because of it, Chinese economy is not in great shape.
I'd have to check but I think recent European GDP growth is actually ahead of USA. You get this 2 speed where the northern tier is growing relatively fast and the southern tier is still struggling (mostly with structurally high unemployment).

There are structural issues (like the Italian banking system) that continue to drag.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Fri Oct 19, 2018 6:12 am

cjking wrote:
Fri Oct 19, 2018 5:52 am
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend.
The longest comparison (in multiples of 5 year periods) I can do is 15 years, and I have to use FTSE 100 rather than the whole of non-US. The figures I've managed to cobble together from a variety of sources, for the period June 2003 to June 2018, are:-

SP 500 vs FTSE 100
Cape 2018 31.6 vs 16.4
Cape 2003 24.8 vs 16.1
Total Return (CPI-adjusted) 7.0% vs 5.4%
Speculative return 1.6% vs 0.1%
Fundamental return 5.3% vs 5.3%

On these figures, there was no difference in the underlying returns of the companies in the two different indexes. Investors in the S&P 500 got 1.6% per year higher returns over 15 years, all of this was speculative return.

What made the US stock-market a better bet was nothing to do with the economic performance of its companies, it was entirely to do with the increase in the amount investors were willing to pay to own those companies. The S&P 500 went from roughly 50% more expensive than the FTSE 100 to roughly 100% more expensive.
Good analysis.

A lot of that is sectoral. The FTSE 100 was something like 40% oil + mining stocks at one point. And 25%+ financial services. Those stocks have fundamentally derated since say 2006 - the market is calling the end of the supercycle.

What is strikingly missing is tech.

It's the growth both in earnings, and the PE the market puts on those earnings, of the US tech sector which has made the difference. That, and US banks and financials have recovered earnings faster.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Fri Oct 19, 2018 6:13 am

columbia wrote:
Thu Oct 18, 2018 6:22 pm
Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.
It's not about economic expansion. The correlation between stock market performance and economic growth is weak-to-zero.

(I've seen one study that says in the long run it is much more closely correlated. Be that as it may, the accepted story is that it is not, buttressed by the Dimson Marsh data for the past 116 years).

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Fri Oct 19, 2018 6:17 am

visualguy wrote:
Thu Oct 18, 2018 5:29 pm
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.
Ironically, due to the dot com (Tech Media Telecoms) bust that was precisely when international outperformed for the next 10 years (until the Global Financial Crisis).
I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...
It comes down to a couple of major factors:

- US financials recovered more, and faster
- a group of tech stocks went on a tear to become the largest listed companies in the world: the FAANGs + Microsoft, chiefly

So it's how long does the tech sector superior growth go on?

You get crazy valuations - Tesla - which are not explicable. But in contrast to 2000 the US tech group really does have superior earnings and cash flow - it's quite real. Even Amazon on a crazy PE is a crazy PE because it keeps reinvesting, not because it's fundamentally flawed (it appears).

How far do Apple Amazon Google Facebook Netflix have to go? Because you look at their numbers, and they keep doing it.

AFAIK US multiples eg in consumer staples or pharma don't look out of line with their international peers.

I had a conversation with someone who knows something about all this. He said the big theme of the US market right now is momentum, with the ETFs reinforcing that (buying what has gone up).

So at some point that will unpleasantly unwind. When and how much is anybody's guess.

ge1
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Fri Oct 19, 2018 7:14 am

cjking wrote:
Fri Oct 19, 2018 5:52 am
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend.
The longest comparison (in multiples of 5 year periods) I can do is 15 years, and I have to use FTSE 100 rather than the whole of non-US. The figures I've managed to cobble together from a variety of sources, for the period June 2003 to June 2018, are:-

SP 500 vs FTSE 100
Cape 2018 31.6 vs 16.4
Cape 2003 24.8 vs 16.1
Total Return (CPI-adjusted) 7.0% vs 5.4%
Speculative return 1.6% vs 0.1%
Fundamental return 5.3% vs 5.3%

On these figures, there was no difference in the underlying returns of the companies in the two different indexes. Investors in the S&P 500 got 1.6% per year higher returns over 15 years, all of this was speculative return.

What made the US stock-market a better bet was nothing to do with the economic performance of its companies, it was entirely to do with the increase in the amount investors were willing to pay to own those companies. The S&P 500 went from roughly 50% more expensive than the FTSE 100 to roughly 100% more expensive.
Interesting. How were you able to find the Cape for 2003 for the FTSE 100?

Things change when you pick a different starting point: 20 years ago the FTSE 100 was at 5,217 which gives me an annualized return of 1.5% (nominal, excluding dividends). Going back 30 years, the annualized return increases to 4.5%. The respective returns for the S&P are 5.1% and 7.9%.

And let's not forget that the GPB lost more than 20% vs the USD over that time period as well.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by ge1 » Fri Oct 19, 2018 8:45 am

Valuethinker wrote:
Fri Oct 19, 2018 6:17 am


It comes down to a couple of major factors:

- US financials recovered more, and faster
- a group of tech stocks went on a tear to become the largest listed companies in the world: the FAANGs + Microsoft, chiefly

So it's how long does the tech sector superior growth go on?

You get crazy valuations - Tesla - which are not explicable. But in contrast to 2000 the US tech group really does have superior earnings and cash flow - it's quite real. Even Amazon on a crazy PE is a crazy PE because it keeps reinvesting, not because it's fundamentally flawed (it appears).

How far do Apple Amazon Google Facebook Netflix have to go? Because you look at their numbers, and they keep doing it.

AFAIK US multiples eg in consumer staples or pharma don't look out of line with their international peers.

I had a conversation with someone who knows something about all this. He said the big theme of the US market right now is momentum, with the ETFs reinforcing that (buying what has gone up).

So at some point that will unpleasantly unwind. When and how much is anybody's guess.
As usual very good points.

The impact of the difference in recovery in the financial sector is very significant. If you take any of the big UK / European banks (Barclays, UBS, HSBC, RBS, CS, DB etc), almost all of them have permanently lost 80% or more of their pre-crisis market cap, whereas JPM has doubled in share price since then and Wells Fargo is up 50%. And this is primarily driven by earnings, not by changing multiples.

And agree with the FAANGS - there is clearly something 'bubbly' going on.

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International index funds in AA? Is it really worth it?

Post by ElmoHongZito » Fri Oct 19, 2018 8:46 am

In JL Collins book “The Simple Path to Wealth” when he talks about international funds, he mentions 4 reasons why I may want to consider just sticking to the Vanguard Total US Index Market Fund as opposed to allocating a portion of my assets to international index funds. His 4 reasons for this are below. Can you guys please share your thoughts regarding this philosphy?

1- added dimension of risk (due to currency fluctuations against US dollar)

2- accounting risk (few countries, specially in emerging markets offer the transparent accounting standards required in the US). The weaker the regulatory structure in place the more risk involved.

3- added expense since expense ratios are about double that of VTSAX

4- with VTSAX you are covered from an international aspect since the largest 500 stocks (which make up about 80% of that fund) are all international businesses many of which conduct 50% or more of their sales and profits overseas. Since these companies provide solid access to the growth of world markets while filtering out most of the additional risk JL Collins doesn’t feel the need to invest further in international funds. Plus world markets are becoming increasingly more correlated.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by LadyGeek » Fri Oct 19, 2018 9:31 am

^^^ I moved ElmoHongZito's post into the on-going discussion. Let's keep all general discussions of "investing in international (or not)" in this thread.
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Re: International index funds in AA? Is it really worth it?

Post by JoMoney » Fri Oct 19, 2018 9:33 am

You can find lots of threads, including some currently active ones, like viewtopic.php?f=10&t=261579
that covers this same topic.
There are a handful of us Bogleheads who essentially follow a similar line of reasoning, and just use a single broad US market index like S&P 500 or Vanguard Total Stock market fund(s). John Bogle thinks it's ok too. There may be more, but there's only a handful of us willing to defend it on here as typically you'll get lambasted for expressing that view.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by aj76er » Fri Oct 19, 2018 9:47 am

Valuethinker wrote:
Fri Oct 19, 2018 6:17 am
visualguy wrote:
Thu Oct 18, 2018 5:29 pm
ge1 wrote:
Thu Oct 18, 2018 1:23 pm
I just looked at the price charge for VEU (Total International Vanguard ETF) and in August 2008 before the Financial Crisis kicked in, the ETF traded in the low 48s. Price today: 48.28. That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007. And this is not just a little sliver of the market - we are talking about Global Stock Market excluding the US... I know I'm not stating anything new here, but it still is amazing.
Right, particularly when realizing that the world isn't in some crisis at this time. I'm also surprised by how poor the performance of ex-US has been. I haven't been investing in it because of my low expectations based on historical performance, but I didn't really expect it to turn out this bad when I bailed out on it in the late 90s.
Ironically, due to the dot com (Tech Media Telecoms) bust that was precisely when international outperformed for the next 10 years (until the Global Financial Crisis).
I don't have the insight to understand why it has been this bad, and my biggest fear related to my stock market investments is that the US market will start behaving like this too, and both ex-US and US will become lousy investments...
It comes down to a couple of major factors:

- US financials recovered more, and faster
- a group of tech stocks went on a tear to become the largest listed companies in the world: the FAANGs + Microsoft, chiefly

So it's how long does the tech sector superior growth go on?

You get crazy valuations - Tesla - which are not explicable. But in contrast to 2000 the US tech group really does have superior earnings and cash flow - it's quite real. Even Amazon on a crazy PE is a crazy PE because it keeps reinvesting, not because it's fundamentally flawed (it appears).

How far do Apple Amazon Google Facebook Netflix have to go? Because you look at their numbers, and they keep doing it.

AFAIK US multiples eg in consumer staples or pharma don't look out of line with their international peers.

I had a conversation with someone who knows something about all this. He said the big theme of the US market right now is momentum, with the ETFs reinforcing that (buying what has gone up).

So at some point that will unpleasantly unwind. When and how much is anybody's guess.
It would be interesting to compare U.S. valuations without the FANG stocks (maybe a fund like VTV?) against the xUS developed stocks (VEA). VTV has a forward P/E of 17.6 and VEA forward P/E is 14. So much closer.

It's hard to say just how bubbly the FANG's are. Fundamentals are good and the technology they provide has become much more intertwined in our lives. When is the last time you've gone without internet, social media, or a mobile phone? For me, leaving the house without my mobile phone induces a panic attack like forgetting my wallet. Up-and-coming generations (i.e. millennials) will be much more dependent on technology offered by the FANG's, and the market is betting on that.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by cjking » Fri Oct 19, 2018 10:42 am

ge1 wrote:
Fri Oct 19, 2018 7:14 am
Interesting. How were you able to find the Cape for 2003 for the FTSE 100?
I had my own time monthly time series which I hadn't updated since March 2017. The data came from daily FTSE 100 index values and FTSE 100 PEs published by FT.com, however when I went to bring it up-to-date I found the relevant data has now disappeared behind a firewall. Some googling brought up a company called Siblis Research who are selling a FTSE 100 CAPE time series, on the advertising page they showed six-monthly values for the last few years, so I incorporated some of those to bring my spreadsheet up-to-date. (That's the reason why I chose a June end date.)

Actually the most difficult data to find was FTSE 100 total return, I had to resort to reading numbers off a FT.COM graph for a tracker fund with accumulation shares.

https://markets.ft.com/data/funds/tears ... 0QFR50:GBX
Things change when you pick a different starting point: 20 years ago the FTSE 100 was at 5,217 which gives me an annualized return of 1.5% (nominal, excluding dividends). Going back 30 years, the annualized return increases to 4.5%. The respective returns for the S&P are 5.1% and 7.9%.
Rising to the challenge, I repeat my previous exercise for a 20 year period, however you will have to settle for a starting CAPE for the FTSE 100 that is based on only five years earnings, as my earnings data only goes back to mid-1993.

SP 500 vs FTSE 100 over 20 years
Cape 2018 31.6 vs 16.4
Cape 1998 36.8 vs 25.6
Total Return CPI-adjusted 4.3% vs 2.7%
Speculative Return -0.8% vs -2.2%
Fundamental Return 5.1% vs 4.9%

Once again the S&P 500 outperforms by 1.6% a year, but this time 0.2% of that is due to better fundamentals and 1.5% is speculative return.

(If you're wondering how 0.2% plus 1.5% equals 1.6%, rounding has something to do with it. If I displayed more digits it would make more sense. Edit: in fact I will. S&P 500 fundamental return is 0.15% higher, speculative return is 1.46% higher, total return is 1.61% higher. )

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by moneyman11 » Fri Oct 19, 2018 11:13 am

I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by kosomoto » Fri Oct 19, 2018 11:19 am

moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

This is false. US value funds have also dramatically outperformed international value funds so there is no need to rely on those companies. US stocks outperformed in every category.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Fri Oct 19, 2018 11:20 am

moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.
That doesn't address the U.S.'s outperformance in the 1990s, for instance, when Amazon, Alphabet, and Facebook were non-existent or nearly so, and Apple was only a backwater computer manufacturer.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by moneyman11 » Fri Oct 19, 2018 11:20 am

kosomoto wrote:
Fri Oct 19, 2018 11:19 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

This is false. US value funds have also dramatically outperformed international value funds so there is no need to rely on those companies. US stocks outperformed in every category.
How can a statement about the future be "false" before it happens?

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Vulcan » Fri Oct 19, 2018 11:21 am

Is it suddenly not all priced in?

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by bayview » Fri Oct 19, 2018 11:23 am

moneyman11 wrote:
Fri Oct 19, 2018 11:20 am
kosomoto wrote:
Fri Oct 19, 2018 11:19 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

This is false. US value funds have also dramatically outperformed international value funds so there is no need to rely on those companies. US stocks outperformed in every category.
How can a statement about the future be "false" before it happens?
I think they are challenging the "is out-performing because" portion of your post.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by kosomoto » Fri Oct 19, 2018 1:54 pm

bayview wrote:
Fri Oct 19, 2018 11:23 am
moneyman11 wrote:
Fri Oct 19, 2018 11:20 am
kosomoto wrote:
Fri Oct 19, 2018 11:19 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

This is false. US value funds have also dramatically outperformed international value funds so there is no need to rely on those companies. US stocks outperformed in every category.
How can a statement about the future be "false" before it happens?
I think they are challenging the "is out-performing because" portion of your post.
Correct, technology isn’t the only sector that has done well. Consumer staples, healthcare in particular have had amazing returns. International stocks don’t perform worse due to a lack of big tech stocks.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Beensabu » Sat Oct 20, 2018 3:42 pm

willthrill81 wrote:
Fri Oct 19, 2018 11:20 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.
That doesn't address the U.S.'s outperformance in the 1990s, for instance, when Amazon, Alphabet, and Facebook were non-existent or nearly so, and Apple was only a backwater computer manufacturer.
Global recession of early 1990s + Japan bubble burst + Asian financial crisis vs. US tech bubble of late 1990s?
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by selters » Sat Oct 20, 2018 3:48 pm

columbia wrote:
Thu Oct 18, 2018 6:22 pm
Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.
Immigration is pretty high, at least into Europe, so Europe's population is, contrary to popular belief, not going to shrink in our lifetime.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by willthrill81 » Sat Oct 20, 2018 4:31 pm

Beensabu wrote:
Sat Oct 20, 2018 3:42 pm
willthrill81 wrote:
Fri Oct 19, 2018 11:20 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.
That doesn't address the U.S.'s outperformance in the 1990s, for instance, when Amazon, Alphabet, and Facebook were non-existent or nearly so, and Apple was only a backwater computer manufacturer.
Global recession of early 1990s + Japan bubble burst + Asian financial crisis vs. US tech bubble of late 1990s?
All of those were relevant factors. The point remains, however, that the U.S.'s outperformance of ex-U.S. has not been due to the performance of five companies.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Sun Oct 21, 2018 9:32 am

selters wrote:
Sat Oct 20, 2018 3:48 pm
columbia wrote:
Thu Oct 18, 2018 6:22 pm
Europe + Japan make up about 60% of ex-US. What’s the basis for expecting any kind of significant economic expansion in those areas over the next decade? The US very well may be headed for a dark period, but I wouldn’t look to those areas to save the day. Waiting around mean reversion (which might or not happen) isn’t particularly comforting.
Immigration is pretty high, at least into Europe, so Europe's population is, contrary to popular belief, not going to shrink in our lifetime.
I don't think (legal) immigration is that high into Europe?

Germany took 1 million Syrian refugees in one year. Just over than 1 per cent of population. So that will blip up pop growth growth for that year.

That I am aware of, immigration, which is a National not an EU matter, in all states is at or less than the UK level of c 0.5 per cent of population pa?

Most European immigration is actually between EU member states. And most European governments are tightening down on immigration.

If you look st the really low birth rate states like Hungary or Italy the government's are fiercely anti immigrant.

In countries w universal id cards and cashless payments it's not easy to stay undetected as an illegal.

By the straight mathematics of it, even if your Total Fertility Ratio is less than 2.1 your population will keep growing for a long time to come. Particularly as life expectancies rise. Afaik it's only US and UK where they have stopped rising.

The real European problem is how to pay for overly generous state pensions as Dependency ratio of workers to retirees falls.

And who, exactly, is going to look after all these 80 90 100 something retirees that we will have?

For agricultural labour we will import workers on seasonal contracts. That is how English fruit is picked now.

Perhaps we shall do the same for care workers.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by LadyGeek » Sun Oct 21, 2018 9:36 am

Please stay focused on the investing aspects.
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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by jeffyscott » Sun Oct 21, 2018 9:38 am

Valuethinker wrote:
Sun Oct 21, 2018 9:32 am
And who, exactly, is going to look after all these 80 90 100 something retirees that we will have?

For agricultural labour we will import workers on seasonal contracts. That is how English fruit is picked now.

Perhaps we shall do the same for care workers.
Most likely that, or robots.
press on, regardless - John C. Bogle

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Whakamole » Sun Oct 21, 2018 9:43 am

kosomoto wrote:
Fri Oct 19, 2018 11:19 am
moneyman11 wrote:
Fri Oct 19, 2018 11:13 am
I have to chuckle at all this analysis.

Total US is out-performing Intl because 12.7% of its assets are in: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

If those 5 continue their run, Total US will outperform Intl ... if they don't, it won't.

This is false. US value funds have also dramatically outperformed international value funds so there is no need to rely on those companies. US stocks outperformed in every category.
(Vanguard Value) VTV's top holding is Microsoft.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by Valuethinker » Sun Oct 21, 2018 3:43 pm

jeffyscott wrote:
Sun Oct 21, 2018 9:38 am
Valuethinker wrote:
Sun Oct 21, 2018 9:32 am
And who, exactly, is going to look after all these 80 90 100 something retirees that we will have?

For agricultural labour we will import workers on seasonal contracts. That is how English fruit is picked now.

Perhaps we shall do the same for care workers.
Most likely that, or robots.
It's hard to imagine a robot that will be able to perform intimate care functions. Maybe such is possible and I just don't know about it. Vacuuming? Yes. Personal care? Harder. Robot plumber? Harder still (although you can do some neat things with diagnostics e.g. drones which fly down pipes).

Fruit picking they have automated as far as they can go - the human robot turns out to be (at the moment) the best that can be done and has spent hundreds of thousands of years as a hunter gatherer adapting to the task.

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Re: It's not enough to mumble "Stay the Course"... INT'L Investing has been a disaster!

Post by vitaflo » Sun Oct 21, 2018 4:57 pm

ge1 wrote:
Thu Oct 18, 2018 1:23 pm
That's more than 10 years of earning nothing other than the dividend. Incredible. And the 48 back in 2008 was already down more than 20% from the high in 2007.
You forgot to add "in USD". Currency fluctuations do swing international quite a bit and the dollar has been strong for a long time. The returns we see ex-US are not the same as what other countries do. When the dollar tanks we may very well see outsized International returns even if International doesn't actually do much elsewhere.

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