Doubling down on EM [Emerging Market]

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danaht
Posts: 513
Joined: Sun Oct 18, 2015 11:28 am

Re: Doubling down on EM [Emerging Market]

Post by danaht » Thu Oct 11, 2018 10:37 pm

If it's in a taxable account - I think it might be better to own a total international ETF instead.
Reason: China is close to becoming a "developed" country and may exit VWO in the next decade. Depending on how well Vanguard can swap out the China stocks - this might lead to a large capital gain if not done correctly. Usually ETFs can swap out stocks with other stocks to avoid those capital gains (unlike mutual funds) - but there can be a capital gain in a ETF.

wootwoot
Posts: 167
Joined: Tue Jan 27, 2009 7:37 pm

Re: Doubling down on EM [Emerging Market]

Post by wootwoot » Thu Oct 11, 2018 10:46 pm

danaht wrote:
Thu Oct 11, 2018 10:37 pm
If it's in a taxable account - I think it might be better to own a total international ETF instead.
Reason: China is close to becoming a "developed" country and may exit VWO in the next decade. Depending on how well Vanguard can swap out the China stocks - this might lead to a large capital gain if not done correctly. Usually ETFs can swap out stocks with other stocks to avoid those capital gains (unlike mutual funds) - but there can be a capital gain in a ETF.
That's very speculative. Are you aware of an example where something like this happened in the past?

KJVanguard
Posts: 61
Joined: Fri Oct 05, 2018 3:39 am

Re: Doubling down on EM [Emerging Market]

Post by KJVanguard » Fri Oct 12, 2018 3:41 am

wootwoot wrote:
Thu Oct 11, 2018 10:46 pm
danaht wrote:
Thu Oct 11, 2018 10:37 pm
If it's in a taxable account - I think it might be better to own a total international ETF instead.
Reason: China is close to becoming a "developed" country and may exit VWO in the next decade. Depending on how well Vanguard can swap out the China stocks - this might lead to a large capital gain if not done correctly. Usually ETFs can swap out stocks with other stocks to avoid those capital gains (unlike mutual funds) - but there can be a capital gain in a ETF.
That's very speculative. Are you aware of an example where something like this happened in the past?
Yes, it's pure speculation, but China makes up almost 35% of VWO which would make for one hell of a cap gain to deal with. And China would only move out if they grew up in value, so they would leave at a huge profit. There have been numerous changes to the make up of Vanguard EM since 1994 inception, though this would top them all for magnitude.

I'm not sure China can be a developed Communist country where there is one guy to vote for and if you speak out against him you magically go missing. Is there any dictatorship that is considered a developed nation? I will admit they are the most capitalistic commies I have ever seen though.

Valuethinker
Posts: 36009
Joined: Fri May 11, 2007 11:07 am

Re: Doubling down on EM [Emerging Market]

Post by Valuethinker » Fri Oct 12, 2018 4:39 am

KJVanguard wrote:
Thu Oct 11, 2018 10:25 pm
I assume we have all read "Stocks For The Long Run" which gives us a biased history as written by the winner.

Keep in mind that when the his tale starts in 1802 the US (the ultimate winner for the next couple centuries) was itself a mere frontier market. What investor would touch US stocks in 1812 when British troops were in the process of burning down the White House?
1814 https://en.wikipedia.org/wiki/Burning_of_Washington and the USA was probably the stronger contender in the War of 1812, a war which happened almost by accident and could have been resolved with diplomacy. The Americans thought Canada would be easy pickings at it turned out not to be. Conversely the British probably thought the Americans would prove to be lousy soldiers and sailors (particularly at New Orleans) and they were not. "Don't Give Up the Ship" was coined by US Navy captain in that war, as I recall.

I think both sides were so embarrassed by the whole thing that they negotiated a resolution.
Talk about turmoil and political uncertainty! One could not even feel sure the US would continue to exist. Seems you sometimes get rewarded for investing in a frontier market. Now if you invested in the Russian stock market in 1915, well, things didn't go so great.
1860-65 was existential. So was 1775-1783. The US could have ceased to exist. I am fairly certain that there was no existential threat to the USA in 1812 - the British had neither the will nor the resources to conquer and hold the former colonies. Other significant American wars? 1845 (Mexico) no. 1898 (Spain) definitely no. World War One (no). World War Two threatened the world - the Germans had plans for intercontinental bombers and would eventually presumably have developed the atomic bomb, so yes. Cold War - not in the form it took but of course there was always a risk of a nuclear war, and that would have ended civilization (and maybe the human race).

KJVanguard
Posts: 61
Joined: Fri Oct 05, 2018 3:39 am

Re: Doubling down on EM [Emerging Market]

Post by KJVanguard » Fri Oct 12, 2018 6:03 am

I entirely forgot about the American Civil War. Killed more Americans than any other conflict, and could have torn the nation literally in two. People read about the fantastic returns of US stock market history and give no thought to the VERY tough times we have been though. We started out as a true frontier market that almost became two nations 60 years after "Stocks for the Long Run" starts its tale. I don't recall "Stocks for the long run" even making any mention of the Civil War, as if it were a non-event.

Valuethinker
Posts: 36009
Joined: Fri May 11, 2007 11:07 am

Re: Doubling down on EM [Emerging Market]

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

KJVanguard wrote:
Fri Oct 12, 2018 6:03 am
I entirely forgot about the American Civil War. Killed more Americans than any other conflict, and could have torn the nation literally in two. People read about the fantastic returns of US stock market history and give no thought to the VERY tough times we have been though. We started out as a true frontier market that almost became two nations 60 years after "Stocks for the Long Run" starts its tale. I don't recall "Stocks for the long run" even making any mention of the Civil War, as if it were a non-event.
And there is a play on right now about the history of Lehman Brothers.

3 Jewish brothers of Orthodox faith from Bavaria (then its own kingdom) in the 1840s (?). One finds his way to Mobile, Alabama and begins a farm supply and cotton trading business. Only later was the business relocated to New York to become a share trading business.

If you were an investor in stocks traded on the Mobile or Savannah stock exchanges in 1845 (assuming there were such) you endured the hyperinflation of the Confederate States of America and the economic collapse. You probably had -100% return.

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