What would investors ever choose arbitrary allocation of US/nonUS stocks?

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lazyday
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Joined: Wed Mar 14, 2007 10:27 pm

Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by lazyday » Tue Aug 13, 2019 2:07 pm

HomerJ wrote:
Tue Aug 13, 2019 12:20 pm
kfitz1313 wrote:
Tue Aug 13, 2019 11:06 am
HomerJ wrote:
Tue Aug 13, 2019 9:35 am
Vision wrote:
Mon Aug 12, 2019 4:43 am
You'll also likely hear that overseas reporting for companies are not as strict and therefore riskier to buy into.
This does make sense, for example, China probably faking data, but...isn't that already priced in?
No it's not priced in. Certainly not to the full extent. If you don't know how much they are lying, you can't possibly price it correctly.
I don't know how much Apple is lying either.
False equivalency. But you are welcome to believe they are the same thing, if that makes you feel better.
“No it's not priced in. Certainly not to the full extent.”

Some of us think we know which stocks are too expensive. Some of us are even certain about it.

That’s an example of what I meant in my earlier post when I said “many of us do not always follow Boglehead principles”.

TomCat96
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by TomCat96 » Tue Aug 13, 2019 8:31 pm

Vision wrote:
Mon Aug 12, 2019 3:56 am
If we assume we are not able to time market.

If we assume we are not able to pick stocks.

If we assume we are not able to pick certain sectors.

Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?

I'm talking about people who suggest buying US and non US stocks for your portfolio.

Why wouldn't we make it way simpler, by for example, choosing VT over VTI and VXUS?

Sure we can rebalance annually, but there isn't really a rebalancing bonus for this and it just adds extra friction, so what is the advantage of this separation? Slightly higher expense ratio? I calculated and the difference is peanuts, sometimes the trading fees can be higher.

To be it seems way logical to have 2 fund portfolio: World stock total index vs World bond total index. That is it.

Any input on this would be much appreciated.
Your rationales cut to the heart of what I see in this debate--it becomes an issue of ideological purity.

I am not here to be a purist. I am not here to propound boglehead dogma. I am not a missionary to spread the word.
I got here, like many others, because the evidence converges with what Bogleheads advocate.

I like doing research, I like empirical evidence, and I like to dig deeply. The idea where I must say "well we simply don't know" out of some loyalty to ideology in investing in completely asinine. I don't much care for that fact that simple people require simple dogma to prevent their emotions from running them wild into making stupid financial decisions for themselves. For me there is no value in being called a "true boglehead"

I'm not here to join a club. I am not here to shame others who don't toe the official line of the club.

And here is what I know from my experiences. Yes the markets are hard to time. Hard to know. But not impossible. There is simply no such thing as a totally efficient market. There can be no such thing. We live in a world of finite limitations. That immediately undercuts all the assumptions.
It's the difference between someone like myself saying that what is written about the markets being efficient is 99% true, but not 100%.

That 1% makes all the difference in the world. It means that 99% of the time, I will sit in the market because I cannot outperform the market.
But to assume that the market is this all knowing entity which works regardless of government, regardless of trade barriers, regardless of regulation, regardless of tax regime, regardless of corruption, is just crazy and it's wrong.

The market does not guarantee your performance. There is no guarantee that an investment in Soviet Russia in the 80s would have been properly priced so that the compensation for undertaking risky investments there would be rewarded over less risky investments elsewhere. The market is not there to guarantee your performance.

Not all additional risk assumed is compensated for.

I cannot invest in Venezeula and say, "the market must adequately compensate me for extra risk I am assuming by investing in this place. To suggest otherwise is to suggest the market is inefficient." Yes the markets are inefficient. Yes yes yes.

In an efficient market, investors would look at Venezuela and think, my god, I'm not buying stock here. It's too risky.
By not buying stock, Venezuelan securities should drop in price in response to the low demand. They should keep dropping until risk is adequately compensated for. Basic Econ.

Can you think of anything wrong with that? It's simple. Regimes are not companies. They can and will protect themselves. They can and will protect themselves in ways that the market cannot correct for. If am Venezuela I might find it in my interest to prop up my own securities. I can prop it up more than the lack of external demand can cause it to fall. How can I do that? Because the market is not efficient. Yes yes yes.

The markets power to adequately price is not infinite. The market isn't infinite. If the market was infinitely efficient, then even sovereign Venezuela would NOT have the power to unilaterally move the price of its own securities.

So the assumptions are immediately wrong.
This framing "Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?" can be answered simply.

It's because we can see fire where there is smoke. We can see where we're being taken for a ride. If a country, say Japan decides to print tons of money and purchase its own securities in the Nikkei 225, that raises a flag. No the market cannot correct for this. The International investors may not own enough securities to even sell.

Some of you conflate this argument by arguing the United States isn't perfect. That argument assumes a little corruption is equivalent to any amount of corruption. Once again, this goes to the heart of me saying the market is 99% efficient---efficient enough I don't try to trade in and out of US stocks on a daily basis, but NO the market is NOT efficient enough to handle rampant extreme corruption where information is stifled.


Poor information flow = inefficient markets.

There are legitimate reasons for investing in International Stocks. Structural diversification being the most compelling to me. Another one is the potential for long term economic stagnation in one's home country.

But ideological purity is not one of them. The arguments I see propounded for International stocks make no sense. They attack those who dare to know the market is not efficient. Count me as one of those who dare.

"Not being a true boglehead" is NOT a legitimate reason to invest in international stocks.

A final word on Ideological purity.

Those who advocate for the market weight in international stocks, quickly withdraw those market weight arguments when it comes to the full ambit of global valuations of all global assets. 50/50 for US -International is quickly withdrawn when it comes to adding in derivatives, bitcoin, commodities, real estate, and the global weight of bonds relative to stocks.

That strikes me as very impure ideologically. Portfolios are not evaluated based on piecemeal analysis. They must be evaluated as whole. You cannot actually derive the benefit of the "wisdom of the market" without actually taking into account the "wisdom of the market", i.e. the global allocation of all assets in view of each other.

bluquark
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by bluquark » Tue Aug 13, 2019 9:34 pm

TomCat96 wrote:
Tue Aug 13, 2019 8:31 pm
I cannot invest in Venezeula and say, "the market must adequately compensate me for extra risk I am assuming by investing in this place. To suggest otherwise is to suggest the market is inefficient." Yes the markets are inefficient. Yes yes yes.

In an efficient market, investors would look at Venezuela and think, my god, I'm not buying stock here. It's too risky.
That's pretty much what is happening. As far as I can find, there exists no ETF that provides direct exposure to Venezuela. Not only stocks, but even sovereign bonds are left out of the EM bond ETFs (there exists an index containing venezuela bonds, but without any fund tracking it). I realize you're trying to use extreme examples to clarify your point, but it undermines your argument about market inefficiency. In fact, the markets available to a small-time US investor are efficient enough that they agree with you on the severe regulatory issues and stay away from Venezuela.

There are vastly different tiers of regulatory issues between Developed, Emerging, Frontier, and "not investible at all unless you go there and hand somebody a wad of cash". Boglehead arguments sometimes talk about international stocks as though they were mostly on the sketchy end, even though almost 90% of a typical ex-US index fund consists of Developed Large-Cap, and none of it is Frontier or lower.

lazyday
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by lazyday » Wed Aug 14, 2019 6:27 am

(1) Ideological Purity
TomCat96 wrote:
Tue Aug 13, 2019 8:31 pm
I am not here to be a purist.
I think it’s important to admit to ourselves when we are making bets with our money.

I’m a US investor with 90% of my equity outside of the US. This is a bet. I don’t just tell a story and pretend that I’m following principles of diversification. I am not following those principles. By avoiding the largest equity market, I am taking on concentration risk. This could turn out badly. I’ve put some thought into how this can affect my portfolio and my life.

Human nature is such that most people who make investing bets are worse off than if they just owned the market. I believe that my bet is an exception. Just like everyone else who makes bets believes.
I don't much care for that fact that simple people require simple dogma to prevent their emotions from running them wild into making stupid financial decisions for themselves.
I believe that the dogma and even groupthink on this forum have saved many investors from themselves, preventing financial loss and heartache.

You don’t need to be simple to make behavioral errors. Brilliant people are still people, and make huge mistakes.

lazyday
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by lazyday » Wed Aug 14, 2019 6:31 am

(2) Investable Asset Classes
TomCat96 wrote:
Tue Aug 13, 2019 8:31 pm
Not all additional risk assumed is compensated for.

I cannot invest in Venezeula and say, "the market must adequately compensate me for extra risk I am assuming by investing in this place….”
Not all assets should be included in the portfolio. If there were a Venezuela fund, that might be an example.

Some people believe that EM is not an investable asset class. While I think they’re likely making a mistake, I might understand how they have that opinion.
The arguments I see propounded for International stocks make no sense. They attack those who dare to know the market is not efficient.
Some people won’t even invest in developed markets other than the US. I can’t see any reasonable financial reason to do this. It’s a huge bet, and with today’s valuations, one that might be very costly.

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HomerJ
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by HomerJ » Wed Aug 14, 2019 2:56 pm

lazyday wrote:
Wed Aug 14, 2019 6:27 am
You don’t need to be simple to make behavioral errors. Brilliant people are still people, and make huge mistakes.
Heh, look at Isaac Newton... Lost $3 million (in 2003 dollars) in the South Sea Company.
Isaac Newton was one of the smartest people to ever live.
But there's a big difference between being a smart physicist and smart investor.

And, unfortunately for him, Newton learned that the hard way.

In an updated and annotated text of Benjamin Graham's classic " The Intelligent Investor," WSJ's Jason Zweig included a small anecdote about Newton's adventures with investing the South Sea Company:

"Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ' could calculate the motions of the heavenly bodies, but not the madness of the people.' Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003's] money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."
The J stands for Jay

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Vision
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by Vision » Wed Aug 21, 2019 4:34 am

The idea where I must say "well we simply don't know" out of some loyalty to ideology in investing in completely asinine.
But average people truly "simply don't know". I've been following markets for 5+ years now and I admit I am too dumb for this, I "simply don't know". Assuming this, I also "simply don't know" if US will outperform exUS in future. So assuming that doesn't it make most rational sense for me to simply invest in total world index and be done with it? Not out of ideology, but out of rational admitting my circle of competence does not include stock, sector picking?

TaxingAccount
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by TaxingAccount » Wed Aug 21, 2019 5:27 am

.....
Last edited by TaxingAccount on Wed Aug 21, 2019 5:53 am, edited 8 times in total.

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Tamarind
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by Tamarind » Wed Aug 21, 2019 5:34 am

I'd love to, however like most people my 401k (and DW's) do not contain a total world fund and have international funds that are *much* more expensive (or absent) than the Vanguard equivalents even though we have access to cheap total US or S&P500 funds. As a result we choose to hold our international stocks (and some extended market) in our Roth space.

I could keep up with the VT ratio of US/world as it floats but not interested in rebalancing often.

Once we have access to VT in an account with sufficient space for our stock allocation I think we'll use it.

bluquark
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by bluquark » Wed Aug 21, 2019 5:56 pm

Tamarind wrote:
Wed Aug 21, 2019 5:34 am
I could keep up with the VT ratio of US/world as it floats but not interested in rebalancing often.
A two-fund portfolio starting at the same ratio as VT will track VT on its own, except for dividends and new investments. That's the beauty of market cap indexing, it's transaction-free whether within funds or between them. It's rather the fixed domestic/intl ratios that require rebalancing.

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Tamarind
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by Tamarind » Wed Aug 21, 2019 11:53 pm

bluquark wrote:
Wed Aug 21, 2019 5:56 pm
Tamarind wrote:
Wed Aug 21, 2019 5:34 am
I could keep up with the VT ratio of US/world as it floats but not interested in rebalancing often.
A two-fund portfolio starting at the same ratio as VT will track VT on its own, except for dividends and new investments. That's the beauty of market cap indexing, it's transaction-free whether within funds or between them. It's rather the fixed domestic/intl ratios that require rebalancing.
This is true and a good point, but as an accumulator my new Investments greatly outweigh the movements of the funds, and I prefer to have my contributions on autopilot so I am effectively using a fixed ratio.. I definitely agree that for the retired investor who has got all of their money in accounts where they control the investment options, VT is the way to go.

simas
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by simas » Thu Aug 22, 2019 4:10 pm

JoMoney wrote:
Mon Aug 12, 2019 8:05 am
For a US investor, international stocks have higher costs to manage the portfolio/fund, foreign tax withholding, domestic tax considerations, as well as exposing the investor to different risks (like sovereign/currency risk... and more). On top of that, the US stock market is pretty well diversified as it is, is denominated in U.S. dollars (a currency that may have issues, but is still the leader), is filled with multi-national companies that have plenty of exposure to foreign economic activity, and dominated by larger market-cap less volatile stocks.
I don't get the justification why other U.S. investors feel compelled to own international stocks.
I think the bolded part below is changing as nature of multi-nationals come in conflict with what countries do when they compete. No country will allow foreign agent with any control over its data, its citizens data, its infrastructure, its communication, etc. - to do so is to place yourself at major disadvantage (if a legal/law enforcement body of another country could order any corporation to do pretty much anything at all, why trust such corporation or its products in your territory?) if for example executive order could stop all updates for 'free' Android OS because US is trying to gain advantage in its trade talks with China, why use Android at all? that is why EU and every other player putting protections in place to disable such abuse of multinationals by anyone and I think the strength of such corporation would decline as they would have to break up in order to continue to operate in different jurisdictions that directly complete with each other...

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JoMoney
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by JoMoney » Thu Aug 22, 2019 7:40 pm

simas wrote:
Thu Aug 22, 2019 4:10 pm
JoMoney wrote:
Mon Aug 12, 2019 8:05 am
For a US investor, international stocks have higher costs to manage the portfolio/fund, foreign tax withholding, domestic tax considerations, as well as exposing the investor to different risks (like sovereign/currency risk... and more). On top of that, the US stock market is pretty well diversified as it is, is denominated in U.S. dollars (a currency that may have issues, but is still the leader), is filled with multi-national companies that have plenty of exposure to foreign economic activity, and dominated by larger market-cap less volatile stocks.
I don't get the justification why other U.S. investors feel compelled to own international stocks.
I think the bolded part below is changing as nature of multi-nationals come in conflict with what countries do when they compete. No country will allow foreign agent with any control over its data, its citizens data, its infrastructure, its communication, etc. - to do so is to place yourself at major disadvantage (if a legal/law enforcement body of another country could order any corporation to do pretty much anything at all, why trust such corporation or its products in your territory?) if for example executive order could stop all updates for 'free' Android OS because US is trying to gain advantage in its trade talks with China, why use Android at all? that is why EU and every other player putting protections in place to disable such abuse of multinationals by anyone and I think the strength of such corporation would decline as they would have to break up in order to continue to operate in different jurisdictions that directly complete with each other...
The EU's data privacy regulations apply to EU "only" businesses too, not just multi-nationals... I could understand someone saying they don't want to own IT companies that operate in the EU space because of the regulations, but as far as I can tell there's no advantage being given to EU companies on that front, if you could even somehow distinguish between what makes a company a EU only company vs a multi-national that operates in the EU and other countries.
I'm sure there are tariffs and some regulatory advantages countries do have to their "home" businesses, but that is usually tied to where the product is manufactured and where taxes are paid.... even then, it's a very tenuous definition of what makes a company a part of any particular country. There's more than a handful of stocks int he S&P 500, traded on the U.S. market, that have their headquarters in the EU (many in Ireland).... and probably most do their manufacturing all over the place.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Vision
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by Vision » Fri Aug 23, 2019 10:37 am

TomCat96 wrote:
Tue Aug 13, 2019 8:31 pm
Vision wrote:
Mon Aug 12, 2019 3:56 am
If we assume we are not able to time market.

If we assume we are not able to pick stocks.

If we assume we are not able to pick certain sectors.

Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?

I'm talking about people who suggest buying US and non US stocks for your portfolio.

Why wouldn't we make it way simpler, by for example, choosing VT over VTI and VXUS?

Sure we can rebalance annually, but there isn't really a rebalancing bonus for this and it just adds extra friction, so what is the advantage of this separation? Slightly higher expense ratio? I calculated and the difference is peanuts, sometimes the trading fees can be higher.

To be it seems way logical to have 2 fund portfolio: World stock total index vs World bond total index. That is it.

Any input on this would be much appreciated.
Your rationales cut to the heart of what I see in this debate--it becomes an issue of ideological purity.

I am not here to be a purist. I am not here to propound boglehead dogma. I am not a missionary to spread the word.
I got here, like many others, because the evidence converges with what Bogleheads advocate.

I like doing research, I like empirical evidence, and I like to dig deeply. The idea where I must say "well we simply don't know" out of some loyalty to ideology in investing in completely asinine. I don't much care for that fact that simple people require simple dogma to prevent their emotions from running them wild into making stupid financial decisions for themselves. For me there is no value in being called a "true boglehead"

I'm not here to join a club. I am not here to shame others who don't toe the official line of the club.

And here is what I know from my experiences. Yes the markets are hard to time. Hard to know. But not impossible. There is simply no such thing as a totally efficient market. There can be no such thing. We live in a world of finite limitations. That immediately undercuts all the assumptions.
It's the difference between someone like myself saying that what is written about the markets being efficient is 99% true, but not 100%.

That 1% makes all the difference in the world. It means that 99% of the time, I will sit in the market because I cannot outperform the market.
But to assume that the market is this all knowing entity which works regardless of government, regardless of trade barriers, regardless of regulation, regardless of tax regime, regardless of corruption, is just crazy and it's wrong.

The market does not guarantee your performance. There is no guarantee that an investment in Soviet Russia in the 80s would have been properly priced so that the compensation for undertaking risky investments there would be rewarded over less risky investments elsewhere. The market is not there to guarantee your performance.

Not all additional risk assumed is compensated for.

I cannot invest in Venezeula and say, "the market must adequately compensate me for extra risk I am assuming by investing in this place. To suggest otherwise is to suggest the market is inefficient." Yes the markets are inefficient. Yes yes yes.

In an efficient market, investors would look at Venezuela and think, my god, I'm not buying stock here. It's too risky.
By not buying stock, Venezuelan securities should drop in price in response to the low demand. They should keep dropping until risk is adequately compensated for. Basic Econ.

Can you think of anything wrong with that? It's simple. Regimes are not companies. They can and will protect themselves. They can and will protect themselves in ways that the market cannot correct for. If am Venezuela I might find it in my interest to prop up my own securities. I can prop it up more than the lack of external demand can cause it to fall. How can I do that? Because the market is not efficient. Yes yes yes.

The markets power to adequately price is not infinite. The market isn't infinite. If the market was infinitely efficient, then even sovereign Venezuela would NOT have the power to unilaterally move the price of its own securities.

So the assumptions are immediately wrong.
This framing "Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?" can be answered simply.

It's because we can see fire where there is smoke. We can see where we're being taken for a ride. If a country, say Japan decides to print tons of money and purchase its own securities in the Nikkei 225, that raises a flag. No the market cannot correct for this. The International investors may not own enough securities to even sell.

Some of you conflate this argument by arguing the United States isn't perfect. That argument assumes a little corruption is equivalent to any amount of corruption. Once again, this goes to the heart of me saying the market is 99% efficient---efficient enough I don't try to trade in and out of US stocks on a daily basis, but NO the market is NOT efficient enough to handle rampant extreme corruption where information is stifled.


Poor information flow = inefficient markets.

There are legitimate reasons for investing in International Stocks. Structural diversification being the most compelling to me. Another one is the potential for long term economic stagnation in one's home country.

But ideological purity is not one of them. The arguments I see propounded for International stocks make no sense. They attack those who dare to know the market is not efficient. Count me as one of those who dare.

"Not being a true boglehead" is NOT a legitimate reason to invest in international stocks.

A final word on Ideological purity.

Those who advocate for the market weight in international stocks, quickly withdraw those market weight arguments when it comes to the full ambit of global valuations of all global assets. 50/50 for US -International is quickly withdrawn when it comes to adding in derivatives, bitcoin, commodities, real estate, and the global weight of bonds relative to stocks.

That strikes me as very impure ideologically. Portfolios are not evaluated based on piecemeal analysis. They must be evaluated as whole. You cannot actually derive the benefit of the "wisdom of the market" without actually taking into account the "wisdom of the market", i.e. the global allocation of all assets in view of each other.
I agree with everything, but you say you like "doing research". So you are researching and acquiring additional info. Why would I, love IQ Average Joe, apply same rules to my investment decisions. I don't know how to do research, I don't have any additional info or inside info. I don't have financial experience. So why wouldn't my world index buying approach work? Can you explain?

TomCat96
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Re: What would investors ever choose arbitrary allocation of US/nonUS stocks?

Post by TomCat96 » Fri Aug 23, 2019 11:37 am

Vision wrote:
Fri Aug 23, 2019 10:37 am
TomCat96 wrote:
Tue Aug 13, 2019 8:31 pm
Vision wrote:
Mon Aug 12, 2019 3:56 am
If we assume we are not able to time market.

If we assume we are not able to pick stocks.

If we assume we are not able to pick certain sectors.

Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?

I'm talking about people who suggest buying US and non US stocks for your portfolio.

Why wouldn't we make it way simpler, by for example, choosing VT over VTI and VXUS?

Sure we can rebalance annually, but there isn't really a rebalancing bonus for this and it just adds extra friction, so what is the advantage of this separation? Slightly higher expense ratio? I calculated and the difference is peanuts, sometimes the trading fees can be higher.

To be it seems way logical to have 2 fund portfolio: World stock total index vs World bond total index. That is it.

Any input on this would be much appreciated.
Your rationales cut to the heart of what I see in this debate--it becomes an issue of ideological purity.

I am not here to be a purist. I am not here to propound boglehead dogma. I am not a missionary to spread the word.
I got here, like many others, because the evidence converges with what Bogleheads advocate.

I like doing research, I like empirical evidence, and I like to dig deeply. The idea where I must say "well we simply don't know" out of some loyalty to ideology in investing in completely asinine. I don't much care for that fact that simple people require simple dogma to prevent their emotions from running them wild into making stupid financial decisions for themselves. For me there is no value in being called a "true boglehead"

I'm not here to join a club. I am not here to shame others who don't toe the official line of the club.

And here is what I know from my experiences. Yes the markets are hard to time. Hard to know. But not impossible. There is simply no such thing as a totally efficient market. There can be no such thing. We live in a world of finite limitations. That immediately undercuts all the assumptions.
It's the difference between someone like myself saying that what is written about the markets being efficient is 99% true, but not 100%.

That 1% makes all the difference in the world. It means that 99% of the time, I will sit in the market because I cannot outperform the market.
But to assume that the market is this all knowing entity which works regardless of government, regardless of trade barriers, regardless of regulation, regardless of tax regime, regardless of corruption, is just crazy and it's wrong.

The market does not guarantee your performance. There is no guarantee that an investment in Soviet Russia in the 80s would have been properly priced so that the compensation for undertaking risky investments there would be rewarded over less risky investments elsewhere. The market is not there to guarantee your performance.

Not all additional risk assumed is compensated for.

I cannot invest in Venezeula and say, "the market must adequately compensate me for extra risk I am assuming by investing in this place. To suggest otherwise is to suggest the market is inefficient." Yes the markets are inefficient. Yes yes yes.

In an efficient market, investors would look at Venezuela and think, my god, I'm not buying stock here. It's too risky.
By not buying stock, Venezuelan securities should drop in price in response to the low demand. They should keep dropping until risk is adequately compensated for. Basic Econ.

Can you think of anything wrong with that? It's simple. Regimes are not companies. They can and will protect themselves. They can and will protect themselves in ways that the market cannot correct for. If am Venezuela I might find it in my interest to prop up my own securities. I can prop it up more than the lack of external demand can cause it to fall. How can I do that? Because the market is not efficient. Yes yes yes.

The markets power to adequately price is not infinite. The market isn't infinite. If the market was infinitely efficient, then even sovereign Venezuela would NOT have the power to unilaterally move the price of its own securities.

So the assumptions are immediately wrong.
This framing "Why do we assume we are suddenly capable and knowledgeable enough to pick right ratios geographically?" can be answered simply.

It's because we can see fire where there is smoke. We can see where we're being taken for a ride. If a country, say Japan decides to print tons of money and purchase its own securities in the Nikkei 225, that raises a flag. No the market cannot correct for this. The International investors may not own enough securities to even sell.

Some of you conflate this argument by arguing the United States isn't perfect. That argument assumes a little corruption is equivalent to any amount of corruption. Once again, this goes to the heart of me saying the market is 99% efficient---efficient enough I don't try to trade in and out of US stocks on a daily basis, but NO the market is NOT efficient enough to handle rampant extreme corruption where information is stifled.


Poor information flow = inefficient markets.

There are legitimate reasons for investing in International Stocks. Structural diversification being the most compelling to me. Another one is the potential for long term economic stagnation in one's home country.

But ideological purity is not one of them. The arguments I see propounded for International stocks make no sense. They attack those who dare to know the market is not efficient. Count me as one of those who dare.

"Not being a true boglehead" is NOT a legitimate reason to invest in international stocks.

A final word on Ideological purity.

Those who advocate for the market weight in international stocks, quickly withdraw those market weight arguments when it comes to the full ambit of global valuations of all global assets. 50/50 for US -International is quickly withdrawn when it comes to adding in derivatives, bitcoin, commodities, real estate, and the global weight of bonds relative to stocks.

That strikes me as very impure ideologically. Portfolios are not evaluated based on piecemeal analysis. They must be evaluated as whole. You cannot actually derive the benefit of the "wisdom of the market" without actually taking into account the "wisdom of the market", i.e. the global allocation of all assets in view of each other.
I agree with everything, but you say you like "doing research". So you are researching and acquiring additional info. Why would I, love IQ Average Joe, apply same rules to my investment decisions. I don't know how to do research, I don't have any additional info or inside info. I don't have financial experience. So why wouldn't my world index buying approach work? Can you explain?

While I maintain a 100% US position, I recommend a general lifecycle fund to friends.

There's lots of reasons for this. I take a risk to grow my investments in manner that is calculated, but at this point the international position holds a special status. It is an emotionally defaulted position.

In other words, once international and its allocation became the emotionally defaulted position, that's the position that people will emotionally rally around.

Did better than the allocation of US/nonUS stock. You took a risk. You took one, and you got lucky.
Did worse than the allocation of US/nonUS stock. You're an idiot. You dared to know better than the market. It just goes to show the market knows best.

Once that position sets in the minds of the investing community as the default, you're going to be "liable" to not just yourself, but whoever else is taking advice from you, whoever else is listening to you. You will faulted and blamed for underperformance.

One counter-argument the pro-international community simply does not accept is underperformance. How do they process the US out-performance? Luck. Just as one can pick a stock and do better than the S&P 500, one can pick a country and do better than the international market.

That is an emotionally defaulted position. I'll take a risk for my own portfolio. But no way I'm risking any manner of flack for other people.

I have a very very powerful emotional subjective reason to give people who ask me a certain kind of advice. Not all numbers or allocations are equal. Mathematically, the allocation of US/nonUS stock is arbitrary. Just one ratio among a myriad of others. But practically speaking, it most certainly is not. That allocation is enshrined with special status.

Now I can be neutral and fact driven concerning my own affairs, my own money. I have no problem holding myself to account of my own risks. I'm not shy to admit that I'm taking a risk.

But if any lay person asks, I'm going to relay to them the emotionally defaulted position. I'll confirm their biases. They're taking a risk too.

The difference is, It just won't feel like it.

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