For those concerned about International Stocks...

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
visualguy
Posts: 2073
Joined: Thu Jan 30, 2014 1:32 am

Re: For those concerned about International Stocks...

Post by visualguy »

Semantics wrote: Mon Sep 14, 2020 9:50 pm I don't know why people are citing data from the 1970s. Totally irrelevant to today's globalized and connected world. US has outperformed because big US companies have been siphoning trillions of dollars out of other countries, dominating in those markets just like they've dominated at home (where small cap value has also underperformed). Barring a major change in the world order, I see no reason to invest anywhere other than the US and China for the foreseeable future, although I do hold a few emerging markets tech stocks like SE as well.
Right, but an added dimension is that US administrations have a history of targeting foreign countries economically when an economic threat is perceived. This happened in the 1980s when the US took on Japan, and now with China. This makes ex-US investment even more questionable. Do you want to bet that the reaction of the US to a rising power won't be effective? The US has powerful tools at its disposal (that other countries don't) as we've seen with both Japan and China.

For example, you mentioned that there may be reason to invest in the Chinese stock market. Indeed, but do you want to take the risk when considering the economic war that's going on? Even if I was willing to take the risk, it would be with such a small part of my portfolio that it wouldn't be worth the trouble and complexity. Similarly, if Europe suddenly became much stronger and an economic threat (unlikely, I know), you would have to worry about the US reaction to that if you invest there.

Like you basically said, barring a major change in the world order and financial system, the cards are ultimately stacked against you as an ex-US investor, and such a change in the world order isn't on the horizon by any means.
tibbitts
Posts: 11537
Joined: Tue Feb 27, 2007 6:50 pm

Re: For those concerned about International Stocks...

Post by tibbitts »

visualguy wrote: Tue Sep 15, 2020 12:02 am Like you basically said, barring a major change in the world order and financial system, the cards are ultimately stacked against you as an ex-US investor, and such a change in the world order isn't on the horizon by any means.
The problem is that nobody is going to send you a memo telling you when a change in the world order is on the horizon. It will only be obvious long after it's occurred.
visualguy
Posts: 2073
Joined: Thu Jan 30, 2014 1:32 am

Re: For those concerned about International Stocks...

Post by visualguy »

tibbitts wrote: Tue Sep 15, 2020 12:08 am
visualguy wrote: Tue Sep 15, 2020 12:02 am Like you basically said, barring a major change in the world order and financial system, the cards are ultimately stacked against you as an ex-US investor, and such a change in the world order isn't on the horizon by any means.
The problem is that nobody is going to send you a memo telling you when a change in the world order is on the horizon. It will only be obvious long after it's occurred.
Between a bet on an upset in world order within my limited remaining lifetime, and a bet on no upset, I know where I would place my bet. No meaningful dilemma there at all. 50 years from now, or 100 years from now - who knows. The next few decades - nope.
User avatar
Stef
Posts: 1121
Joined: Thu Oct 10, 2019 10:13 am

Re: For those concerned about International Stocks...

Post by Stef »

So and why shouldn't all of this not be priced in? Are markets that inefficient? If so, why bother with index funds?
Valuethinker
Posts: 40971
Joined: Fri May 11, 2007 11:07 am

Re: For those concerned about International Stocks...

Post by Valuethinker »

visualguy wrote: Tue Sep 15, 2020 12:02 am
Semantics wrote: Mon Sep 14, 2020 9:50 pm I don't know why people are citing data from the 1970s. Totally irrelevant to today's globalized and connected world. US has outperformed because big US companies have been siphoning trillions of dollars out of other countries, dominating in those markets just like they've dominated at home (where small cap value has also underperformed). Barring a major change in the world order, I see no reason to invest anywhere other than the US and China for the foreseeable future, although I do hold a few emerging markets tech stocks like SE as well.
Right, but an added dimension is that US administrations have a history of targeting foreign countries economically when an economic threat is perceived. This happened in the 1980s when the US took on Japan, and now with China. This makes ex-US investment even more questionable. Do you want to bet that the reaction of the US to a rising power won't be effective? The US has powerful tools at its disposal (that other countries don't) as we've seen with both Japan and China.

For example, you mentioned that there may be reason to invest in the Chinese stock market. Indeed, but do you want to take the risk when considering the economic war that's going on? Even if I was willing to take the risk, it would be with such a small part of my portfolio that it wouldn't be worth the trouble and complexity. Similarly, if Europe suddenly became much stronger and an economic threat (unlikely, I know), you would have to worry about the US reaction to that if you invest there.

Like you basically said, barring a major change in the world order and financial system, the cards are ultimately stacked against you as an ex-US investor, and such a change in the world order isn't on the horizon by any means.
This line of argument confuses being the global hegemonic power, with the performance of its stockmarket.

Great Britain spent the first half of the 20th century bleeding away its economic, military and political power. Nonetheless you can find plenty of powerful multinationals that are still listed in London. Glaxo Smithkline, Astra Zeneca, Royal Dutch Shell, British American Tobacco, Diageo, Unilever.

One has to take an Efficient Market view - the market knows the right valuations of stocks, as best as anyone does (who is not a corporate insider).

The real question is much narrower. Do the US internet stocks continue their headlong growth & dominance (which is not mirrored in the Chinese market for all of them)? Because if we think mining shares are going to do well, for example, then you want to own UK & Australian stock markets in particular.

US market success has been, since 2008, about those big 5 tech stocks + financials (wh have done much better than their European or Asian counterparts). The market has pushed these stocks to high valuations but, so far, earnings growth has justified it. It feels very "Nifty Fifty" the "one Decision stocks" tbh (i.e. early 1970s).

Nigeria. India. Ethiopia. Bangladesh & Pakistan. These are the countries of the demographic future of the planet. Those are the ones to keep an eye on. More than 1/4 of us are going to be African by the end of the century.
3funder
Posts: 1415
Joined: Sun Oct 15, 2017 9:35 pm

Re: For those concerned about International Stocks...

Post by 3funder »

rj49 wrote: Tue Apr 21, 2020 4:59 pm When Bogle wrote, the US was on its way to a historic bubble, after another historic bubble had deflated in Japan, and most of what he wrote was before the economic rise of the BRIC countries (Brazil, Russia, Indian, China). His SP500 approach looked good in the 1990s, not so good the next decade. Do you buy only US-made goods from a local store, even though they're more expensive and choice limited? Or do you buy things on Amazon that are cheaper because they made and sold elsewhere? Much of what you buy in a grocery store is also owned by Uniliver and Nestle, including pet food, so 'the US is good enough for me' isn't a consistent argument, just blind home bias. You're saying that Tesla and GM are better companies than Toyota, and that Exxon oil is superior to BP and Shell and that Johnson&Johnson is better than Roche and Sanofi and Apple better than Samsung, and that you're willing to pay significantly more to own the 3500 companies TSM (17 p/e) and ignore the 7500 companies in TI (12.5 p/e).

Japanese investors probably thought "Japan is good enough for me" when their economy was dominating the world and they were buying up Pebble Beach and US properties everywhere, and many Japanese investors probably saw the US as lazy and backwards, like current fears and generalizations about other countries (anyway you're not investing in countries, you're investing in companies that make oil and semiconductors and food and medicine). The Japanese example should give you even more pause, since they've had decades of persistent deflation, compounded by an aging population and a younger generation with a less-dedicated work ethic. With oil shocks and mass unemployment and few people willing or able to spend money on anything now, it would seem quite possible that the US could repeat Japan's problems. To me, that's a foolish risk to take, since you're able to diversify into the rest of the world's companies at a ridiculously low expense (and with a generous dividend and tax credit bonus). It's definitely a scary time to invest anywhere, particularly in fragile EM economies, but then buying low and selling high with diversification is what investing's all about.
I couldn’t agree more.
whereskyle
Posts: 1202
Joined: Wed Jan 29, 2020 10:29 am

Re: For those concerned about International Stocks...

Post by whereskyle »

GaryA505 wrote: Mon Sep 14, 2020 10:37 am Using Portfolio Visualizer, since 1986 ex-us equity has under-performed US equity by 3.74% per year. That's 34 years.
$10,000 in 1986 would now be $322,348 for US and $281,570 for ex-US.
So, how many years would ex-US equity now need to out-perform US equity just to break even, and if that happens, will you or your immediate heirs still be alive? My point is that, assuming there is a cycle, if the full period of this cycle is 100 years, what good is that to anyone alive now?

Maybe someone has data that goes farther back.
If someone is investing now, it makes no difference to them how long it would take ex-us going forward to outperform US going back to 1986. All that matters to them is whether ex-us outperforms US from here on out.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Robot Monster
Posts: 1422
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: For those concerned about International Stocks...

Post by Robot Monster »

GaryA505 wrote: Mon Sep 14, 2020 9:33 pm
Robot Monster wrote: Mon Sep 14, 2020 1:45 pm
abuss368 wrote: Mon Sep 14, 2020 1:27 pm
Robot Monster wrote: Mon Sep 14, 2020 12:05 pm
GaryA505 wrote: Mon Sep 14, 2020 11:24 am Does anyone have the CAGR for US and ex-US for 1970-present?
I have both. I keep the US CAGR on a display shelf next to a bunch of trophies. The ex-US CAGR I've got to wipe off from the bottom of my shoe with a stick.
Priceless! I believe international outperformed US during the 2000 - 2010 years correct?
True, but that ended a whole ten years ago, and that period only lasted ten years, so...not sure where I was going with this...
I would love to see the data back as far as we can go, I really would.

I keep thinking 2-horse race analogies. Would you bet on the horse that has won most of the time, even though you know that means you'll be losing those races when the other horse sometimes wins? Or, in the interest of "diversification" and not making predictions, would you bet on them both 50% in every race?
Here's some data on those horses.

Image

You should also consider how historically pricey US vs ex-US has been when looking at past performance. Historical CAPE ratios:

Image
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
Bernmaster
Posts: 3
Joined: Tue Feb 18, 2020 2:29 pm

Re: For those concerned about International Stocks...

Post by Bernmaster »

It is literally funny how different the perspective of US/non-US investors is on this subject.

If you ask European investors they will say that they are worried because the market cap weighted world stock market now is "more than 50% overvalued US stocks".

If you ask US investors they will say that they are worried because the market cap weighted world stock market now is "nearly 50% badly performing non-US stocks"

Guess that's perspective. In my opinion the market cap weighted world stock portfolio is the most rational, simple and sophisticated solution.
cjking
Posts: 1933
Joined: Mon Jun 30, 2008 4:30 am

Re: For those concerned about International Stocks...

Post by cjking »

visualguy wrote: Sun Sep 13, 2020 5:21 pm The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.
4% nominal does sound surprisingly low to me, so I went to Vanguard US funds page to see which fund you were talking about. There is one with 4% return since inception, VTMGX. Though inception was 20 years ago, not 30, so maybe you mean something else. Anyway, on the assumption that was what you meant, and noticing that it had the a very unfortunate start date, August 1999, I calculated the S&P 500 for comparison. According to the first calculator google found for me, over the same period, SP500 delivered 6.6% nominal.

I wonder if 6.6% nominal was the figure you had in your head for long term US equity performance, when you were disliking 4%.
bogledogle87
Posts: 249
Joined: Wed Sep 26, 2018 7:03 pm

Re: For those concerned about International Stocks...

Post by bogledogle87 »

visualguy wrote: Tue Sep 15, 2020 12:02 am Like you basically said, barring a major change in the world order and financial system, the cards are ultimately stacked against you as an ex-US investor, and such a change in the world order isn't on the horizon by any means.
Sounds like you might be the perfect client for RWUI (Direxion FTSE Russell US Over International ETF). At 150 % Long US / 50% Short International, the net leverage is 0% and you get a sweet boost for US dominance over International, well in excess of the expense ratio. Plus, it is only recalibrated monthly, so it should trim out some of the volatility that might occur when investors accidentally pay too much for international and cause it to temporarily outperform the invincible US market.

If I were steadfast in my convictions of continued US superiority, I would be all over a fund like this. What is there to lose?

Image
VTWAX and chill
Valuethinker
Posts: 40971
Joined: Fri May 11, 2007 11:07 am

Re: For those concerned about International Stocks...

Post by Valuethinker »

Bernmaster wrote: Fri Sep 18, 2020 2:29 am It is literally funny how different the perspective of US/non-US investors is on this subject.

If you ask European investors they will say that they are worried because the market cap weighted world stock market now is "more than 50% overvalued US stocks".

If you ask US investors they will say that they are worried because the market cap weighted world stock market now is "nearly 50% badly performing non-US stocks"

Guess that's perspective. In my opinion the market cap weighted world stock portfolio is the most rational, simple and sophisticated solution.
2 (very good) arguments for US to underweight:

- tax drag - some of the dividend income paid by international companies is not recoverable for tax purposes (no offset so you are in effect tax twiced). Since international stocks have on average higher yields than American ones (I believe) this can be significant over the long run

- currency volatility - although we rail against the belief that investing in stocks in a given currency has no currency risk associated with it (well, I do) it is none the less the case that you probably take on more currency volatility when you invest in stocks outside of your home currency - some sectors are quite domestic (e.g. banking in most countries). Currency risk is a volatility you should not expect additional return for, given that not all investors will have the same risk for a given investment (it matters more or less to different classes of investors)

The broad balance is that if a US investor holds 30% of their equity exposure in non-US stocks, they probably get around the optimum risk-return tradeoff, based on historical data (see various Vanguard papers). It's a shallow curve, though, between 20% & 40% - so anywhere along that line is likely to provide some diversification benefits without incurring excessive, unrewarded volatility

For a non US investor the tradeoff just does not work well. No non US market is sufficiently diversified AFAIK.

For example Canada has about the highest correlation with USA. But 80% of stocks by market cap are 2 sectors: financials (Banks!) and natural resources (primarily oil & gas producers).

UK also has a very high correlation and c 60-70% UK FTSE100 profits are not from GBP sources - primarily USD. However the UK index has almost no technology stocks.

The main problem with not holding USA is not just technology (Taiwan Semiconductor is one of the world's largest tech stocks) but that the really big internet giants that have dominated performance in the last few years - FAANGs + Microsoft - are not present.

If you don't hold the USA then you are taking a big bet against Apple, Alphabet, Amazon, Google, Microsoft. Or in the words of Dirty Harry (Clint Eastwood) "Do you feel lucky today, punk? Have I fired 5 shots? or 6?"
Robot Monster
Posts: 1422
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: For those concerned about International Stocks...

Post by Robot Monster »

cjking wrote: Fri Sep 18, 2020 3:55 am
visualguy wrote: Sun Sep 13, 2020 5:21 pm The concern I always have when looking at the ex-US index is that I find that it damages my trust in the Bogleheads strategy. Here's a very large and diversified index where holding it passively for decades has simply not been a good strategy. A nominal CAGR of less than 4% for the last 30 years is awful, especially when considering the volatility.
4% nominal does sound surprisingly low to me, so I went to Vanguard US funds page to see which fund you were talking about. There is one with 4% return since inception, VTMGX. Though inception was 20 years ago, not 30, so maybe you mean something else. Anyway, on the assumption that was what you meant, and noticing that it had the a very unfortunate start date, August 1999, I calculated the S&P 500 for comparison. According to the first calculator google found for me, over the same period, SP500 delivered 6.6% nominal.

I wonder if 6.6% nominal was the figure you had in your head for long term US equity performance, when you were disliking 4%.
I'm guessing the under 4% figure was calculated using that old standby, everyone's favorite pal, Portfolio Visualizer, which shows a 3.9% CAGR, for global ex-US, from Jan 1990 - Aug 2020.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
Kaktus
Posts: 88
Joined: Sun Apr 10, 2016 1:57 pm

Re: For those concerned about International Stocks...

Post by Kaktus »

Another take on "What did Bogle say?":
When people wanted to bring in the question of allocation between markets Mr. Bogle often started to suddenly sound impatient. My take is that in a really long perspective, it doesnt matter. It turns into mainly a question of political risk, and Jack simply liked very much the US political culture. But when people asked the answer was - just pick an allocation and go with it. Does that make sense?
Also, this leads to another quote from the man:
"Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."
User avatar
Stef
Posts: 1121
Joined: Thu Oct 10, 2019 10:13 am

Re: For those concerned about International Stocks...

Post by Stef »

Bogle also said that you can safely ignore his advice on international investing.
User avatar
Dargo
Posts: 24
Joined: Tue Jun 25, 2019 4:33 pm
Location: State of Mind

Re: For those concerned about International Stocks...

Post by Dargo »

No one really knows what the next 20-30 years will bring. I like. To hedge my best and use the 3 fund 40tsm, 20 total int and 40 total bond. The fact that some days I want to increase international and some days I want to decrease tells me I am in a good place
Life is what happens to you when you are busy making other plans..John Lennon
User avatar
abuss368
Posts: 21071
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: For those concerned about International Stocks...

Post by abuss368 »

Stef wrote: Tue Sep 22, 2020 12:53 am Bogle also said that you can safely ignore his advice on international investing.
Do you have the link to the interview or article?
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
Taylor Larimore
Advisory Board
Posts: 29880
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

"Impatient"

Post by Taylor Larimore »

Kaktus wrote:When people wanted to bring in the question of allocation between markets Mr. Bogle often started to suddenly sound impatient.
Kaktus:

I knew Mr. Bogle well and have read most of his interviews. He was the most patient man I ever met. Can you provide a link to justify your statement ?

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “Your success in investing will depend in part on your character and guts and in part on your ability to realize, at the height of ebullience and the depth of despair alike, that this too, shall pass.”
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
abuss368
Posts: 21071
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: For those concerned about International Stocks...

Post by abuss368 »

Kaktus wrote: Tue Sep 22, 2020 12:33 am Another take on "What did Bogle say?":
When people wanted to bring in the question of allocation between markets Mr. Bogle often started to suddenly sound impatient. My take is that in a really long perspective, it doesnt matter. It turns into mainly a question of political risk, and Jack simply liked very much the US political culture. But when people asked the answer was - just pick an allocation and go with it. Does that make sense?
Also, this leads to another quote from the man:
"Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."
In every Jack Bogle interview that I have ever watched, Mr. Bogle is always very calm with a soothing voice. He never panics or becomes impatient that I recall. Is there an interview on You Tube to support this?
John C. Bogle: “Simplicity is the master key to financial success."
Post Reply