International (Non-US) versus US Equities (The "Arguments")

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SB1234
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by SB1234 »

Da5id wrote: Sun Feb 11, 2024 11:28 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
But given that it is clear, obvious, and useful for making predictions for future relative returns (in your view as I understand it), shouldn't those properties of the US market also be reflected in market valuations?
Indeed. It is reflected in the valuations. US valuations are much higher than exUS.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Da5id »

SB1234 wrote: Sun Feb 11, 2024 12:28 pm
Da5id wrote: Sun Feb 11, 2024 11:28 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
But given that it is clear, obvious, and useful for making predictions for future relative returns (in your view as I understand it), shouldn't those properties of the US market also be reflected in market valuations?
Indeed. It is reflected in the valuations. US valuations are much higher than exUS.
Hmm I don't actually subscribe to your point either. I personally don't change my investments dynamically based on my perceptions of valuations, and I would if I thought I knew things. I assume markets are efficient enough that *I* can't distinguish whether valuations are "right". The US valuations might be too high relative to ex-US. That could be due to perceptions of US dominance resulting in higher returns such as those Flextruck expressed, recency bias, or whatever. But it could also be due to realistic views of the US tech sector dominance going forward, I can't say and don't want to predict. My point is that US and ex-US valuations are what they are (expressed as P/E, CAPE 10, whatever) and I don't choose to act on it or interpret it.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by HanSolo »

SB1234 wrote: Sun Feb 11, 2024 12:25 pm
HanSolo wrote: Sun Feb 11, 2024 9:03 am My response is reflected in my earlier comment, which remains unanswered as of now:
HanSolo wrote: Sat Feb 10, 2024 9:56 pm I'm not sure that's really a cost. If it were, one might ask how much it cost you to not be all-in on TSLA during that time.
From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say not even comparable.
The argument offered upthread seems to be "if A outperformed B, then those who chose B incurred a cost of A minus B, and therefore, in the future, those who choose B will continue to incur such a cost."

I made an example of TSLA as A, but we can throw out the single-stock examples if people don't like them, and just go with the generic investment choices A and B.

What I'm saying is (1) that any preferred investment A can be moved to the B position if there's any reasonable choice that outperformed it in the rear-view mirror, and (2) that the argument in question assumes a lot about the future.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

SB1234 wrote: Sun Feb 11, 2024 12:25 pm
HanSolo wrote: Sun Feb 11, 2024 9:03 am My response is reflected in my earlier comment, which remains unanswered as of now:
HanSolo wrote: Sat Feb 10, 2024 9:56 pm I'm not sure that's really a cost. If it were, one might ask how much it cost you to not be all-in on TSLA during that time.
From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say not even comparable.
And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by SB1234 »

Da5id wrote: Sun Feb 11, 2024 12:48 pm
SB1234 wrote: Sun Feb 11, 2024 12:28 pm
Da5id wrote: Sun Feb 11, 2024 11:28 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
But given that it is clear, obvious, and useful for making predictions for future relative returns (in your view as I understand it), shouldn't those properties of the US market also be reflected in market valuations?
Indeed. It is reflected in the valuations. US valuations are much higher than exUS.
Hmm I don't actually subscribe to your point either. I personally don't change my investments dynamically based on my perceptions of valuations, and I would if I thought I knew things. I assume markets are efficient enough that *I* can't distinguish whether valuations are "right". The US valuations might be too high relative to ex-US. That could be due to perceptions of US dominance resulting in higher returns such as those Flextruck expressed, recency bias, or whatever. But it could also be due to realistic views of the US tech sector dominance going forward, I can't say and don't want to predict. My point is that US and ex-US valuations are what they are (expressed as P/E, CAPE 10, whatever) and I don't choose to act on it or interpret it.
Agreed. I do not think anyone should make changes based on valuations. But many arguments about exUs start and end with valuations. Many times people forget that valuations maybe for a reason.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by SB1234 »

Nathan Drake wrote: Sun Feb 11, 2024 1:00 pm
SB1234 wrote: Sun Feb 11, 2024 12:25 pm
HanSolo wrote: Sun Feb 11, 2024 9:03 am My response is reflected in my earlier comment, which remains unanswered as of now:
HanSolo wrote: Sat Feb 10, 2024 9:56 pm I'm not sure that's really a cost. If it were, one might ask how much it cost you to not be all-in on TSLA during that time.
From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say hi not even comparable.
And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
For the record, I don't think exUs can never outperform. But looking at the reality today, I just find it very unlikely that tomorrow companies will emerge in some foreign country that will destroy or scale the value of the US champions. I also find it unlikely that companies that target new business models will emerge in exUS while US companies will do nothing.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

SB1234 wrote: Sun Feb 11, 2024 1:09 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:00 pm
SB1234 wrote: Sun Feb 11, 2024 12:25 pm
HanSolo wrote: Sun Feb 11, 2024 9:03 am My response is reflected in my earlier comment, which remains unanswered as of now:
HanSolo wrote: Sat Feb 10, 2024 9:56 pm I'm not sure that's really a cost. If it were, one might ask how much it cost you to not be all-in on TSLA during that time.
From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say hi not even comparable.
And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
For the record, I don't think exUs can never outperform. But looking at the reality today, I just find it very unlikely that tomorrow companies will emerge in some foreign country that will destroy or scale the value of the US champions. I also find it unlikely that companies that target new business models will emerge in exUS while US companies will do nothing.
And yet a Chinese company is outcompeting Tesla

A European company is outcompeting Boeing

A Taiwanese company is doing something that's not feasible in the US at scale

and a Dutch company does something the US can't do at all

Why are "emergent" businesses necessary for superior long term returns? Cigarette companies outpaced the S&P
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by SB1234 »

Nathan Drake wrote: Sun Feb 11, 2024 1:13 pm
SB1234 wrote: Sun Feb 11, 2024 1:09 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:00 pm
SB1234 wrote: Sun Feb 11, 2024 12:25 pm
HanSolo wrote: Sun Feb 11, 2024 9:03 am My response is reflected in my earlier comment, which remains unanswered as of now:

From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say hi not even comparable.
And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
For the record, I don't think exUs can never outperform. But looking at the reality today, I just find it very unlikely that tomorrow companies will emerge in some foreign country that will destroy or scale the value of the US champions. I also find it unlikely that companies that target new business models will emerge in exUS while US companies will do nothing.
And yet a Chinese company is outcompeting Tesla

A European company is outcompeting Boeing

A Taiwanese company is doing something that's not feasible in the US at scale

and a Dutch company does something the US can't do at all

Why are "emergent" businesses necessary for superior long term returns? Cigarette companies outpaced the S&P
Returns come from efficiency improvements or growing revenues. revenues basically cannot grow until there is demand growth. demand growth can come from demographics (population grown and aging) or from new services.
So basically future returns are tied to efficiency improvements and new services. Both are intrinsically tied to emergent business.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by valueinvestor »

US is like a car with 400 HP and rest of the world is like a car with 300 HP in a car race. Assume HP translates to speed. But rest of the world is starting with a long lead (lower valuations).

If you take a very long view, US should win the race (better returns). If the finish line is somewhere not too far, rest of the world would win.

In addition, US car engine can deteriorate in between and/or rest of the world car engine could be improved.

For example, Japanese businesses are adopting much more shareholder friendly changes which look very promising, similar to what US was in early 1990s in corporate governance.

Despite arguing for US stocks, I am currently 42% in international but that is because I invest in individual stocks and that is where I am finding businesses that are attractive.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by unix_joe »

Has anybody adjusted their portfolio based on arguments, one way or the other, in this thread?

I'm genuinely curious if this discussion has moved the needle for anybody.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Flextruck »

HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by valueinvestor »

unix_joe wrote: Sun Feb 11, 2024 2:03 pm Has anybody adjusted their portfolio based on arguments, one way or the other, in this thread?

I'm genuinely curious if this discussion has moved the needle for anybody.
There is a benefit even if you do not change your allocation.

By publicly arguing your position, you are entrenching your conviction which you will need whenever your approach starts underperforming. Goes for both sides. Even if it turns out you are wrong, it is better to have utter conviction regardless of facts (as long as it is directionally not wrong). Helps stay the course which is lot more important. Pound it in as Munger says.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

SB1234 wrote: Sun Feb 11, 2024 1:40 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:13 pm
SB1234 wrote: Sun Feb 11, 2024 1:09 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:00 pm
SB1234 wrote: Sun Feb 11, 2024 12:25 pm
From what I've seen in this thread this is a very common question/argument against all/heavy US.
MY response, which may or may not be satisfactory, is that it's not a good argument or relevant question because it equates holding US to holding a single stock. The risk-reward tradeoff between the two options is not just different but I would say hi not even comparable.
And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
For the record, I don't think exUs can never outperform. But looking at the reality today, I just find it very unlikely that tomorrow companies will emerge in some foreign country that will destroy or scale the value of the US champions. I also find it unlikely that companies that target new business models will emerge in exUS while US companies will do nothing.
And yet a Chinese company is outcompeting Tesla

A European company is outcompeting Boeing

A Taiwanese company is doing something that's not feasible in the US at scale

and a Dutch company does something the US can't do at all

Why are "emergent" businesses necessary for superior long term returns? Cigarette companies outpaced the S&P
Returns come from efficiency improvements or growing revenues. revenues basically cannot grow until there is demand growth. demand growth can come from demographics (population grown and aging) or from new services.
So basically future returns are tied to efficiency improvements and new services. Both are intrinsically tied to emergent business.
That doesn't answer my question. Efficiencies come from within companies. Emergent businesses are not required.

You don't even need efficiency improvements or growing revenues to have a return. If you look at most people's human capital, they may have topped out at their salary but are still earning money. Same applies to a business.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
And nearly all of that premium since 1945 over exUS markets was due to WW2, literally a few years.

From 1950 - 2018, EU stocks performed better than US stocks.

And from 1966 - 1982, US stocks performed terribly

The question should be - at your age, can you be willing NOT to diversify into other investments? You don't have 80 years left. Sequence risk matters.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by SB1234 »

Nathan Drake wrote: Sun Feb 11, 2024 3:09 pm
SB1234 wrote: Sun Feb 11, 2024 1:40 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:13 pm
SB1234 wrote: Sun Feb 11, 2024 1:09 pm
Nathan Drake wrote: Sun Feb 11, 2024 1:00 pm

And during previous periods of time (decades) there has been a real cost to only owning 100% US

But your argument basically boils down to that can never happen again
For the record, I don't think exUs can never outperform. But looking at the reality today, I just find it very unlikely that tomorrow companies will emerge in some foreign country that will destroy or scale the value of the US champions. I also find it unlikely that companies that target new business models will emerge in exUS while US companies will do nothing.
And yet a Chinese company is outcompeting Tesla

A European company is outcompeting Boeing

A Taiwanese company is doing something that's not feasible in the US at scale

and a Dutch company does something the US can't do at all

Why are "emergent" businesses necessary for superior long term returns? Cigarette companies outpaced the S&P
Returns come from efficiency improvements or growing revenues. revenues basically cannot grow until there is demand growth. demand growth can come from demographics (population grown and aging) or from new services.
So basically future returns are tied to efficiency improvements and new services. Both are intrinsically tied to emergent business.
That doesn't answer my question. Efficiencies come from within companies. Emergent businesses are not required.

You don't even need efficiency improvements or growing revenues to have a return. If you look at most people's human capital, they may have topped out at their salary but are still earning money. Same applies to a business.
Hmm, our understanding of how new wealth is generated appears to mutually incompatible.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by HanSolo »

Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
In practice, I'm overweight US (just not all-in, as in 100% US), so one could say I don't "bet big money on the foreign markets" either. I'm just saying that going all-in on US (or all-in on anything) is fine as long as one is willing to accept if things don't work out as they expect (which is, of course, a possibility).
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Johm221122 »

Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
I'll be 54 on Valentine's Day and can't imagine not diversifying with international and small caps. Did you invest from 2000 to 2010?
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by visualguy »

Johm221122 wrote: Sun Feb 11, 2024 11:00 pm
Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
I'll be 54 on Valentine's Day and can't imagine not diversifying with international and small caps. Did you invest from 2000 to 2010?
I was invested 2000-2010. I've always been all US. It was so far ahead of ex-US by 2000, that I didn't find the underperformance during that decade to change the picture. I was still far ahead financially by being all US when compared to having a significant allocation to ex-US. Investment timeframes are typically much longer than 10 years.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by valueinvestor »

Nathan Drake wrote: Sun Feb 11, 2024 3:12 pm
Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
And nearly all of that premium since 1945 over exUS markets was due to WW2, literally a few years.

From 1950 - 2018, EU stocks performed better than US stocks.


And from 1966 - 1982, US stocks performed terribly

The question should be - at your age, can you be willing NOT to diversify into other investments? You don't have 80 years left. Sequence risk matters.
Not trying to be argumentative. Having read this thread from the beginning I came to understand your point of view. Do not disagree a whole lot.

I actually do not know the performance of EU relative to US in the 1950s and 60s. But I assume it must have been pretty good.

Is outperformance of EU post WW2 really a surprise? They are rebuilding their economies. An period of rapid economic growth, high returns on capital, lots of business investment opportunities would have existed during that period. Nothing is the same all the time, but those are exceptional once in a century kind of events.

Since the 80s the main period of outperformance for EU was between the 5 years from 2003 to 2007. This also had very unique once in a century kind of phenomenon.

1) Introduction of Euro which created a lot of benefits, monetary boost, etc. This is especially beneficial to financial companies which had a very rapid earnings growth (some of which turned to be bezzle).

2) China's entry into WTO and subsequent rapid growth boosted commodities including energy (European O&G companies benefited quite a bit) which also boosted many of European companies which have more global presence.

So the initial period Europe had the tailwind of the above two. Now, there are many headwinds. Chinese companies are now encroaching into many of the same businesses that Europe used to be quite good at. Energy too they are at a disadvantage - China buys discounted Russian oil, Europe pays market price.

These are reflected in market prices. Europe is much cheaper but not sure if that is enough.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Lawrence of Suburbia »

I'm not smart/knowledgeable enough to follow all the arguments here (let alone all the business-school jargon everyone seems to be familiar with). However, I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by HomerJ »

watchnerd wrote: Sat Feb 10, 2024 4:52 pm
Tom_T wrote: Sat Feb 10, 2024 1:22 pm I don't think anyone is saying that U.S. will always outperform. I think the question for international is, why bother? If you've been heavy international for ten years, how much has it cost you, and how much will things have to reverse for you to make up for that?
How much did my home owner's insurance cost me and how much money did I waste because I didn't have a fire?
You are market neutral, holding world-cap. So you can make this argument.

The people tilting to International AT THIS TIME (based on whatever metric) are market-timing. They have been buying EXTRA insurance because they expect the house to burn down.

There is owning International all the time as a hedge, and there is tilting more towards International because you expect it to do better than the US, so you are making a bet trying to make MORE money.

So it's certainly fair to call them out for having made LESS money because their timing call was wrong.

I got no problem with anyone holding the same allocation to International all the time (or world-cap, where your allocation shifts as world-cap shifts)
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

valueinvestor wrote: Mon Feb 12, 2024 1:40 pm
Nathan Drake wrote: Sun Feb 11, 2024 3:12 pm
Flextruck wrote: Sun Feb 11, 2024 2:20 pm
HanSolo wrote: Sun Feb 11, 2024 11:12 am
Flextruck wrote: Sun Feb 11, 2024 9:52 am I believe in the strength of the American economy, that's why I'm all in on US equities. I also believe the long-term strength of our economy trumps the long-term strength of the international economy.

America is THE world super power, that has to be factored into decisions such as market allocations.
I'm not sure that being the world superpower guarantees outperformance or prevents financial collapse. I also don't know if being the world superpower is guaranteed to be a permanent state. "Guaranteed" and "likely" are different.

If what you're factoring in is the assumption that the above are guaranteed, that's great if you're sure, but I'm not.
The US market has returned 11.2%/yr. since 1945...That's a horse worth betting on, IMO. I'll be 49 years old on Valentines Day and have a very aggressive portfolio approach. I will be dialing it back considerably in about 7-8 years for obvious reasons. That said, I'm just not willing to bet big money on the foreign markets at my age.
And nearly all of that premium since 1945 over exUS markets was due to WW2, literally a few years.

From 1950 - 2018, EU stocks performed better than US stocks.


And from 1966 - 1982, US stocks performed terribly

The question should be - at your age, can you be willing NOT to diversify into other investments? You don't have 80 years left. Sequence risk matters.
Not trying to be argumentative. Having read this thread from the beginning I came to understand your point of view. Do not disagree a whole lot.

I actually do not know the performance of EU relative to US in the 1950s and 60s. But I assume it must have been pretty good.

Is outperformance of EU post WW2 really a surprise? They are rebuilding their economies. An period of rapid economic growth, high returns on capital, lots of business investment opportunities would have existed during that period. Nothing is the same all the time, but those are exceptional once in a century kind of events.

Since the 80s the main period of outperformance for EU was between the 5 years from 2003 to 2007. This also had very unique once in a century kind of phenomenon.

1) Introduction of Euro which created a lot of benefits, monetary boost, etc. This is especially beneficial to financial companies which had a very rapid earnings growth (some of which turned to be bezzle).

2) China's entry into WTO and subsequent rapid growth boosted commodities including energy (European O&G companies benefited quite a bit) which also boosted many of European companies which have more global presence.

So the initial period Europe had the tailwind of the above two. Now, there are many headwinds. Chinese companies are now encroaching into many of the same businesses that Europe used to be quite good at. Energy too they are at a disadvantage - China buys discounted Russian oil, Europe pays market price.

These are reflected in market prices. Europe is much cheaper but not sure if that is enough.
My point is that most of the time, over long horizons, performance across diversified baskets of stocks (countries) tends to wash out.

And all of the aspects of significant outperformance tend to manifest in fairly brief windows.

Start and end dates can dramatically shift due to how sensitive returns are to those initial and ending conditions.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Gaston »

BizarroJerry wrote: Sat Dec 30, 2023 7:27 pm The [Scott] Cederburg study was definitely interesting. I had considered just being 100% global market cap equities and then maybe 10 years from retirement gliding into 30% bonds and staying 70/30 fixed for retirement.
Cliff responds to Scott.

https://www.aqr.com/Insights/Perspectiv ... 0-Equities
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

Gaston wrote: Tue Feb 13, 2024 7:01 am
BizarroJerry wrote: Sat Dec 30, 2023 7:27 pm The [Scott] Cederburg study was definitely interesting. I had considered just being 100% global market cap equities and then maybe 10 years from retirement gliding into 30% bonds and staying 70/30 fixed for retirement.
Cliff responds to Scott.

https://www.aqr.com/Insights/Perspectiv ... 0-Equities
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Re: International (Non-US) versus US Equities (The "Arguments")

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I removed a contentious interchange. The discussion was derailed. As a reminder, see: General Etiquette
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

The Compound had a discussion on International Stocks today:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=2193s

The guest seemed bullish, especially on EM

Also talked about Mag 7 and bubbles:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=554s
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by HomerJ »

Nathan Drake wrote: Fri Feb 16, 2024 10:26 pm The Compound had a discussion on International Stocks today:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=2193s

The guest seemed bullish, especially on EM

Also talked about Mag 7 and bubbles:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=554s
As long as they confirm what you already believe, it's all good right?
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

HomerJ wrote: Sat Feb 17, 2024 10:06 pm
Nathan Drake wrote: Fri Feb 16, 2024 10:26 pm The Compound had a discussion on International Stocks today:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=2193s

The guest seemed bullish, especially on EM

Also talked about Mag 7 and bubbles:

https://www.youtube.com/watch?v=LiVi2vDfBvI&t=554s
As long as they confirm what you already believe, it's all good right?
A belief that international stocks are worth having in the portfolio to mitigate a potential poor period for US stocks due to rich valuations? Absolutely.

Strong benefits to EM vs. US, worth allocating to both in case one does poorly and the other does not, as mentioned in the podcast. EM is one of the strongest diversifiers to US.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by unwitting_gulag »

Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by LeslieSmiley »

Nathan Drake wrote: Sun Feb 18, 2024 3:30 am
unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
"Odd" desire according to who? The world is occupied by different folks with different strokes. Your perspective is only a very tiny portion of thinking, value, preferences, priority and etc and is in no way a representation of the others. Anyone (not just you so it's not a personal attack) who makes such judgemental comment on someone's subjective desire is evidence of close-mindedness, presumptuousness and arrogance.

An effective way to reduce volatility of one's entire portfolio is by diversifying into assets that have a low correlation in market reaction (e.g. equities vs fixed income). When the correlation between US stocks and international stocks have been increasing, the function of reducing volatility is diminished.

Comparing "total us index vs total international index in regards to outperformance, underperformance, mitigation of volatility" to "individual stocks investing or starting a company and such" is once again a false equivalency which you seem to repeatedly make. Not a personal attack, but merely an observation.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by steve r »

valueinvestor wrote: Sun Feb 11, 2024 2:24 pm
unix_joe wrote: Sun Feb 11, 2024 2:03 pm Has anybody adjusted their portfolio based on arguments, one way or the other, in this thread?

I'm genuinely curious if this discussion has moved the needle for anybody.
There is a benefit even if you do not change your allocation.

By publicly arguing your position, you are entrenching your conviction which you will need whenever your approach starts underperforming. Goes for both sides. Even if it turns out you are wrong, it is better to have utter conviction regardless of facts (as long as it is directionally not wrong). Helps stay the course which is lot more important. Pound it in as Munger says.
+1 Good stuff.

But to answer Joe's question, yes. Somewhat. I am not sure if it is this thread specifically, but I used to think of international primarily as a diversifier, thus 20 or 25 percent of equities seemed sufficient.

Now I am in the global market cap camp as a base case -- from which I hold a couple of extra percentage points in international without worrying about it. Not so much because I am positive Nathan Drake is correct, but because it makes my allocation between accounts simpler (though I could have simplified and gone the opposite direction with a touch extra U.S. -- more on this below).

You add to this quest for simplicity with a "casual" belief that Nathan is more likely to be correct and a belief that a couple of percentage point international tilt does not matter in a predictable way. I am 100% OK with a touch overweight international and am less comfortable being a touch overweight U.S. relative to global cap weights. (if this makes any sense?) :beer
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by lostdog »

steve r wrote: Sun Feb 18, 2024 11:21 am
valueinvestor wrote: Sun Feb 11, 2024 2:24 pm
unix_joe wrote: Sun Feb 11, 2024 2:03 pm Has anybody adjusted their portfolio based on arguments, one way or the other, in this thread?

I'm genuinely curious if this discussion has moved the needle for anybody.
There is a benefit even if you do not change your allocation.

By publicly arguing your position, you are entrenching your conviction which you will need whenever your approach starts underperforming. Goes for both sides. Even if it turns out you are wrong, it is better to have utter conviction regardless of facts (as long as it is directionally not wrong). Helps stay the course which is lot more important. Pound it in as Munger says.
+1 Good stuff.

But to answer Joe's question, yes. Somewhat. I am not sure if it is this thread specifically, but I used to think of international primarily as a diversifier, thus 20 or 25 percent of equities seemed sufficient.

Now I am in the global market cap camp as a base case -- from which I hold a couple of extra percentage points in international without worrying about it. Not so much because I am positive Nathan Drake is correct, but because it makes my allocation between accounts simpler (though I could have simplified and gone the opposite direction with a touch extra U.S. -- more on this below).

You add to this quest for simplicity with a "casual" belief that Nathan is more likely to be correct and a belief that a couple of percentage point international tilt does not matter in a predictable way. I am 100% OK with a touch overweight international and am less comfortable being a touch overweight U.S. relative to global cap weights. (if this makes any sense?) :beer
+1

Global cap weight is the null/default. Anything outside of that, you're making a bet.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Gaston »

lostdog wrote: Sun Feb 18, 2024 11:28 am +1

Global cap weight is the null/default. Anything outside of that, you're making a bet.
Yup. And by making a bet, you are claiming to know (or hoping to know) something about the market that other participants don’t know.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by LeslieSmiley »

Gaston wrote: Sun Feb 18, 2024 11:46 am
lostdog wrote: Sun Feb 18, 2024 11:28 am +1

Global cap weight is the null/default. Anything outside of that, you're making a bet.
Yup. And by making a bet, you are claiming to know (or hoping to know) something about the market that other participants don’t know.
That's a huge leap from "considering various factors and making a decision based on your own personality, preferences, value, priorities and goal without knowing what the future holds" to "making a claim that you know something about the market".

As for your comment of "hoping to know", do you realize that you are doing exactly that by diversifying into international or any other investment decisions? You are hoping to know that in the future if us underperform significantly, you will be "covered" as some of your assets are invested elsewhere.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Billy C »

In my opinion, and others may view this differently of course, if I were to invest at global market cap weight that means I would be betting 40% of my portfolio against America.

I’m reminded of what Warren Buffet said to his shareholders in the 2022 Berkshire Hathaway Annual Report (page 9):

“At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved—a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.

I have been investing for 80 years—more than one-third of our country’s lifetime. Despite our citizen’s penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”

https://fm.cnbc.com/applications/cnbc.c ... 2022ar.pdf
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by lostdog »

LeslieSmiley wrote: Sun Feb 18, 2024 11:51 am
Gaston wrote: Sun Feb 18, 2024 11:46 am
lostdog wrote: Sun Feb 18, 2024 11:28 am +1

Global cap weight is the null/default. Anything outside of that, you're making a bet.
Yup. And by making a bet, you are claiming to know (or hoping to know) something about the market that other participants don’t know.
That's a huge leap from "considering various factors and making a decision based on your own personality, preferences, value, priorities and goal without knowing what the future holds" to "making a claim that you know something about the market".

As for your comment of "hoping to know", do you realize that you are doing exactly that by diversifying into international or any other investment decisions? You are hoping to know that in the future if us underperform significantly, you will be "covered" as some of your assets are invested elsewhere.
I'll readjust this for a U.S only indexer:

"As for your comment of "hoping to know", do you realize that you are doing exactly that by diversifying into international Chevron or any other investment decisions? You are hoping to know that in the future if us Apple underperforms significantly, you will be "covered" as some of your assets are invested elsewhere."
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Tom_T »

Billy C wrote: Sun Feb 18, 2024 12:03 pm In my opinion, and others may view this differently of course, if I were to invest at global market cap weight that means I would be betting 40% of my portfolio against America.

I’m reminded of what Warren Buffet said to his shareholders in the 2022 Berkshire Hathaway Annual Report (page 9):

“At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved—a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.

I have been investing for 80 years—more than one-third of our country’s lifetime. Despite our citizen’s penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”

https://fm.cnbc.com/applications/cnbc.c ... 2022ar.pdf
I don't understand why investing in an international company is a "bet against America."
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by lostdog »

Billy C wrote: Sun Feb 18, 2024 12:03 pm In my opinion, and others may view this differently of course, if I were to invest at global market cap weight that means I would be betting 40% of my portfolio against America.

I’m reminded of what Warren Buffet said to his shareholders in the 2022 Berkshire Hathaway Annual Report (page 9):

“At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved—a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.

I have been investing for 80 years—more than one-third of our country’s lifetime. Despite our citizen’s penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”

https://fm.cnbc.com/applications/cnbc.c ... 2022ar.pdf
"Yup. And by making a bet, you are claiming to know (or hoping to know)".

I agree, you pretty much solidified his point. You're making a bet and investing based upon your patriotism. Thanks! :beer
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by steve r »

Tom_T wrote: Sun Feb 18, 2024 12:14 pm
Billy C wrote: Sun Feb 18, 2024 12:03 pm In my opinion, and others may view this differently of course, if I were to invest at global market cap weight that means I would be betting 40% of my portfolio against America.

I’m reminded of what Warren Buffet said to his shareholders in the 2022 Berkshire Hathaway Annual Report (page 9):

“At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved—a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.

I have been investing for 80 years—more than one-third of our country’s lifetime. Despite our citizen’s penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”

https://fm.cnbc.com/applications/cnbc.c ... 2022ar.pdf
I don't understand why investing in an international company is a "bet against America."
Nor, apparently, does Warren Buffet.

https://www.forbes.com/sites/qai/2023/0 ... befe3527ca
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

LeslieSmiley wrote: Sun Feb 18, 2024 10:41 am
Nathan Drake wrote: Sun Feb 18, 2024 3:30 am
unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
"Odd" desire according to who? The world is occupied by different folks with different strokes. Your perspective is only a very tiny portion of thinking, value, preferences, priority and etc and is in no way a representation of the others. Anyone (not just you so it's not a personal attack) who makes such judgemental comment on someone's subjective desire is evidence of close-mindedness, presumptuousness and arrogance.

An effective way to reduce volatility of one's entire portfolio is by diversifying into assets that have a low correlation in market reaction (e.g. equities vs fixed income). When the correlation between US stocks and international stocks have been increasing, the function of reducing volatility is diminished.

Comparing "total us index vs total international index in regards to outperformance, underperformance, mitigation of volatility" to "individual stocks investing or starting a company and such" is once again a false equivalency which you seem to repeatedly make. Not a personal attack, but merely an observation.
The vast majority of investors on this forum will need to drawdown their portfolio in the future. That's why we invest - to plan for consumption expenses at retirement when we have no income.

The situation of only needing to invest for either donations or future generation inheritance alone is a rare one, and you can make a whole lot of mistakes and be just fine without needing to think about risk management.

Correlations between US stocks and International stocks is LOWER at longer horizons than US stocks vs US bonds, and longer horizons are what matters for equity investors and sequence risk issues. This argument repeatedly gets brought up that there's no need for international due to short term correlations and it's a complete myth, one only has to look at the last decade to see why.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by unwitting_gulag »

Nathan Drake wrote: Sun Feb 18, 2024 3:30 am
unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
Not to derail our discussion too much, but there are several variations:

1. As you note, a person who, between defined-benefit pension and Social Security, doesn't need to tap into investments.
2. Somebody who continues with a W2 job until death.
3. A very large ratio of portfolio to annual expenses, so that the annual withdrawal ratio is something like 0.5%... close enough to zero.
4. A "bucket" approach, where say $2M goes into a cash fund for withdrawal, and the rest is a perpetual investment.

As for moonshots, some of us are circumspect about our abilities or luck, and hence, are wary of risk, even if hypothetical threat of 100% loss wouldn't actually affect our lives. However, even among diversified investments, we still want to maximize returns. SORR becomes irrelevant. We do want eventually astronomical gains... maybe just as low earth orbit, not moonshots.

This also brings us back to a related argument... if gains are what we seek, and regret over missing-out is what hampers our thinking, then what about having missed out on Tesla or Apple, as counterpart to having missed out on 100% US vs. dilution into ex-US? This runs headlong into the exceptionalism argument. Back around 2002, when Apple was at its nadir, there was no compelling reason to consider it exceptional. It was just another consumer-facing computer company, just another "new economy" stock failing together with the rest of the dot.com bust. Why favor it? Sure one can always take a wild gamble. But that's not a cogent argument. That's just throwing darts. But with US investment, we do have the exceptionalism argument. We may perhaps think that it's bunk, but it is ultimately an argument favoring US stocks... that can't be stretched to also cry, "but what about Apple".
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Billy C »

This thread is over 6 months old and 100 pages long, yet I don’t recall anyone articulating a case as to why future exUS earnings growth will be strong. Maybe someone did and I missed it, but it’s not included on the OP list of arguments.

ExUS earnings growth has been poor for a long time. What’s going to reverse this, particularly in the face of demographic headwinds?

Morningstar published a 24 page report last summer entitled, “Explaining America's Stock Market Dominance Since 2010.”

They included this chart which, in my opinion, explains more than any other why exUS stocks have had a negative real rate of return since October, 2007.

Image

https://assets.contentstack.io/v3/asset ... e_2010.pdf
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by stan1 »

Billy C wrote: Sun Feb 18, 2024 1:28 pm ExUS earnings growth has been poor for a long time. What’s going to reverse this, particularly in the face of demographic headwinds?
Well I think the reason this thread has gone on for 100 pages is a similar question:
"US earnings growth has been strong for a long time. What's going to cause this to continue, particularly in the face of demographic headwinds?"
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Re: International (Non-US) versus US Equities (The "Arguments")

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I removed an off-topic post expressing opinions of those investing with home country bias.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Billy C »

Nathan Drake wrote: Sun Feb 18, 2024 12:46 pm Correlations between US stocks and International stocks is LOWER at longer horizons than US stocks vs US bonds, and longer horizons are what matters for equity investors and sequence risk issues. This argument repeatedly gets brought up that there's no need for international due to short term correlations and it's a complete myth, one only has to look at the last decade to see why.
I may be misunderstanding what you are saying here, but Portfolio Visualizer shows that US bonds have a much lower market correlation (0.11) than International stocks (0.88) this century. Bonds provided greater diversification for an investor holding US stocks. This isn’t surprising of course. The fact that bonds have outperformed International stocks this century does come as a bit of a surprise though, and is a bonus to the bondholders.

Image
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by LeslieSmiley »

Nathan Drake wrote: Sun Feb 18, 2024 12:46 pm
LeslieSmiley wrote: Sun Feb 18, 2024 10:41 am
Nathan Drake wrote: Sun Feb 18, 2024 3:30 am
unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
"Odd" desire according to who? The world is occupied by different folks with different strokes. Your perspective is only a very tiny portion of thinking, value, preferences, priority and etc and is in no way a representation of the others. Anyone (not just you so it's not a personal attack) who makes such judgemental comment on someone's subjective desire is evidence of close-mindedness, presumptuousness and arrogance.

An effective way to reduce volatility of one's entire portfolio is by diversifying into assets that have a low correlation in market reaction (e.g. equities vs fixed income). When the correlation between US stocks and international stocks have been increasing, the function of reducing volatility is diminished.

Comparing "total us index vs total international index in regards to outperformance, underperformance, mitigation of volatility" to "individual stocks investing or starting a company and such" is once again a false equivalency which you seem to repeatedly make. Not a personal attack, but merely an observation.
The vast majority of investors on this forum will need to drawdown their portfolio in the future. That's why we invest - to plan for consumption expenses at retirement when we have no income.

The situation of only needing to invest for either donations or future generation inheritance alone is a rare one, and you can make a whole lot of mistakes and be just fine without needing to think about risk management.

Correlations between US stocks and International stocks is LOWER at longer horizons than US stocks vs US bonds, and longer horizons are what matters for equity investors and sequence risk issues. This argument repeatedly gets brought up that there's no need for international due to short term correlations and it's a complete myth, one only has to look at the last decade to see why.
Rare is a relative term as you can't possibly know for sure what other people's lives are and what their preferences , personality, values, priorities and goals are.

One can make a lot of mistakes and one can make a lot of good choices. The fact is that you don't know what's going to happen and making an assumption of the likelihood of someone making mistakes vs making good choices again is merely a presumptuous thinking.

Correlations between US and international are lower at longer horizon...longer as in what? 1000 years? That sounds pretty short to me so perhaps we need to go even longer?

The fact is that the correlations between US and international have been increasing and it's widely cited by numerous places. In addition, my point of correlation was about the purpose of reducing volatility and it's clearly evident that international has not provided such function so far.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Billy C »

stan1 wrote: Sun Feb 18, 2024 1:36 pm Well I think the reason this thread has gone on for 100 pages is a similar question:
"US earnings growth has been strong for a long time. What's going to cause this to continue, particularly in the face of demographic headwinds?"
Sure, I can give you my personal reasons why I believe US earnings growth will continue to be strong. This gives me an opportunity to update my list and add a few more items to it after reading the Morningstar report. Please note that I consider demographics to be a relative US strength (thanks to immigration) as you can see by the two enclosed charts.

100% US'rs.
  • American exceptionalism/Structural Advantages - Including technological leadership, business environment (tax policy, regulation, ability of corporations to influence gov't policy), culture (dominance of individualism over collectivism, widespread entrepreneurship), geography (weak neighbors, isolated from rivals, resource rich) & relative ease of integrating immigrants into society (allowing top talent to more consistently rise to top).
  • 10% CAGR (last 100 years) says US is all you need.
  • US Government has proven its willingness and ability to support its interests with massive cash infusions. (Translates to US Stock support)
  • US companies do business around the world so the S&P 500 is actually a global index under governance by US regulation.
  • Maximizing shareholder returns may not be the highest priority for some International markets. Examples like China with Alibaba and S. Korea with its Chaebols create a lot of concern.
  • International investing involves additional layers of risk that need not be accepted by US investors: currency risk and sovereign risk.
  • US outperformance from 2009-2019 was mainly due to much stronger earnings growth (i.e. business fundamentals). Only a small amount (less than 1% annually) of US outperformance was attributable to currency or valuation changes per Morningstar. https://www.morningstar.com/etfs/foreig ... ost-decade
  • ExUS equities are not as cheap as they appear once they are adjusted for sector weight. https://postimg.cc/RNqTb5GF Also, generally the US trades at a premium so you need to look at the discount relative to history.
  • ExUS earnings growth has been poor for a long time. https://postimg.cc/QBfXj9Q0 Why should we expect this to change, particularly in the face of challenging demographic headwinds? In my view this is the main reason why international stocks have had a negative real rate of return since October, 2007. https://postimg.cc/VrShx3GK
  • John Bogle and Warren Buffet both favor 100% US, who am I to argue?
  • Lowest cost and most tax-efficient option. Foreign stocks have higher taxes due to their higher dividend yield, and a greater proportion of those dividends are non-qualified and therefore taxed at higher rates. 41% of Total International Stock Market dividends were non-qualified in 2023, compared with only 5% for Total US Stock Market. https://investor.vanguard.com/investor- ... ncome-2023 In tax-advantaged accounts the foreign tax credit is lost.
  • Globalization has dramatically reduced any diversification benefit of international stocks. That was a strong argument 30 years ago, but not now. https://postlmg.cc/KKg948bw Why pay more for a highly correlated asset?
  • US equities historically have outperformed non-US equities by 2.3 percentage points annualized since 1926 and by 2.7 percentage points in the post-WWII period. Recent US outperformance is not as unprecedented as it seems. https://postlmg.cc/rDBNR8zm
  • US labor force is the most productive in the world. https://www.conference-board.org/resear ... -April2022
  • The quality of US corporate management is the highest ranked in the world.
  • US has the largest, broadest, and most liquid financial markets that provide funding sources for innovation.
  • US leads the world in research and development spending, which is a source of innovation. https://postlmg.cc/QFSMcknY
  • The US economy grew faster than any other large advanced economy last year—by a wide margin—and is on track to do so again in 2024. https://www.axios.com/2024/01/31/us-eco ... g7-nations
  • US has the most favorable demographics relative to all major countries except India. https://postlmg.cc/RJtJVZP1 and https://postlmg.cc/2qbxdfT1
  • US has most of the world’s top universities, attracting top talent from within and abroad, contributing to high levels of innovation and dynamism.
  • US possesses a scale advantage that is hard to beat—a single market with 50 states and a common language.
  • US dollar has been the world’s reserve currency for more than 75 years, and that’s unlikely to change.
  • US Dollar Index is currently close to its long-term historical norm. https://postimg.cc/nCmnGHrZ The index is adjusted for the aggregated home inflation rates of all included currencies.
  • Persistent and diverse corporate earnings growth.
  • Respect for property rights and rule of law.
  • Safe-haven status.
  • Resilience.
  • Most of these factors endure and do so even in the face of social, cultural, and political fissures. Put all these factors together and there is incredible earnings generation power.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

unwitting_gulag wrote: Sun Feb 18, 2024 12:55 pm
Nathan Drake wrote: Sun Feb 18, 2024 3:30 am
unwitting_gulag wrote: Sun Feb 18, 2024 3:09 am
Lawrence of Suburbia wrote: Mon Feb 12, 2024 2:04 pm ... I've found a clip on YouTube by James Shack, a smart young retirement planner in the UK which seems to back up my feeling about why having international equities is very useful, particularly for retirees:

https://youtu.be/eIUgjib_fm4?si=nOlT-znngYIgd2WC

Global diversification works.
This variation on the diversification-argument, aims to reduce volatility, even if cumulative returns are lower. Even if Asset A has historically higher returns than batch-of-assets XYZ, if there's a sequence of returns risk, then we might choose XYZ. However, that's not helpful for an investor who doesn't plan to draw from his or her portfolio, and instead is driven by strictly one consideration: to die as wealthy as possible.
So if you have the (odd) desire to die as wealthy as possible, the goal would be to invest in the highest moonshot assets. Not total stock market funds

Or start your own business with that free capital

If you lose it all? Who cares, you didn’t apparently need it anyway. Not sure how anyone would not need to drawdown a portfolio unless you had a pension covering all expenses
Not to derail our discussion too much, but there are several variations:

1. As you note, a person who, between defined-benefit pension and Social Security, doesn't need to tap into investments.
2. Somebody who continues with a W2 job until death.
3. A very large ratio of portfolio to annual expenses, so that the annual withdrawal ratio is something like 0.5%... close enough to zero.
4. A "bucket" approach, where say $2M goes into a cash fund for withdrawal, and the rest is a perpetual investment.

As for moonshots, some of us are circumspect about our abilities or luck, and hence, are wary of risk, even if hypothetical threat of 100% loss wouldn't actually affect our lives. However, even among diversified investments, we still want to maximize returns. SORR becomes irrelevant. We do want eventually astronomical gains... maybe just as low earth orbit, not moonshots.

This also brings us back to a related argument... if gains are what we seek, and regret over missing-out is what hampers our thinking, then what about having missed out on Tesla or Apple, as counterpart to having missed out on 100% US vs. dilution into ex-US? This runs headlong into the exceptionalism argument. Back around 2002, when Apple was at its nadir, there was no compelling reason to consider it exceptional. It was just another consumer-facing computer company, just another "new economy" stock failing together with the rest of the dot.com bust. Why favor it? Sure one can always take a wild gamble. But that's not a cogent argument. That's just throwing darts. But with US investment, we do have the exceptionalism argument. We may perhaps think that it's bunk, but it is ultimately an argument favoring US stocks... that can't be stretched to also cry, "but what about Apple".
Someone with a defined benefit pension and social security MAY need to tap into investments if their personal rate of inflation exceeds their inflation adjusted cashflows. Someone with even a .5% SWR needs to think about asset allocation.

So, I don't think the goal materially changes with investing under these scenarios, other than the fact that you have more flexibility with the ranges of what you consider "optimal".

Want to chase higher growth returns and expect growth to continue dominating, and are willing to accept an 80% correction and 15 year bear market like in the past? Sure, you can probably do 100% TQQQ or individual stocks.

Do you want to achieve a reasonable rate of return with a more assured outcome of modest success? Then, passive total market indexes (global) make the most sense.

I don't think "gains" are what people generally seek. Sustainable gains are. Gains can come and go for a period of time. They are quite fleeting. Total market investing builds sustainable resiliency in your portfolio.
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Re: International (Non-US) versus US Equities (The "Arguments")

Post by Nathan Drake »

Billy C wrote: Sun Feb 18, 2024 2:06 pm
Nathan Drake wrote: Sun Feb 18, 2024 12:46 pm Correlations between US stocks and International stocks is LOWER at longer horizons than US stocks vs US bonds, and longer horizons are what matters for equity investors and sequence risk issues. This argument repeatedly gets brought up that there's no need for international due to short term correlations and it's a complete myth, one only has to look at the last decade to see why.
I may be misunderstanding what you are saying here, but Portfolio Visualizer shows that US bonds have a much lower market correlation (0.11) than International stocks (0.88) this century. Bonds provided greater diversification for an investor holding US stocks. This isn’t surprising of course. The fact that bonds have outperformed International stocks this century does come as a bit of a surprise though, and is a bonus to the bondholders.

Image
Portfolio Visualizer does not show that.

You are highlighting a cherry picked scenario and sequence. That's not statistically significant.

If instead of one 24 year period, you want to look at 2,400+ market-year scenarios, you'd need to look at the research recently released by Cederburg.

Thread:
viewtopic.php?t=419403

Their research shows that domestic stocks/bonds are uncorrelated in the short term but become much more highly correlated at longer horizons. They also show that domestic stocks vs international stocks are highly correlated in the short term, but much less correlated over longer horizons (10+ years), where divergence is extremely common across markets.
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