How much of your equities in international?

[ziggy29]

About 40% of my equities are international, with about 2/3 of that in developed markets and 1/3 in emerging.

 

[Lagniappe]

I target 50/50, and also try to have 20% of my fixed income allocation be international.

 

[bcinvest]

"Using words like "overblown" and "diworsification" makes it hard to judge the quality of the debate, let alone the appropriate percentage to be allocated, on its own merits."

What kind of low blow is that? Hard to judge in what way? I am not sure what point you are going to make other than being rude.

In case I am taking it the wrong way here is the definition of overblown: done to excess and seeming exaggerated. As in the emphasis on asset allocation and international exposure is excessive.

Diworsification is the vernacular for over diversifying.

For me the appropriate percentage in international is zero as I don't invest in what I don't understand. Asset allocation is a myth as the 2008 meltdown confirmed. When the underpinnings of an economy come unglued (fall apart), assets fall in lock step.

Much of asset allocation comes from modern finance theory which only works well in theory, especially since it projects that past as a future prediction.

 

[meierlde]

AS pointed out a lot of the top companies on the S&P 500 have significant international businesses. With many a trip thru the annual report would tell you. When you get large enough you have to reach outside the US to grow. Cat for example has a large international business as well, and we heard that the new GM sells more cars in China than the US.

 

[Nords]

"Using words like "overblown" and "diworsification" makes it hard to judge the quality of the debate, let alone the appropriate percentage to be allocated, on its own merits."

What kind of low blow is that? Hard to judge in what way? I am not sure what point you are going to make other than being rude.

For me the appropriate percentage in international is zero as I don't invest in what I don't understand. Asset allocation is a myth as the 2008 meltdown confirmed. When the underpinnings of an economy come unglued (fall apart), assets fall in lock step.

Much of asset allocation comes from modern finance theory which only works well in theory, especially since it projects that past as a future prediction.

I was trying to figure out what investment plan you used that eschewed asset allocation instead of just calling it "overblown". I figured you'd base your logic on performance history and make a positive contribution instead of using words like "diworsification".

If you feel those comments are rude then you're not gonna be a very happy camper here. Of course "rude" and "low blow" might be in the same camp as the other pejoratives you've been using.

We've seen the vocabulary before and we understand their meanings, but I thought you'd share what you're doing to avoid what you see as unsatisfactory investing approaches.

How to Disagree

 

[MDJO]

75 % stock, 15 % cash, 10 % bond. Only 5% is in international, but as others have said, s & p index has a lot of international exposures. Slowly changing my mix, decreasing equity over the next few years.

 

[bcinvest]

You don't need to play word police, just ask.

I am a value investor and invest in companies I can understand selling a deep discounts to their underlying value. It reduces risk and focuses on primary objective of increasing returns. I vary between 60% equities and 40% to cash to 95% stock and 5% cash. I have no bond exposure and no international exposure.

If your your horizon is long term bonds are likely to add risk. (Not the price fluctuation type in mpt). How investment selection changes over time should be very tightly linked to an individuals circumstances. If you have a $10 million portfolio and need $2 million to fund your retirement your decision making is going to be different than if you have $1 million.

Relying on an asset allocation rule of thumb is giving investors a false sense of security. It does achieve lower returns over the long term.

If I was not willing to do the work I would be forced to accept lower returns and be forced to diversify a bit more.

Bonds (treasuries) may look a bit more attractive when finally retire, but I have no interest until that point. While I am accumulating I intend to accumulate as much as I can. If I exceed my target by enough I will have very little in bonds.

The one concession I do make to asset allocation is delineating between hard and soft assets. I am actively looking to add raw land (that is just my preference). If all markets implode at least I can grow some corn.

So that would be my advice. Worry more about hard versus soft assets; avoid bonds unless you think they will outperform equities over the long term; invest in equities trying as best you can to invest in what you know even if i means investing in the S&P 500 because you are familiar with a large number of the companies it is comprised of. Avoid using modern finance principles to base investment decisions on because these principles have failed to perform in practice.

 

[Marc1962]

Interesting perspective, bcinvest - thanks for sharing. Would you care to share a bit more detail regarding your method of assessing "underlying value"? Also, do you trade a lot, or do you tend to buy and hold?

 

[bcinvest]

I favor companies with large amounts of liquid assets to market cap or hidden assets. I go in with the intentions of buy and hold. Some of my positions are ten plus years a few don't make a year. The short term ones usually have some disrupting event that causes them to have a large rapid upward price adjustment. Investors don't have to accept mediocre investments. They can filter out the chaff and only select the best. Some companies have the odds so stilted in favor of a favorable return that the risk is to a large extent removed.

Here is an exaggerated scenario that is not that far off from what exists in the companies I favor. You decide to form a company and raise ten million dollars. Your company has one line of business, investing in treasury bonds and you invest all ten million in treasuries. The market values you company at $8 million for what could be numerous reasons. I decide I want to invest in your company because my downside risk is small. Even if you are a completed bonehead as a CEO I am likely at some pint to see your company valued at $10 million so I wait. Sometimes I wait a couple of years without a whole lot to show for it. Eventually enough investors take notice and the price rises and this price rise attracts more investors who bid the price up to $12 million primarily because the price is rising. At this point I find a better value and move to the next opportunity. Or you become a wildly successful bond investor and show the ability to consistently run your business generating excellent returns and I stick around until some other event changes the dynamic.

I vary from large cap to microcap depending where I can find the best values. It is much more difficult in the large cap arena due to the greater attention these companies see.

I pick my share of bombs, but the successes far outweigh an occasional mistake. It take a lot of time, but I enjoy it so it doesn't seem like work. The rewards are worth it.

I think investors have been conditioned to believe that opportunities like this can't exist. They are always out there. They have been extremely plentiful the past few years. Markets involve extremely complex interactions like the people that interact in them. Spontaneous unpredictable self organizing reactions occur that move prices all over the place for reasons unrelated to value. At times companies trade under their value and at time are over valued. If the range was small you wouldn't see it. Share prices on average vary over a fifty percent range during a given year. This is wide enough to give an indication that a given company isn't correctly valued at some point in time over a given year.

Sometimes it is easy to spot and that is the situation I am looking for, when it is so obvious that I have a small risk of being wrong. If you want to see what I see look at CTO. The company does not appear undervalued unless you understand what you are looking at. If you are interested I will walk you through them as an example.

 

[Nords]

I think investors have been conditioned to believe that opportunities like this can't exist.

I don't know how long you've been reading this discussion board, but we have our share of posters who have been able to exploit the gaps in the efficient market hypothesis.

 

[Marc1962]

CTO looks like a dog with declining metrics at every level of the income statement and weak cash flow. That said, the balance sheet is not too bad - it's awash in retained earnings and has net tangible assets equal to about 68% of its market capitalization.

Still, after reading everything I could find at Yahoo and via my Scottrade account, I don't understand the appeal and would be very interested in a walk-through.

 

[meierlde]

I don't know how long you've been reading this discussion board, but we have our share of posters who have been able to exploit the gaps in the efficient market hypothesis.

Actually if you read More Money Than God, you find that hedge funds are all about exploiting the gaps. Someone finds a gap makes a killing then everyone else piles in the gap vanishes and it is off to the next gap.

 

[Nords]

Actually if you read More Money Than God, you find that hedge funds are all about exploiting the gaps. Someone finds a gap makes a killing then everyone else piles in the gap vanishes and it is off to the next gap.

Gosh, I didn't even have to read that book to comprehend that opportunity. If the market was truly efficient then we wouldn't be calling it a "hypothesis".

From a cynical perspective I should point out that if hedge funds were "all" about exploiting the gaps then they'd only charge a share of the profits, not a management fee. And you would expect everyone to be piling all over value investing, but somehow it just never vanishes. The opportunities may dwindle, and there may be more capital chasing too few of the obvious ones, but there's always somewhere else to find a good value investment. I think value investing is too boring, perhaps even too hard, for most investors. Especially when people don't want to pay a management fee.

My point to BCInvest is that a number of the posters on this board have already heard, learned, and profited from the topics upon which he's lecturing. Preachin' to the choir.

 

[DblDoc]

"Using words like "overblown" and "diworsification" makes it hard to judge the quality of the debate, let alone the appropriate percentage to be allocated, on its own merits."

What kind of low blow is that? Hard to judge in what way? I am not sure what point you are going to make other than being rude.

In case I am taking it the wrong way here is the definition of overblown: done to excess and seeming exaggerated. As in the emphasis on asset allocation and international exposure is excessive.

Diworsification is the vernacular for over diversifying.

For me the appropriate percentage in international is zero as I don't invest in what I don't understand. Asset allocation is a myth as the 2008 meltdown confirmed. When the underpinnings of an economy come unglued (fall apart), assets fall in lock step.

Much of asset allocation comes from modern finance theory which only works well in theory, especially since it projects that past as a future prediction.

Oh sh*t I guess I need to start over

My "diworsification" and overblown AA did just fine thank you

50:50 here with a tilt towards EM

DD

 

[Marc1962]

My point to BCInvest is that a number of the posters on this board have already heard, learned, and profited from the topics upon which he's lecturing. Preachin' to the choir.

I think it's also worth noting that at least one of us is too new to be a member of the choir and is interested in hearing what bcinvest is willing to share about his investment approach.

 

[Bestwifeever]

BCInvest, you're more than welcome to introduce yourself on our "Hi I Am...." forum.

 

[travelover]

I think it's also worth noting that at least one of us is too new to be a member of the choir and is interested in hearing what bcinvest is willing to share about his investment approach.

This is what the search function and FAQ are for.

But while we are at it, should I pay off my mortgage?

 

[bcinvest]

I am too new here to have anything to be found by searching. Just testing the water to see if the community is welcoming or holier than thou.

 

[Bestwifeever]

I am too new here to have anything to be found by searching. Just testing the water to see if the community is welcoming or holier than thou.

Our community is more welcoming to new members who post an introduction on our "Hi, I am...." forum, BCInvest. Why not tell us a little something about your retirement goals there?

 

[bcinvest]

I plan on getting familiarized first and making sure this is worth my time and effort. So far I see a lot of thoughtful posts.

 

[bcinvest]

Did asset allocation increase your returns from beginning to end? I doubt it. It has the effect of depressing returns and when you need it most it is likely to fail anyways. Bonds, Equities, Real Estate all took double digit hits in 2008.

 

[kumquat]

I am too new here to have anything to be found by searching.

I'm sure you did not intend this to sound like "I haven't posted anything, therefore there is nothing worth searching for". There are a lot of things that can be found by searching. Think of a few key-words. Give it a try.

 

[REWahoo]

I plan on getting familiarized first and making sure this is worth my time and effort.

Perhaps you would have been better served by spending more time reading and 'getting familiarized' prior to wading in and pointing out our erroneous investment strategies. That comes across as a bit holier than thou, to borrow a phrase.

 

[Gumby]

I am a value investor and invest in companies I can understand selling a deep discounts to their underlying value. It reduces risk and focuses on primary objective of increasing returns.

I have also been a value investor since reading Benjamin Graham long ago, but I think you would have to concede that it is hard work chasing down specific investment candidates and thoroughly evaluating them. If someone is not inclined or lacks the time to do that, asset allocation via mutual funds offers a way to produce modest gains during normal times without all that much stress. Certainly, the recent economic crash shows us that all correlations approach 1 in a real crisis, but for non-crisis situations, a set and forget basic allocation strategy may be well suited to a large number of people.

As far as investing in foreign equities, I think that with sufficient study, one can come to understand them well enough to invest. My single largest equity position is in a Brazilian company. I think I understand their business and their accounting as well as I understand domestic companies. And it has proven to be one of my very best performers over the past six years.

Ultimately, each of us must do whatever makes us most comfortable. For some, that may be value investing in individual equities. For others, it may be simple three fund portfolio of VBMFX, VTSMX and VGTSX. So far, we here on the board have been able to peacefully coexist notwithstanding a variety of investing styles.

I have found it "worth my time and effort" to participate here, but then my time and effort is probably not as valuable as yours.

 

[Bestwifeever]

I plan on getting familiarized first and making sure this is worth my time and effort. So far I see a lot of thoughtful posts.

All rightee then..... Please let us know if we meet your high standards.