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Re: True Diversification
Old 02-10-2006, 03:20 AM   #21
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Re: True Diversification

Most of the foreign stuff I have was bought in the 70s and 80s (credit my dad, may he rest in peace) but it's only Latin America, which is going gangbusters now. I recently added some EEM to balance things out, and that's going well, too. I don't think it's "market timing" to pull your head out of the sand and see that America is not the economic engine that it once was with respect to "everyone else". The rest of the world has a lot of growing to do.
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Re: True Diversification
Old 02-10-2006, 07:41 AM   #22
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Re: True Diversification

I think one of the major reasons that a whole lot of people only recommend 20-30% int'l and 80-70% US stocks is that they simply take the yearly returns of the MSCI EAFE and S&P 500 from 1970-today, and then use Excel [or whatever] to find the portfolio with the lowest volatility. This is all fine and good, but why should we believe that this will continue? Int'l stocks and bonds represent roughly 50% of the world market. I wish Vanguard would start an int'l bond fund and an int'l small cap index fund.

Now, there are some behavioral issues. Mainly that investors tend to want to overweight their home country for a variety of reasons. I think it's mostly because the emotional pain that investors feel when their country's stocks do better than a diversified portfolio is much higher than when another country's/region's stocks do better. Plus, when our country's stocks do much better than everyone else's, a whole lot of our country's media is going to do a lot of stories about how "smart/savvy/lucky" those investors are by having all their portfolio in our country's stocks

Personally, we're roughly 1/3-1/2 of our stock in int'l stocks. And I'm fine [I think] with the fact that no matter what allocation I choose, it will turn out not to be optimal. I've just got to have the stones to stick to it.

As for emerging markets, check out Active Management's Failure to Deliver in Emerging Markets: A View from the New Economy.

- Alec
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Re: True Diversification
Old 02-10-2006, 07:48 AM   #23
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Re: True Diversification

My exposure to overseas stocks was about 10% until 2003. Since then it has been increased to 25%.
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Re: True Diversification
Old 02-10-2006, 07:59 AM   #24
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Re: True Diversification

Fear of foreign investing is not just emotional or "my country is whupping your country's butt!" *

Anyone who wants to buy individual foreign stocks will find it verrrry hard to get information. I have some Italian stocks and their annual reports come out about 1 year behind. Mexican stocks: I don't even get an annual report! No one in the US covers them, so people are rightly concerned since they don't even have access to the kind of generic info that one might come across in a local (Mexican, Italian, etc., ) newspaper.. The companies with ADRs are the tip of the foreign investing iceberg, and yet there is little to no analysis of even them.

On another level, I might not really want to see the results of serious analysis! * *The US is the most transparent investing environment by far, and yet we are periodically subjected to Enrons and Tycos and S&L debacles. Imagine the other countries!! *It is somewhat the "Wild West" of investing.
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Re: True Diversification
Old 02-10-2006, 08:16 AM   #25
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Re: True Diversification

Quote:
Originally Posted by ats5g
Your EM reference has some good info, but the meat of the stats is a bit dated. (latest 1999) Still the statement about how great the S&P has been compared to EM (for 5 year period ending 99) makes the case for diversification.* A look at the Fido and VG funds compared to the 500 for the LAST 5 years tells the slightly different story.
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Re: True Diversification
Old 02-10-2006, 08:49 AM   #26
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Re: True Diversification

Quote:
Originally Posted by ladelfina
Fear of foreign investing is not just emotional or "my country is whupping your country's butt!"

Anyone who wants to buy individual foreign stocks will find it verrrry hard to get information. I have some Italian stocks and their annual reports come out about 1 year behind. Mexican stocks: I don't even get an annual report! No one in the US covers them, so people are rightly concerned since they don't even have access to the kind of generic info that one might come across in a local (Mexican, Italian, etc., ) newspaper.. The companies with ADRs are the tip of the foreign investing iceberg, and yet there is little to no analysis of even them.

On another level, I might not really want to see the results of serious analysis! The US is the most transparent investing environment by far, and yet we are periodically subjected to Enrons and Tycos and S&L debacles. Imagine the other countries!! It is somewhat the "Wild West" of investing.
I think there is about the same amount of info out there on foreign companies as US companies. We can cherry pick companies that have tons of info out there, or companies that have little info out, there all day long, so I'll just offer:

I can get tons of info on foreign stocks by just going to that company's website [current financials, etc.]. I just spot checked a couple of companies from Vanguard's European Index fund, and Vanguard's Pacific Stock Index Fund. Plus, there are quite a number of foreign companes that file with the SEC, including mexican companies. Not too mention that I can get info on Canadian companies at SEDAR.

Does the US media run stories about those foreign companies? Nope, because less people in the US would watch or read that station or newspaper, and then that media would lose readership and revenue.

As far as the analyst coverage, there are thousands of US public companies that have little or no analyst coverage.

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Re: True Diversification
Old 02-10-2006, 09:23 AM   #27
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Re: True Diversification

Well, I just did a check on WMMVY.. on the company's website the "english" link is broken. Guess I would be doing OK if I could read Spanish, though!

Most stock reporting services have zippo on this stock; the only one I did find with some data was Morningstar. It's true you can find stuff out, but you have to be persistent (and know Spanish).

Even if this were not the case, there's still a psychological entry barrier. Americans might think they have a sense of how well XYZ American chipmaker or ABC American mining company is going to do.. but that won't necessarily translate into the same level of confidence for ? Greek chipmaker or F Norwegian mining.
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Re: True Diversification
Old 02-10-2006, 09:33 AM   #28
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Re: True Diversification

Avoid greek chip makers at all cost.

Note that I am carefully avoiding some quip like "You'll end up taking it in the rear end".

Ow. It hurts when you hit your head on the table.
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Re: True Diversification
Old 02-10-2006, 09:49 AM   #29
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Re: True Diversification

Quote:
It hurts when you hit your head on the table.
I hate it when that happens.

Plus I've kind of given short shrift to the still-quite-different rules that companies play by, even in the most industrialized countries. As the global market keeps developing these are starting to come more into line with US practices, but, for example, Germany has only recently started to encourage companies to give each share one vote (some shares used to have multiple votes, I can only guess whose...), report executive and board compensation, and generally wipe away the cobwebs of a very ossified old-boy network. I know a few accountants in Italy and I believe them when they admit that 100% of Italian companies keep 2 sets of books. That doesn't stop me from owning some of them, like E and LUX, but it just might make some investors a tad queasy* * * . Our upright American notion of a "public" company is not exactly operative yet in most of the world. It could be argued that it's not even all that operative in the US (see the "broken promise" thread).

We all know how figures can be massaged to meet Wall St. projections, and how analysts and auditors have been in bed with corporate finance.. the question is, how far are companies commonly willing to go to cook the books... we can never know that, and we know far less about the world beyond US borders.
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Re: True Diversification
Old 02-10-2006, 12:37 PM   #30
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Re: True Diversification

Quote:
Originally Posted by ladelfina
Well, I just did a check on WMMVY.. on the company's website the "english" link is broken. Guess I would be doing OK if I could read Spanish, though!

Most stock reporting services have zippo on this stock; the only one I did find with some data was Morningstar. It's true you can find stuff out, but you have to be persistent (and know Spanish).

Even if this were not the case, there's still a psychological entry barrier. Americans might think they have a sense of how well XYZ American chipmaker or ABC American mining company is going to do.. but that won't necessarily translate into the same level of confidence for ? Greek chipmaker or F Norwegian mining.
I guess we'll just have to agree to disagree. Like I said before, we can both find foreign stocks that either have zippo info, or a lot of info. For example, WMMVY is only quoted in the Pink Sheets, where companies are not required to report with the SEC, or foreign exchanges, so there is going to be limited info. But a broker would have info on these companies. Where as, Telefonos de Mexico SA does file reports with the SEC, and is also on the NYSE.

There are certainly some foreign companies for which there is very little info out there, and some foreign companies for which there is a lot of info out there. Likewise, there are some US companies for which there is very little info out there [like OTCBB and pink sheet companies], and some companies for which there is a lot of info out there.

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Re: True Diversification
Old 02-10-2006, 12:39 PM   #31
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Re: True Diversification

I think ladelfinas point is that on the whole, american companies are under more scrutiny and there is more info in general available on them than some, if not many, other countries. And thus if things can go enron/worldcom here, there is more potential for tomfoolery outside the borders.
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Re: True Diversification
Old 02-10-2006, 01:33 PM   #32
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Re: True Diversification

thanks, fuzbun.. those are two of my points.. but also, WAL*MART (Mexico) is not some piddly little company. It's silly to view it like most OTC stocks.

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Re: True Diversification
Old 02-11-2006, 03:37 PM   #33
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Re: True Diversification

The trouble with diversification is that you can't get enough of it. Due to globalization of financial markets and increased levels of trade in the past fifteen years which has synchronized business cycles, equity markets worldwide correlate more than they used to. And they are susceptible to the same shocks. If (when) the US housing bubble bursts decisively the Asian exporting economies will feel it strongly. If we were to have another 1987 event, all the major equity markets would likely drop in unison.

The other problem with asset allocation at the moment is that everything is expensive due to high levels of global liquidity. While the Fed is tightening, the ECB and BOJ have continued to print money. Liquidity drives up prices, reduces risk premiums, and reduces expected returns. I wonder if this is a time to sit on the sidelines and wait for markets to return to historical trends, whether the adjustment is sudden or gradual. Sometimes being patient is the best that an investor can do. Always a difficult judgment call.
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