International stocks question

[Boho]

That quote is essentially meaningless.

Yeah. Damn...it's so hard to find an article on this with citations to the actual study or the details I want.

 

[RobLJ]

I suspect for large-cap developed international there is less space for active management, and probably comparatively more for small value and emerging markets, similar to US markets 20 years ago where the S&P Vanguard index was available but relatively less choices elsewhere.

I do use managed funds for international, other than in my wife's Vanguard account, but am considering changing to an index for the developed international piece.

Yeah. Damn...it's so hard to find an article on this with citations to the actual study or the details I want.

 

[Fedup]

So I'm bringing this thread back up. Today international fund seems to do better than US market. is this going to be a new trend.

 

[Totoro]

Don't know, what I do know:

• The dollar is quite expensive
• Emerging specifically, and non-US markets in general, have lower valuations than the US

I allocated cash to emerging (EMIM) because of it. A very good year so far, up double digits. Luck strikes again I guess.

 

[Fedup]

I already have some emerging market, but a much smaller allocation, but I was wondering about Europe. But this morning, I shifted some more to emerging market, reduced my US portfolio. I believe Gunlack was on TV said something similar. I read boggle forum and something about 20% was recommended.

 

[Totoro]

Equities Europe is a bit in between US and emerging in my view. Not as cheap as emerging, fewer risks. Some 'bargains' available, but harder to research vs. the US if you go individual companies.

And there are some political things to consider: UK stocks in relation to Brexit for example. Banks/cars have plenty of international lawsuits going on. A few companies got slammed by Russian sanctions. The usual stuff

Only thing to really watch out for in the short term is the French elections, especially if Le Pen makes it to the second round. Buying or selling around election date may be unwise due to high potential volatility.

 

[Fedup]

I've heard on CNBC that Goldman Sachs and others have come out with a recommendation to overweight emerging market. I guess I should go work for them. I'm one day ahead.

 

[Totoro]

Usually when GS comes out publicly, they already took all their profits privately.

So there's that

 

[target2019]

So I'm bringing this thread back up. Today international fund seems to do better than US market. is this going to be a new trend.

Of course it is. I was a year ahead, putting new contributions into EM all throughout 2016.
Now I am feeling like a superstar FA.
☺

 

[Fedup]

Of course it is. I was a year ahead, putting new contributions into EM all throughout 2016.
Now I am feeling like a superstar FA.
☺

I did too, but then it stalled for a while.

 

[Fedup]

Usually when GS comes out publicly, they already took all their profits privately.

So there's that

Everything is a risk. Same for the buy and hold people.

 

[Totoro]

It's not in my view though with Goldman. These guys have been convicted of deliberately deceiving their own customers and acting against their best interests.

Goldman Sachs Finally Admits it Defrauded Investors In 2008 Crisis | Fortune.com

As part of the settlement, New York-based Goldman agreed to a list of facts put together by the DoJ that stated Goldman had misled investors about the mortgage-backed securities while knowing that the repackaged loans were indeed riskier than what they had told investors.

So there is no reason to give their public opinions any weight.

 

[target2019]

I did too, but then it stalled for a while.

It was a bit of a letdown.
This year I'm adding to a 50/50 balanced fund, on top of the EM fund. None of this is pure index. It's two different American funds - RNWEX and RLBGX. Trying to create a magic blend.

 

[Fedup]

It's not in my view though with Goldman. These guys have been convicted of deliberately deceiving their own customers and acting against their best interests.

Goldman Sachs Finally Admits it Defrauded Investors In 2008 Crisis | Fortune.com



So there is no reason to give their public opinions any weight.

They are crooks in the investment world. I meant I really didn't listen to them. Just thought it was fun to add that even they agree with me.

 

[Fedup]

Green shoots in Europe market? Any thoughts. I made exactly $40 out of VEA in my HSA account. I had enough money to buy 50 shares. On the other hand VWO barely up in my HSA account.

 

[OldShooter]

I haven't met anyone that could reliably predict future market performance so I maintain diversification across both US and foreign markets. ...

This!

Another important factor is the exchange rate. During 4Q16 the dollar strengthened by as much as 8% depending on what you compare it to. So if an overseas market ran up by 8% it would look like a net 0% change when evaluated in USD. I view this as money in the bank; as the dollar weakens to more historical levels, international stocks will look like winners even if they do not appreciate much in local currency terms.

IMO international exchange rates are not considered anywhere near enough in discussing international investing. Rates will not dominate in a long-term investment strategy but in the shorter term they can make the ride look rougher than it really is. Rate risk, though, is a valid argument for some home country bias in a portfolio. Search "home country bias" for some interesting reading.

 

[Totoro]

Green shoots in Europe market? Any thoughts. I made exactly $40 out of VEA in my HSA account. I had enough money to buy 50 shares. On the other hand VWO barely up in my HSA account.

What Brexit took, French elections gave back. It's normal volatility and noise.

Europe is doing better economically, but that's just as true all over the world.

 

[Totoro]

as the dollar weakens to more historical levels, international stocks will look like winners even if they do not appreciate much in local currency terms.

I'm on the other side of that equation. My net worth in Euros (my currency and cost of living reference) went up alot, and in USD went down considerably the past two years. Double whammy with the runup in valuations.

So the downside cliff also looks kinda steep - yikes ..

 

[OldShooter]

... So the downside cliff also looks kinda steep - yikes ..

@Totoro, there is an easy solution for this: Stop looking.

Really, it took me 30 or 40 years to learn to stop looking. Stop trading individual stocks. Stop anguishing over market movements. Stop chasing hot managers or hot trends. And to learn that no one in the investment business knows anything useful beyond how to extract money from investors.

So now we are fully passive and we look at our portfolio once a year during the week between Christmas and New Year. Most years we don't need to rebalance, sometimes there is a trade or two in January. And that's it!

Even a year is somewhat high frequency given the behavior of the markets. As you say, it's all "normal volatility and noise." It really takes a five year vantage point to start making sense of things.

Well, what about the Euro? What about it? The issues with the southern economies will be clearer in five years, as will the effects of Brexit, the integrity of the UK, and the political trajectory of France. In the mean time, massive currency bets are made every millisecond by people with vast resources and superior information. The only sensible reaction to all of this is to stop looking and stop worrying.

Have a nice five years.

 

[gcgang]

I haven't met anyone that could reliably predict future market performance so I maintain diversification across both US and foreign markets. Recent growth internationally has lagged the US, but international stock valuations are also quite a bit lower than US markets, so they could be a "good buy" at this point.

http://3p5bnx3przb73659la2iupn2.wpe...wp-content/uploads/2016/05/SSRN-id2129474.pdf

Above is a link to a Meb Faber Whitepaper from 2012 that pretty much does reliably predict market performance over a ten year period using CAPE. He comments something like, "lots of people who believe in efficient markets keep the same allocation all the time. Does that make sense looking at this data?"

For those who believe US stocks give foreign exposure, while that's true, would you rather pay a high or a low price for that exposure?

I don't make a lot of adjustments to my holdings, as I have individual, mostly US stocks with large embedded gains, but when funds come available, or when I do reduce US stocks by selling/buyout events, I've been reallocating to lower CAPE international markets.

 

[exnavynuke]

http://3p5bnx3przb73659la2iupn2.wpe...wp-content/uploads/2016/05/SSRN-id2129474.pdf

Above is a link to a Meb Faber Whitepaper from 2012 that pretty much does reliably predict market performance over a ten year period using CAPE. He comments something like, "lots of people who believe in efficient markets keep the same allocation all the time. Does that make sense looking at this data?"

For those who believe US stocks give foreign exposure, while that's true, would you rather pay a high or a low price for that exposure?

I don't make a lot of adjustments to my holdings, as I have individual, mostly US stocks with large embedded gains, but when funds come available, or when I do reduce US stocks by selling/buyout events, I've been reallocating to lower CAPE international markets.

Showing a historic correlation (that sometimes had larger or smaller correlations) is not the same as predicting future returns. The saying "the markets can stay irrational longer than you can stay solvent" always pops into my mind anytime someone starts talking about wanting to time or predict markets based on history and what "normal" "should be".

 

[OldShooter]

... Above is a link to a Meb Faber Whitepaper from 2012 that pretty much does reliably predict market performance over a ten year period using CAPE. ...

Possibly you posted the wrong link. All I see there is a scheme that looks good when backtested. I see no evidence that it has "reliably" predicted anything.

Evidence would involve looking at the what the market did after the "prediction" was made. If you have a link showing that, then I would consider investigating further. For example, if the scheme did make an accurate forecast, was it due to luck or skill? With thousands of guys like this one constantly making predictions, sheer luck will make a few of them right. So then the question becomes "Does the guy have a history of his documented predictions being accurate for market behavior subsequent to each prediction? Only if this question is also answered affirmatively does my interest level rise.

Good looking backtests are a dime a dozen and at 10/12th of cent they are overpriced. Give me a little time and I could probably take a combination of things like the price of salt in Madagascar, tulip sales in Holland, and penguin populations in the Antarctic, then give you an algorithm that backtests well.

Coming at it another way, if the guy really does have a predictive tool, why would he be giving it away? Why would he be hawking his advisory firm? He wouldn't be. He'd be on a tropical beach somewhere being hand-fed peeled grapes and drinking from a glass with a little paper umbrella in it. The reason he's not on that island is that he doesn't know any more about the future than the rest of us, so he has to work for a living -- selling dreams.

 

[LOL!]

Green shoots in Europe market? Any thoughts. I made exactly $40 out of VEA in my HSA account. I had enough money to buy 50 shares. On the other hand VWO barely up in my HSA account.

Since I just some sold of my holdings in VEA this morning, I feel I should comment.

VEA (VTMGX) Vanguard Developed Markets is up 10.6% Year-To-Date (Yesterday) and 12% for the past 12 months, so most of the gains have come in 2017 unless one purchased right after the Brexit vote and captured some of the bounce back. If one had bought then, VEA is up about 20%.

I think that anyone who thinks that they can buy once and hold forever is just not going to do as well as somebody who does the buy, hold, and rebalance thing. If one has the guts, then I think it is relatively straightforward to know when to sell some bond fund shares and buy equity fund shares. OTOH, I find it more difficult to know when to rebalance the other way: sell equites and buy bonds.

For instance, after the French vote, VEA and other equities popped. Does that mean they will continue to go up? After all, studies have shown that momentum exists. Or does it mean that VEA will stop going up so quickly and kind of stabilize or drop from here since the uncertainty of the French vote has been removed? I simply do not know and I don't care right now. Eventually the vote in the UK will create uncertainty for some people and there might be an opportunity there.

I do know that I have set an asset allocation to foreign equities and I do rebalance out and in a few times a year when price movements are large enough. I am certain that so-called "rebalancing studies" have never tested the methods I use, so I am unconcerned about those studies. Also, because I am following an asset allocation plan, I am not moving more than about 5% of my total portfolio on any one day, although more usually it would be in the 1% to 2% range. That is, if I say I sold VEA, that means I didn't sell all of it and still have plenty of foreign equities to sell another day. And I still have plenty of bond funds to exchange into equities at any moment.

So will I be upset if VEA goes up more after I sold it today? Not really. I will take solace that I de-risked my portfolio by getting back to my desired asset allocation after the quick run-up. That's all I can really do.

 

[gcgang]

Possibly you posted the wrong link. All I see there is a scheme that looks good when backtested. I see no evidence that it has "reliably" predicted
...
Coming at it another way, if the guy really does have a predictive tool, why would he be giving it away? Why would he be hawking his advisory firm? He wouldn't be. He'd be on a tropical beach somewhere being hand-fed peeled grapes and drinking from a glass with a little paper umbrella in it. The reason he's not on that island is that he doesn't know any more about the future than the rest of us, so he has to work for a living -- selling dreams.

I'll grant you it's just looking at what's happened in the past, and it's no guarantee it will continue.

I've backtested something else. The sun has risen in the east. I'll predict it will do it again. I'm going to give this prediction away, and go back to my Mai Tai on the beach here on Maui.

Could you peel me a grape, please?

 

[OldShooter]

... I've backtested something else. The sun has risen in the east. I'll predict it will do it again. ...

Nassim Taleb's Black Swan Thanksgiving Turkey - Business Insider