Globally Diversified or Worsified?

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Re: Globally Diversified or Worsified?

Post by watchnerd »

heyyou wrote: Sat May 15, 2021 12:21 pm We are all greedy for more money but we seem to notice the laggards, instead of just relishing whatever portion we own that has done best.
Hating the laggards and ditching them usually leads to a portfolio with concentrated risk in whatever performed best most recently, which doesn't give the best risk-adjusted returns over the long haul.

You end up with a highly volatile portfolio.

If your strategy is to reach your goals by hitting a home run, then you need volatility to have a chance of knocking it out of the park.

If your strategy is to reach your goals by getting average returns and saving a lot, you don't need the volatility.
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Re: Globally Diversified or Worsified?

Post by Vanguard Fan 1367 »

Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm I’ve been pouring money into international stocks for well over a decade now. Ouch. I’ve read Vanguard’s outlook for next decade, and they predict international will outperform US by a significant margin. Maybe it will finally payoff. But I have to wonder, do international stocks really add anything to long term returns? If US equities average 10% returns and international average 8.5% over long periods of time, then wouldn’t adding international stocks pull down the average? I personally don’t like the currency and political risk presented by international and I think no other major country comes close to the political and legal stability of the US or the US’s business friendly policies in taxation and regulation. I wouldn’t need much of a nudge to finally rid myself of international stock. Why should I keep them?
I am happy with Jack Bogle’s advice to keep it simple and avoid international stock.
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Re: Globally Diversified or Worsified?

Post by 1789 »

Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm I’ve been pouring money into international stocks for well over a decade now. Ouch. I’ve read Vanguard’s outlook for next decade, and they predict international will outperform US by a significant margin. Maybe it will finally payoff. But I have to wonder, do international stocks really add anything to long term returns? If US equities average 10% returns and international average 8.5% over long periods of time, then wouldn’t adding international stocks pull down the average? I personally don’t like the currency and political risk presented by international and I think no other major country comes close to the political and legal stability of the US or the US’s business friendly policies in taxation and regulation. I wouldn’t need much of a nudge to finally rid myself of international stock. Why should I keep them?
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
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Re: Globally Diversified or Worsified?

Post by abuss368 »

1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
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Re: Globally Diversified or Worsified?

Post by vineviz »

abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
It’s not about simplicity.

It’s about being able to maintain composure.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Globally Diversified or Worsified?

Post by midareff »

Triple digit golfer wrote: Fri May 14, 2021 7:50 pm Why not say the same for U.S. tech stocks vs. the rest of the U.S. market? How undiversified do you want to get to chase performance?
LOL, so you are saying owning 3781 stocks whose business is 40% or better from international sources is not diversified based on legal country of domicile? Is that what you are saying?
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Re: Globally Diversified or Worsified?

Post by midareff »

abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
I was in the same boat as the OP until several years ago. The alleged free lunch on Wall Street (international diversification) cost big bucks this decade, and since 1900. I believe the disparity was 2% annually over more than 100 years per a Credit Suisse report cited in another thread...
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Re: Globally Diversified or Worsified?

Post by Da5id »

midareff wrote: Sat May 15, 2021 1:31 pm
Triple digit golfer wrote: Fri May 14, 2021 7:50 pm Why not say the same for U.S. tech stocks vs. the rest of the U.S. market? How undiversified do you want to get to chase performance?
LOL, so you are saying owning 3781 stocks whose business is 40% or better from international sources is not diversified based on legal country of domicile? Is that what you are saying?
If that were the case, buying international stocks would be predicted to decrease volatility. Because you have enough diversification to do so. But apparently it does decrease volatility (per figure 3 in https://www.vanguard.com/pdf/ISGGEB.pdf).
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Re: Globally Diversified or Worsified?

Post by midareff »

vineviz wrote: Sat May 15, 2021 1:17 pm
abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
It’s not about simplicity.

It’s about being able to maintain composure.
aka SWAN
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Re: Globally Diversified or Worsified?

Post by abuss368 »

vineviz wrote: Sat May 15, 2021 1:17 pm
abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
It’s not about simplicity.

It’s about being able to maintain composure.
For you Vince perhaps. For others it may be about simplicity. Believe it or not there can be more than one strategy that works.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Globally Diversified or Worsified?

Post by abuss368 »

midareff wrote: Sat May 15, 2021 1:35 pm
abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
I was in the same boat as the OP until several years ago. The alleged free lunch on Wall Street (international diversification) cost big bucks this decade, and since 1900. I believe the disparity was 2% annually over more than 100 years per a Credit Suisse report cited in another thread...
I did not know it was a 2% annual gap. That adds up fast. That is real money.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Globally Diversified or Worsified?

Post by midareff »

Da5id wrote: Sat May 15, 2021 1:36 pm
midareff wrote: Sat May 15, 2021 1:31 pm
Triple digit golfer wrote: Fri May 14, 2021 7:50 pm Why not say the same for U.S. tech stocks vs. the rest of the U.S. market? How undiversified do you want to get to chase performance?
LOL, so you are saying owning 3781 stocks whose business is 40% or better from international sources is not diversified based on legal country of domicile? Is that what you are saying?
If that were the case, buying international stocks would be predicted to decrease volatility. Because you have enough diversification to do so. But apparently it does decrease volatility (per figure 3 in https://www.vanguard.com/pdf/ISGGEB.pdf).
So, you recommend owning under-performing equity asset classes to decrease volatility, which is the purpose of bonds in an intelligent AA. Perhaps you could explain why in the portfolio accumulation part of life I would be concerned enough about about volatility to own under-performing equity asset classes.
Last edited by midareff on Sat May 15, 2021 1:42 pm, edited 1 time in total.
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Re: Globally Diversified or Worsified?

Post by vineviz »

abuss368 wrote: Sat May 15, 2021 1:37 pm
vineviz wrote: Sat May 15, 2021 1:17 pm
It’s not about simplicity.

It’s about being able to maintain composure.
For you Vince perhaps. For others it may be about simplicity. Believe it or not there can be more than one strategy that works.
This is not correct.
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Re: Globally Diversified or Worsified?

Post by watchnerd »

vineviz wrote: Sat May 15, 2021 1:17 pm

It’s not about simplicity.

It’s about being able to maintain composure.
Also...holding the whole stock world is simple.

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Re: Globally Diversified or Worsified?

Post by Beensabu »

Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm I’ve been pouring money into international stocks for well over a decade now. Ouch.
Is it painful to buy things low instead of high?

Accumulators are always all "I hope the market goes down and/or stays flat for a decade so I can make $$$". What do you think international has been doing?
But I have to wonder, do international stocks really add anything to long term returns?
Yes. Diversification. Roughly same return over long enough periods, but diversifying out of a single country and out of overweighted sectors.
I personally don’t like the currency and political risk presented by international and I think no other major country comes close to the political and legal stability of the US or the US’s business friendly policies in taxation and regulation.
If this were true and not you trying to talk yourself out of a recently underperforming asset, then you wouldn't have been pouring money into international stocks for well over a decade.
I wouldn’t need much of a nudge to finally rid myself of international stock.
Lol. Yeah, that's pretty obvious. You're here looking for enough affirmation that you can go "Sold! Bogleheads said it was fine."
Why should I keep them?
Let's circle back to the whole accumulators are always all "I hope the market goes down and stays flat for a decade so I can make $$$" thing.

Say it happens? What if the US market goes down and stays flat for a decade? Accumulators go bananas. They happily pour their money into the underperforming asset thinking they will make bank once the market goes back up again. After a few years, they do it more begrudgingly. After a few more years, they start questioning their original plan. After a decade, they're ready to throw in the towel. Shift to 100% international perhaps, or just stick it all in bonds, or cash, or whatever. They're sick of not making any money AND having to ride the volatility coaster. Some of them give in. Some of them don't. Some of them move a little bit to make themselves feel better. What would you tell those people? Now tell it to yourself.
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Re: Globally Diversified or Worsified?

Post by Da5id »

midareff wrote: Sat May 15, 2021 1:47 pm I suppose when you are unable to relate to a statement you have to twist it so you can mock it.. is that you? The purpose of bonds is to tamp down volatility in a portfolio. That's been repeated endlessly on this forum. Did you miss it? To infer or imply that's the purpose of an equity asset class, as you have implied is incorrect. I see you have to resort to labeling things in a derogatory manner when you have no factual argument to support your statements. Do you think owning historically under-performing equity asset classes makes you a smarter investor?
One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

Gotta love it. The two common arguments in favor of excluding international are hero worship and past performance.
Last edited by Triple digit golfer on Sat May 15, 2021 2:45 pm, edited 1 time in total.
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

midareff wrote: Sat May 15, 2021 1:31 pm
Triple digit golfer wrote: Fri May 14, 2021 7:50 pm Why not say the same for U.S. tech stocks vs. the rest of the U.S. market? How undiversified do you want to get to chase performance?
LOL, so you are saying owning 3781 stocks whose business is 40% or better from international sources is not diversified based on legal country of domicile? Is that what you are saying?
Diversification is relative. It's certainly not as diversified as it can be.
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Re: Globally Diversified or Worsified?

Post by Beensabu »

midareff wrote: Sat May 15, 2021 1:47 pm Do you think owning historically under-performing equity asset classes makes you a smarter investor?
You are looking at ex-US equities as a separate sub-asset class from US equities.

You can just as easily look at sectors within US equities as separate sub-asset classes as well.

Technology, Consumer Discretionary, Industrials, and Health Care are currently the heaviest weighted sectors in US Total Market index funds.

Would you allocate your equities solely to Technology on the basis that it has outperformed other sectors? Some people have. Do you? Why? Or why not?

A few years ago, Health Care had outperformed other sectors. And some people allocated their equities solely (or far overweight) to that sector for that reason.

Equities as an asset class are global market equities. A Total World Market index fund is the default. It is the haystack. You can then choose to overweight equity sub-asset classes (or sub-sub-asset classes, or sub-sub-sub asset classes) from there. It has nothing to do with being smart or not. It is a personal decision you make that you then live with because you were unwilling to accept the average return of the whole.

If your overweight selection results in a higher return than the default haystack, you are a genius and everyone who didn't do what you did is not as intelligent of an investor as you. After all, it was obvious all along.

If your overweight selection results in a lower return than the default haystack, you are a fool who should have gone with the haystack and accepted the average return. Or been intelligent enough to overweight to what ended up being the higher performing sub-asset class. After all, it was obvious all along.
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Re: Globally Diversified or Worsified?

Post by midareff »

Da5id wrote: Sat May 15, 2021 2:04 pm
midareff wrote: Sat May 15, 2021 1:47 pm I suppose when you are unable to relate to a statement you have to twist it so you can mock it.. is that you? The purpose of bonds is to tamp down volatility in a portfolio. That's been repeated endlessly on this forum. Did you miss it? To infer or imply that's the purpose of an equity asset class, as you have implied is incorrect. I see you have to resort to labeling things in a derogatory manner when you have no factual argument to support your statements. Do you think owning historically under-performing equity asset classes makes you a smarter investor?
One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

midareff wrote: Sat May 15, 2021 2:40 pm
Da5id wrote: Sat May 15, 2021 2:04 pm
midareff wrote: Sat May 15, 2021 1:47 pm I suppose when you are unable to relate to a statement you have to twist it so you can mock it.. is that you? The purpose of bonds is to tamp down volatility in a portfolio. That's been repeated endlessly on this forum. Did you miss it? To infer or imply that's the purpose of an equity asset class, as you have implied is incorrect. I see you have to resort to labeling things in a derogatory manner when you have no factual argument to support your statements. Do you think owning historically under-performing equity asset classes makes you a smarter investor?
One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
U.S. TSM holds small growth stocks, which have underperformed all other styles. Why do you hold them?

I think the smartest investor holds equities of all styles sizes, sectors, and countries.
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Re: Globally Diversified or Worsified?

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Re: Globally Diversified or Worsified?

Post by watchnerd »

midareff wrote: Sat May 15, 2021 2:40 pm I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
Potentially yes.

For example, Small Cap Value premium relies upon owning an asset that doesn't consistently show an outperforming return and may underperform the market for long periods of time...until it pops.
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Re: Globally Diversified or Worsified?

Post by anon_investor »

watchnerd wrote: Sat May 15, 2021 1:48 pm
vineviz wrote: Sat May 15, 2021 1:17 pm

It’s not about simplicity.

It’s about being able to maintain composure.
Also...holding the whole stock world is simple.

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I am still waiting for your ETF... :twisted:
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Re: Globally Diversified or Worsified?

Post by midareff »

watchnerd wrote: Sat May 15, 2021 2:45 pm
midareff wrote: Sat May 15, 2021 2:40 pm I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
Potentially yes.

For example, Small Cap Value premium relies upon owning an asset that doesn't consistently show an outperforming return and may underperform the market for long periods of time...until it pops.
Isn't potentially a bit like waffling?

Let's say you are 30 years old and over-weight or own in toto the Larry Portfolio. That was SCV and EM as I recall, is that correct? Perhaps you have to wait ten or fifteen years... How well does that work if your 80?
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Re: Globally Diversified or Worsified?

Post by midareff »

Triple digit golfer wrote: Sat May 15, 2021 2:43 pm
midareff wrote: Sat May 15, 2021 2:40 pm
Da5id wrote: Sat May 15, 2021 2:04 pm
midareff wrote: Sat May 15, 2021 1:47 pm I suppose when you are unable to relate to a statement you have to twist it so you can mock it.. is that you? The purpose of bonds is to tamp down volatility in a portfolio. That's been repeated endlessly on this forum. Did you miss it? To infer or imply that's the purpose of an equity asset class, as you have implied is incorrect. I see you have to resort to labeling things in a derogatory manner when you have no factual argument to support your statements. Do you think owning historically under-performing equity asset classes makes you a smarter investor?
One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
U.S. TSM holds small growth stocks, which have underperformed all other styles. Why do you hold them?

I think the smartest investor holds equities of all styles sizes, sectors, and countries.
That's the great thing about opinions Triple Digit, we are all issued one at birth. I hold TSM because I consider it adequately diversified. Apparently you do not so I ask you why do you hold small growth stocks, which have under-performed all other styles? or are you just an under-performance kind of guy? Can't get down to double digit?
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Re: Globally Diversified or Worsified?

Post by arcticpineapplecorp. »

Johnathon Livingston wrote: Fri May 14, 2021 7:39 pm But I have to wonder, do international stocks really add anything to long term returns?
they did in the past (increased returns without additional risk):

Image

Image

https://www.bogleheads.org/wiki/Domestic/International

70/30 US/Int was the sweet spot if you wanted the same standard deviation of all US, but with higher returns.
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Re: Globally Diversified or Worsified?

Post by watchnerd »

midareff wrote: Sat May 15, 2021 3:11 pm

Isn't potentially a bit like waffling?

Let's say you are 30 years old and over-weight or own in toto the Larry Portfolio. That was SCV and EM as I recall, is that correct? Perhaps you have to wait ten or fifteen years... How well does that work if your 80?
I don't know the MPT definition of waffling.

As for being 80, you don't know when the out performance will show up. It might be when you're dead. It might be next week.

Because of this uncertainty of what will outperform when, I don't tilt my stock allocation. And that includes choosing to tilt to the US vs ex-US.

I hold the market's opinion on what the right allocation is.
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

midareff wrote: Sat May 15, 2021 3:15 pm
Triple digit golfer wrote: Sat May 15, 2021 2:43 pm
midareff wrote: Sat May 15, 2021 2:40 pm
Da5id wrote: Sat May 15, 2021 2:04 pm
midareff wrote: Sat May 15, 2021 1:47 pm I suppose when you are unable to relate to a statement you have to twist it so you can mock it.. is that you? The purpose of bonds is to tamp down volatility in a portfolio. That's been repeated endlessly on this forum. Did you miss it? To infer or imply that's the purpose of an equity asset class, as you have implied is incorrect. I see you have to resort to labeling things in a derogatory manner when you have no factual argument to support your statements. Do you think owning historically under-performing equity asset classes makes you a smarter investor?
One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
U.S. TSM holds small growth stocks, which have underperformed all other styles. Why do you hold them?

I think the smartest investor holds equities of all styles sizes, sectors, and countries.
That's the great thing about opinions Triple Digit, we are all issued one at birth. I hold TSM because I consider it adequately diversified. Apparently you do not so I ask you why do you hold small growth stocks, which have under-performed all other styles? or are you just an under-performance kind of guy? Can't get down to double digit?
I hold all equities at roughly market weights. I have no idea what will under or over perform. You seem to be able to tell the future.
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Re: Globally Diversified or Worsified?

Post by abuss368 »

vineviz wrote: Sat May 15, 2021 1:45 pm
abuss368 wrote: Sat May 15, 2021 1:37 pm
vineviz wrote: Sat May 15, 2021 1:17 pm
It’s not about simplicity.

It’s about being able to maintain composure.
For you Vince perhaps. For others it may be about simplicity. Believe it or not there can be more than one strategy that works.
This is not correct.
Unfortunately Vince this is not correct. The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Globally Diversified or Worsified?

Post by UpsetRaptor »

I have a question I've been pondering regarding the everything-is-priced-in premise for a total world stock index, which I'd like to toss out for discussion.

Suppose there was a hypothetical country called Entrepreneurland which had the perfect formula to make it extremely startup friendly. Whatever the "right" variables are for a successful startup-friendly entrepreneurial environment - social, political, availability of capital, etc - suppose Entrepreneurland has nailed them all in just the right proportions, to the point where any future new profitable startup in any future new profitable space is more likely to be established in Entrepeneurland than the rest of the world. Debatable premise, I know, just a thought experiment.

That information, even if known to all investors, would not be reflected in the current stock market indexes of either Entrepreneurland or the world, would it? Because the index is theoretically the current fair market value of all currently available equities, and future profitable companies which don't exist because they haven't been founded yet are not investable yet. So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
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Re: Globally Diversified or Worsified?

Post by Beensabu »

UpsetRaptor wrote: Sat May 15, 2021 4:07 pm So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
No. We've seen the exceptionalism and favorable regulatory environment line of thinking far too often here for that not to be priced in.
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Re: Globally Diversified or Worsified?

Post by vineviz »

abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

UpsetRaptor wrote: Sat May 15, 2021 4:07 pm I have a question I've been pondering regarding the everything-is-priced-in premise for a total world stock index, which I'd like to toss out for discussion.

Suppose there was a hypothetical country called Entrepreneurland which had the perfect formula to make it extremely startup friendly. Whatever the "right" variables are for a successful startup-friendly entrepreneurial environment - social, political, availability of capital, etc - suppose Entrepreneurland has nailed them all in just the right proportions, to the point where any future new profitable startup in any future new profitable space is more likely to be established in Entrepeneurland than the rest of the world. Debatable premise, I know, just a thought experiment.

That information, even if known to all investors, would not be reflected in the current stock market indexes of either Entrepreneurland or the world, would it? Because the index is theoretically the current fair market value of all currently available equities, and future profitable companies which don't exist because they haven't been founded yet are not investable yet. So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
A company that doesn't exist or is not included in an index cannot be priced in. But a total world index would pick it up when it goes public and is large enough to be investable by an index fund.
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Re: Globally Diversified or Worsified?

Post by UpsetRaptor »

Beensabu wrote: Sat May 15, 2021 4:17 pm
UpsetRaptor wrote: Sat May 15, 2021 4:07 pm So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
No. We've seen the exceptionalism and favorable regulatory environment line of thinking far too often here for that not to be priced in.
How exactly is the (hypothetical) information that future profitable companies, which don't exist yet, are more likely to be domiciled in Country X "priced in" to a current world index? The current world index consists of only all currently investable corporations, and companies that aren't founded yet have a current market value of zero.
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Re: Globally Diversified or Worsified?

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).
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Re: Globally Diversified or Worsified?

Post by UpsetRaptor »

Triple digit golfer wrote: Sat May 15, 2021 4:20 pm
UpsetRaptor wrote: Sat May 15, 2021 4:07 pm I have a question I've been pondering regarding the everything-is-priced-in premise for a total world stock index, which I'd like to toss out for discussion.

Suppose there was a hypothetical country called Entrepreneurland which had the perfect formula to make it extremely startup friendly. Whatever the "right" variables are for a successful startup-friendly entrepreneurial environment - social, political, availability of capital, etc - suppose Entrepreneurland has nailed them all in just the right proportions, to the point where any future new profitable startup in any future new profitable space is more likely to be established in Entrepeneurland than the rest of the world. Debatable premise, I know, just a thought experiment.

That information, even if known to all investors, would not be reflected in the current stock market indexes of either Entrepreneurland or the world, would it? Because the index is theoretically the current fair market value of all currently available equities, and future profitable companies which don't exist because they haven't been founded yet are not investable yet. So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
A company that doesn't exist or is not included in an index cannot be priced in. But a total world index would pick it up when it goes public and is large enough to be investable by an index fund.
I understand that, in fact the information "cannot be priced in" is part of the premise.
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Re: Globally Diversified or Worsified?

Post by abuss368 »

vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

abuss368 wrote: Sat May 15, 2021 4:31 pm
vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
So where were you a decade ago?

You're doing a disservice here.
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Re: Globally Diversified or Worsified?

Post by vineviz »

abuss368 wrote: Sat May 15, 2021 4:31 pm Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.
That is a falsehood, and a dangerous one at that.
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Re: Globally Diversified or Worsified?

Post by DB2 »

abuss368 wrote: Sat May 15, 2021 1:37 pm
vineviz wrote: Sat May 15, 2021 1:17 pm
abuss368 wrote: Sat May 15, 2021 1:09 pm
1789 wrote: Sat May 15, 2021 12:44 pm
Most important thing is to be able to stay the course. If you are confident that you will stay the course with your only US portfolio (even when international outperform US) then go ahead and get rid of international. I don’t have international fund.
Excellent advice and investors would be wise to listen.

Simplicity wins.
Tony
It’s not about simplicity.

It’s about being able to maintain composure.
For you Vince perhaps. For others it may be about simplicity. Believe it or not there can be more than one strategy that works.

Tony
Seems like a big bet! U.S. debt levels near WWII levels (only no war right now), treasury purchases not as appealing, risk of losing reserve currency at some point, China's GDP to surpass U.S. within next decade, etc. Being globally diversified is far more important than at any point in our lives in my view.
Last edited by DB2 on Sat May 15, 2021 5:04 pm, edited 4 times in total.
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Re: Globally Diversified or Worsified?

Post by watchnerd »

abuss368 wrote: Sat May 15, 2021 4:31 pm

Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
Let's take that to the logical next step:

The performance results speak for themselves:

You should have been all-in on crypto for the last 5 years and the fact that you were instead all US stocks has done you real financial harm.

https://www.portfoliovisualizer.com/bac ... ion2_2=100


(you've probably still got about 6-12 months left to change your mind)
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Re: Globally Diversified or Worsified?

Post by lostdog »

abuss368 wrote: Sat May 15, 2021 4:31 pm
vineviz wrote: Sat May 15, 2021 4:18 pm
abuss368 wrote: Sat May 15, 2021 3:46 pm The big “things” are important. Overall asset allocation. Low costs. Spend less than you make. The rest is dancing on the head of a pin.
Avoiding unnecessary risk is one of the “big things”. This anti-diversification misinformation campaign runs the risk of doing real financial harm to investors who buy into it.
Vince -

Folks have incurred real financial harm over the last decade plus, and from a cumulative perspective even longer. The performance results speak for themselves.

Tony
Tony,

Will you admit that you're promoting performance chasing? Answer with a yes or no.
Last edited by lostdog on Sat May 15, 2021 5:17 pm, edited 1 time in total.
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Re: Globally Diversified or Worsified?

Post by NiceUnparticularMan »

We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
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Re: Globally Diversified or Worsified?

Post by Triple digit golfer »

NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
Outstanding post. You summed it up perfectly.
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Re: Globally Diversified or Worsified?

Post by midareff »

Triple digit golfer wrote: Sat May 15, 2021 3:32 pm
midareff wrote: Sat May 15, 2021 3:15 pm
Triple digit golfer wrote: Sat May 15, 2021 2:43 pm
midareff wrote: Sat May 15, 2021 2:40 pm
Da5id wrote: Sat May 15, 2021 2:04 pm

One benefit of diversifying within an asset class (equities in this case) is to decrease volatility.

Comparing the purpose bonds in an asset allocation to any subset of equities is wrong. In my opinion. Though occasionally people do attempt to do so in the case of high dividend stocks.

All the major investment companies all-in-one target retirement funds I know of offhand seem to have adopted having some amount of international. Shame for their investors they can't have your wisdom.
Once again you miss the points to press on with your own logic. Let me enlighten you... an investment house has legal liabilities as to their portfolio construction. Individual investors do not. I ask you again.... Do you think owning historically under-performing equity asset classes makes you a smarter investor?
U.S. TSM holds small growth stocks, which have underperformed all other styles. Why do you hold them?

I think the smartest investor holds equities of all styles sizes, sectors, and countries.
That's the great thing about opinions Triple Digit, we are all issued one at birth. I hold TSM because I consider it adequately diversified. Apparently you do not so I ask you why do you hold small growth stocks, which have under-performed all other styles? or are you just an under-performance kind of guy? Can't get down to double digit?
I hold all equities at roughly market weights. I have no idea what will under or over perform. You seem to be able to tell the future.
You seem to have an interest in trying to determine what I can or can't do. My view of the future is as accurate as yours. In case you don't already know it, trying to determine what I know about the future is a waste of your time. You could be watching a movie, listening to an album or reading a book on investing... or out exercising.
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Re: Globally Diversified or Worsified?

Post by Johnathon Livingston »

NiceUnparticularMan wrote: Sat May 15, 2021 5:16 pm We know one thing that can ruin an otherwise solid long-term investment plan is ill-timed reactive allocation changes. Lots of steady plans will work well enough. But not staying the course with your plan, at the wrong times, may not.

In this case, when people are praising the simplicity AND superior returns of a U.S.-only stock portfolio in recent years, I wonder if they will stay the course if after many upcoming years, that portfolio is lagging a mixed portfolio that is more complicated by just one fund (If even that). If not, if they might suddenly discover the alternative "simplicity" of a global portfolio, and they might make an ill-timed mistake.

In short, show me a person simplifying into a portfolio they believe will likely underperform, and that is a person I believe truly values simplicity for its own sake.

OK, now it appears to me the OP has already admitted to having chosen to invest in ex-U.S. stocks back when they had recently done relatively well, and now is thinking of liquidating those holdings after they have recently done relatively worse. That, of course, is the opposite of the behavior that is most conducive to long term success, and would be setting the stage for yet another such reversal down the road.

But I don't know what to tell such a person, other than that if the pressure about hearing about others with better recent returns is proving too much, maybe you would be best off taking all this out of your hands. Like, can you just invest everything with a Vanguard Target or Lifestyle fund, and walk away?

Because unless you are prepared to ignore long periods of underperforming various other custom portfolios you hear about here, this adverse cycle may never end.
People have questioned why I’m thinking of changing my allocations. I’m taking a fresh look at everything. I’m 18 years from retirement and looking at my last decade or so of aggressive accumulations before I need to start de-risking. I bought international because I was following mainstream, conventional financial planning advice. Now I’m questioning that paradigm facing my last chapter to really accumulate wealth before I start reeling in my risk level. I made some great investments over the last 21 years, but the one that never set well with me was investing in international equities. And sure enough they’ve absolutely sucked for a decade. They’ve become strongly correlated with the US market, which undercuts but doesn’t eliminate the diversification rationale for including them. But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk. I think that was a big reason Bogle didn’t like them. So, yes I’m taking a fresh look at them and sought some input. Having bought them for so long supposedly at a “bargain” makes me not want to dump them now. I may be more inclined to stop buying them going forward or reducing my purchase allocation.
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Re: Globally Diversified or Worsified?

Post by Beensabu »

UpsetRaptor wrote: Sat May 15, 2021 4:21 pm
Beensabu wrote: Sat May 15, 2021 4:17 pm
UpsetRaptor wrote: Sat May 15, 2021 4:07 pm So the information that not-yet-founded future highly profitable corporations would be more likely to be domiciled in Entrepreneurland than elsewhere would not be reflected in a current Total World index. No?
No. We've seen the exceptionalism and favorable regulatory environment line of thinking far too often here for that not to be priced in.
How exactly is the (hypothetical) information that future profitable companies, which don't exist yet, are more likely to be domiciled in Country X "priced in" to a current world index? The current world index consists of only all currently investable corporations, and companies that aren't founded yet have a current market value of zero.
Because your hypothetical was actually just a completely transparent reiteration of "American exceptionalism".
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Re: Globally Diversified or Worsified?

Post by Robot Monster »

Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm But what bugs me the most is that international equities require you to take on something beyond buying into entrepreneurial risk— you take on currency risk.
I prefer to call it currency diversification. :wink:

An FYI: The Vanguard Global Minimum Volatility Fund "seeks to hedge away most of the currency exposure resulting from its foreign stock holdings."
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Re: Globally Diversified or Worsified?

Post by watchnerd »

Johnathon Livingston wrote: Sat May 15, 2021 5:41 pm you take on currency risk
Huh.

I have the exact opposite POV.

I view them as diversifying currency risk, as I don't have all my real stock returns hitched to a strong USD.

If USD declines relative to other currencies, I get upside via foreign stocks.
Robot Monster wrote: Sat May 15, 2021 5:55 pm
I prefer to call it currency diversification. :wink:
Right.
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