Why is stock investing not as popular in Europe?

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klaus14
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Why is stock investing not as popular in Europe?

Post by klaus14 »

Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average historically higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
Last edited by klaus14 on Thu Dec 09, 2021 4:35 pm, edited 2 times in total.
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Nathan Drake
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Re: Why stock investing is not as popular in Europe ?

Post by Nathan Drake »

:dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
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klaus14
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Re: Why stock investing is not as popular in Europe ?

Post by klaus14 »

Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
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Re: Why stock investing is not as popular in Europe ?

Post by Nathan Drake »

klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
It’s a possibility, I think it needs to be weighed against recent historical norms for investing in the US and consider whether our new elevated rates are a “new norm” or something that will mean revert

I also think US home country bias is quite high now as well, those two factors are important
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Re: Why stock investing is not as popular in Europe ?

Post by theorist »

Nathan Drake wrote: Tue Dec 07, 2021 1:31 am
klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
It’s a possibility, I think it needs to be weighed against recent historical norms for investing in the US and consider whether our new elevated rates are a “new norm” or something that will mean revert

I also think US home country bias is quite high now as well, those two factors are important
A separate but not irrelevant factor in recent years has been the rather different sector composition of stocks in the US vs European markets. The US has been the home of the developing tech mega firms, and this certainly shows up there — relatively speaking, investing in European markets looks like a value bet relative to the US markets, which look more growthy.
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Re: Why stock investing is not as popular in Europe ?

Post by minimalistmarc »

klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
But if European investors increase their equity exposure they will likely want 50 - 60% US equities or whatever the global market cap at the time is.
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Re: Why stock investing is not as popular in Europe ?

Post by klaus14 »

minimalistmarc wrote: Tue Dec 07, 2021 4:59 am
But if European investors increase their equity exposure they will likely want 50 - 60% US equities or whatever the global market cap at the time is.
they also have home bias like US based investors.
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Re: Why stock investing is not as popular in Europe ?

Post by steve r »

klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
I would say NO, not meaningfully so. The EU pensions will in turn need to invest somewhere. Perhaps there are rules that X percent need to be in bonds, IDK. If so, then to a lesser extent.
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Re: Why stock investing is not as popular in Europe ?

Post by minimalistmarc »

klaus14 wrote: Tue Dec 07, 2021 4:59 am
minimalistmarc wrote: Tue Dec 07, 2021 4:59 am
But if European investors increase their equity exposure they will likely want 50 - 60% US equities or whatever the global market cap at the time is.
they also have home bias like US based investors.
Be
Almost all U.K. investors I know have no home bias, but they are probably a Bogle head type group
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Re: Why stock investing is not as popular in Europe ?

Post by Ferdinand2014 »

minimalistmarc wrote: Tue Dec 07, 2021 6:04 am
klaus14 wrote: Tue Dec 07, 2021 4:59 am
minimalistmarc wrote: Tue Dec 07, 2021 4:59 am
But if European investors increase their equity exposure they will likely want 50 - 60% US equities or whatever the global market cap at the time is.
they also have home bias like US based investors.
Be
Almost all U.K. investors I know have no home bias, but they are probably a Bogle head type group
According to Vanguard, U.S. investors have the lowest home country bias at 1.4x vs UK investors at 4.9x. Canada at 16.7 x, Australia at 30x and Italy at 31.3x. Page 13. International investing for US investors also has the least benefit of volatility reduction relative to investors of other countries investors. Suspect increasing correlations across markets to almost .86 the last 15 years and the high U.S. equity proportion of world equities contributing to the volatility results.

https://personal.vanguard.com/pdf/ISGGE ... Online.pdf
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Re: Why stock investing is not as popular in Europe ?

Post by firebirdparts »

Ferdinand2014 wrote: Tue Dec 07, 2021 7:47 am According to Vanguard, U.S. investors have the lowest home country bias at 1.4x vs UK investors at 4.9x. Canada at 16.7 x, Australia at 30x and Italy at 31.3x. Page 13. International investing for US investors also has the least benefit of volatility reduction relative to investors of other countries investors. Suspect increasing correlations across markets to almost .86 the last 15 years and the high U.S. equity proportion of world equities contributing to the volatility results.

https://personal.vanguard.com/pdf/ISGGE ... Online.pdf
That's just an artifact of the way they measured it. it would not be possible for US investors to hold 5 or 10 times the global concentration of US stocks. The global concentration is over 50%, so the most we can hold is less than 2.
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Re: Why is stock investing not as popular in Europe?

Post by fisher0815 »

I can just speak for german investors. In germany many people has experienced losses, when they got in touch with the stock market. For example many households started investing in the stock market during the dot.com bubble or bought the Deutsche Telekom stock:

"Deutsche Telekom went public in 1996, promoting its shares as “Volksaktien” or “people’s shares,” encouraging lots of small investors to get involved and helping to establish a stock investment culture in Germany.
At the height of the dot-com boom Telekom shares were worth more than 100 euros, but in the ensuing crash they fell to under 10."
Source: https://www.reuters.com/article/lifesty ... 8820070801

The most people I know has invested their money in real estate and because of the low interest environment more and more money flows into real estate.

But passive investing has become more and more popular the last ten years. It's popular to invest in an MSCI World ETF where U.S. is 70% or MSCI All Country World ETF where U.S. is 60%. The world is weighted simply by market capitalization. That's the gold standard.

https://www.msci.com/www/fact-sheet/msc ... x/05830501
https://www.msci.com/documents/10199/a7 ... b1213bc3c5
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Re: Why is stock investing not as popular in Europe?

Post by hnd »

buddy worked across the EU in the US military and is an avid investor. He says europeans trust their gvt to take care of them. He said there is a real lack in the entrepreneurial spirit in many citizens. They just aren't willing to take risks. (obviously not all, but just the overall vibe of the populous)

he said conversations usually end in the European (especially Germans) asking "why do you need to invest? shouldn't the government or your place of work take care of you?"

He also believes that the return on investment over the last decade and even further has been marginal compared to the US. So while there is room for your money to grow in Euro stocks, its just as risky with much less historical return. So they don't see the value in taking those risks. I've not looked to see if that number bears out over the past 30-40 years or so
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Re: Why is stock investing not as popular in Europe?

Post by mr_brightside »

hnd wrote: Tue Dec 07, 2021 8:57 am buddy worked across the EU in the US military and is an avid investor. He says europeans trust their gvt to take care of them. He said there is a real lack in the entrepreneurial spirit in many citizens. They just aren't willing to take risks. (obviously not all, but just the overall vibe of the populous)

he said conversations usually end in the European (especially Germans) asking "why do you need to invest? shouldn't the government or your place of work take care of you?"

worked for a US-based Fortune 50 healthcare company for 20+ years. had many conversations over the years with our international counterparts.

my conversations echo your friend's. they have a different mindset -- Europeans have a more socialist / government mindset.

obviously a broad brush but it's valid IME.

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Re: Why is stock investing not as popular in Europe?

Post by TheoLeo »

For a long time european stocks have been just as volatile as the US market but without the return. Then there just aren't many companies that have much room to grow. People can only eat so much Nestle products.
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Re: Why is stock investing not as popular in Europe?

Post by Nathan Drake »

TheoLeo wrote: Tue Dec 07, 2021 9:16 am For a long time european stocks have been just as volatile as the US market but without the return. Then there just aren't many companies that have much room to grow. People can only eat so much Nestle products.
US has had long periods of similar volatility and worse returns than exUS

US is priced higher. If exUS is more risky, the discount rate is higher and so are your expected returns
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Re: Why is stock investing not as popular in Europe?

Post by srt7 »

Broadly speaking ... it is a case of capitalism vs. socialism.

I would also suspect that real estate plays a big part of one's wealth/investments in EU.
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Re: Why is stock investing not as popular in Europe?

Post by atdharris »

From my understanding, it's because Americans pretty much have to invest in the stock market in order to retire. We don't have the social safety nets and pensions that Europeans enjoy.
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Re: Why is stock investing not as popular in Europe?

Post by random_walker_77 »

I've also seen criticism that European companies aren't as dynamic. They're more conservative in general and less likely to take even calculated risks. You could say they're less "hungry." This makes sense to me. If you see an opportunity and it's easy to hire 20 people to pursue it, then you're more likely to go for it. Since it doesn't work out, then you just layoff those people. On the other hand, if you know that you can't just fire those people if the bet doesn't work out, then you're less likely to pursue the opportunity. The risk vs reward calculation shifts depending on if laying off people costs you 60 days of payroll vs a much more time-consuming and expensive severance and/or legal proceedings.

This article gives a taste for how different things can be in other countries:
France wants to make it easier to fire workers so employers will stop harassing them into quitting
“Nobody wants to hire anyone, because when you take someone on, you’re hiring them for life”

Looking at returns from the Vanguard European stock index (VEURX) vs S&P 500 (SPY):
10 yr: 7.74% vs 14.71%
5 yr: 7.36% vs 17.51%
3 yr: 12.78% vs 18.51%
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Re: Why is stock investing not as popular in Europe?

Post by Impatience »

“Crowding” doesn’t imply returns will be lower. Stocks aren’t ears of corn.
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Re: Why is stock investing not as popular in Europe?

Post by Laurizas »

klaus14 wrote: Tue Dec 07, 2021 1:22 am why stock investing is not as popular in Europe, especially considering their even lower interest rates.
1) Eastern Europe experienced wild capitalism after fall of Soviet Union: ponzi schemes, bancruptcy of "investment" firms and banks, sometimes run by mafia. Real estate is a sweatheart here for older generation. 2) Private pensions with high management fees started only after 2000. 3) Because of market fragmentation there is no decent financial planning services, we are at the stage of products with life insurance.
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Re: Why is stock investing not as popular in Europe?

Post by Atilla »

I would think higher income tax rates also have an effect. You have less left over to invest when it's taken from you at a higher rate.
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Re: Why is stock investing not as popular in Europe?

Post by homebuyer6426 »

Poverty levels are also a little higher in Europe, which would mean less capability to invest.

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Re: Why is stock investing not as popular in Europe?

Post by MarkRoulo »

homebuyer6426 wrote: Tue Dec 07, 2021 1:12 pm Poverty levels are also a little higher in Europe, which would mean less capability to invest.

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Poverty levels depend on where you draw the line.

As an example, Spain uses 8,000 Euros/year (for one person, I presume) as their cut-line. The US uses $12,000 (and then seems to adjust for local conditions?). If Spain just used 6,000 Euros/year the Spanish poverty rate would decline. And if Spain went to $12,000/year it would increase.

And it isn't immediately obvious that 8,000 Euros in Spain is the same as $12,000 in the US so there seems to be some arbitrariness about these sorts of comparisons ...
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Re: Why is stock investing not as popular in Europe?

Post by prioritarian »

MarkRoulo wrote: Tue Dec 07, 2021 1:19 pm
homebuyer6426 wrote: Tue Dec 07, 2021 1:12 pm Poverty levels are also a little higher in Europe, which would mean less capability to invest.

Image

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Poverty levels depend on where you draw the line.

As an example, Spain uses 8,000 Euros/year (for one person, I presume) as their cut-line. The US uses $12,000 (and then seems to adjust for local conditions?). If Spain just used 6,000 Euros/year the Spanish poverty rate would decline. And if Spain went to $12,000/year it would increase.

And it isn't immediately obvious that 8,000 Euros in Spain is the same as $12,000 in the US so there seems to be some arbitrariness about these sorts of comparisons ...
The poverty data is also misleading because european social safety nets provide substantial non-income benefits: e.g. social housing, free medical care, free long-term care etc.
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Re: Why is stock investing not as popular in Europe?

Post by homebuyer6426 »

Not a perfect comparison, agreed, but the gist of a lower percentage of people having excess income above basic living expenses should be accurate.
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Re: Why is stock investing not as popular in Europe?

Post by Jack&Warren disciple »

klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
I would imagine higher overall taxes, more social safety nets, more regulation, and unlike Americans, a lower desire/social reward for pecuniary gain. I think France requires by law 6 weeks of paid vacation (how would that one go over in the US?). When I visited Greece on my honeymoon over 20 years ago, the natives said, "Oh, I know you Americans, ALWAYS CHASING THE DOLLAR!". Everyday the Greeks would close down their businesses mid day for 1 hour siestas and in the afternoons they are planning their evening meal with friends and family. I always thought that the Europeans seem to embrace life better than Americans, but in return their productivity and GDP per Capita may or may not be as great.
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Re: Why stock investing is not as popular in Europe ?

Post by ScubaHogg »

Nathan Drake wrote: Tue Dec 07, 2021 1:25 am
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Couldn't you just as easily say Europeans should then invest MORE in the stock market, since their basic needs are already met? I don't think this actually answers the question.
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Re: Why is stock investing not as popular in Europe?

Post by ScubaHogg »

prioritarian wrote: Tue Dec 07, 2021 1:33 pm
The poverty data is also misleading because european social safety nets provide substantial non-income benefits: e.g. social housing, free medical care, free long-term care etc.
It's not overly important to the question, but for Americans in poverty (as defined above) the government provides many, but by no means equal, of the same benefits (Medicaid, etc.)
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Re: Why is stock investing not as popular in Europe?

Post by Makefile »

Hadn't the American public largely soured on stock investing in the 1930s and 1940s? Having said "well, enough of that" after the 1929 crash. "Enthusiasm" for stocks only rebounding from the 1950s with things like Merrill Lynch, NYSE encouraging plans to invest small amounts at a time in individual stocks, etc. At least that's the sense I had from reading The Intelligent Investor.

Similarly, reading Stay the Course, it seems 1980-present is really the "second wind" for stock mutual funds, the industry previously having some bad times after the Go-Go crash only to be rescued by money market funds, which were actually the largest industry segment well into some point in the 90s.

After all, consider how down lots of Bogleheads are on international stocks :D it's only natural that their main perspective would be from their own region's markets.
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Re: Why is stock investing not as popular in Europe?

Post by ScubaHogg »

Personally I think a part of this might be there are just a lot more people in America with six figure plus incomes. The very low income people don't invest must in equities anywhere because they just can't invest much. Whereas "high income" people have a lot more room to invest since they can relatively easily meet their basic needs.
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Re: Why is stock investing not as popular in Europe?

Post by Makefile »

ScubaHogg wrote: Tue Dec 07, 2021 2:22 pm Personally I think a part of this might be there are just a lot more people in America with six figure plus incomes. The very low income people don't invest must in equities anywhere because they just can't invest much. Whereas "high income" people have a lot more room to invest since they can relatively easily meet their basic needs.
Thinking of that too. It's easy to underestimate how prosperous the US is:

https://en.wikipedia.org/wiki/Compariso ... per_capita
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Re: Why is stock investing not as popular in Europe?

Post by ScubaHogg »

Makefile wrote: Tue Dec 07, 2021 2:26 pm
ScubaHogg wrote: Tue Dec 07, 2021 2:22 pm Personally I think a part of this might be there are just a lot more people in America with six figure plus incomes. The very low income people don't invest must in equities anywhere because they just can't invest much. Whereas "high income" people have a lot more room to invest since they can relatively easily meet their basic needs.
Thinking of that too. It's easy to underestimate how prosperous the US is:

https://en.wikipedia.org/wiki/Compariso ... per_capita
Few would guess that Germany has a lower GDP per capita than Alabama
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Re: Why stock investing is not as popular in Europe ?

Post by alex_686 »

klaus14 wrote: Tue Dec 07, 2021 1:28 am Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
Developed markets tend to highly integrated with each other so the barriers to entry of US investors into European markets are low.

And returns between the 2 markets have been similar. You can't just look at the gross market returns. You need to deleverage the balance sheet - US companies tends to use more debt. You need to adjust for the different weights in sectors. When you get down to a apples-to-apples comparison it is fairly close.
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Re: Why stock investing is not as popular in Europe ?

Post by jeffyscott »

ScubaHogg wrote: Tue Dec 07, 2021 2:17 pm
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Couldn't you just as easily say Europeans should then invest MORE in the stock market, since their basic needs are already met? I don't think this actually answers the question.
Yeah, that and most of the comments in this discussion don't really seem to be aimed at explaining the difference in asset allocatio. The question is not why Americans may have larger portfolios, it's why those that have them have a greater percentage in stocks than investors in Europe.

Before even attempting to answer, I would think more information is needed. In particular, is this based on the average investor's portfolio or a just a composite portfolio. IOW, if one person has $9 million all in stock and another has $1 million all in bonds, does that make the average 50/50 or 90/10?
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Re: Why is stock investing not as popular in Europe?

Post by alex_686 »

homebuyer6426 wrote: Tue Dec 07, 2021 1:12 pm Poverty levels are also a little higher in Europe, which would mean less capability to invest.
I don't think that is it. The bottom 50% tends not to invest much.

I am not going to address the top 1% of the wealthiest people.

What I was taught was that they were more risk-adverse. Stronger preference for safe bond like assets. The info I have is 10+ years old but guessing from demographics I doubt that this has changed for the people who do have assets to invest.
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Re: Why is stock investing not as popular in Europe?

Post by windaar »

I lived 2 years in Europe and the companies and businesses didn't really inspire confidence in me (or most countrymen) who were pretty cynical about them. Poor customer service, inconvenient hours open, closed Sundays (blue laws), deadwood employees and fear to hire due to difficulty in firing, products not internationally competitive due to protectionist policies, clunky advertising, monoculture thinking at the top due to lack of diversity. I have much more confidence in US companies to be innovative and to grow than what I saw over there. Not being a Xenophobe; I love it over there, but I was never impressed or confident in how I saw operations in action.
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Re: Why stock investing is not as popular in Europe ?

Post by klaus14 »

jeffyscott wrote: Tue Dec 07, 2021 4:11 pm
ScubaHogg wrote: Tue Dec 07, 2021 2:17 pm
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Couldn't you just as easily say Europeans should then invest MORE in the stock market, since their basic needs are already met? I don't think this actually answers the question.
Yeah, that and most of the comments in this discussion don't really seem to be aimed at explaining the difference in asset allocatio. The question is not why Americans may have larger portfolios, it's why those that have them have a greater percentage in stocks than investors in Europe.

Before even attempting to answer, I would think more information is needed. In particular, is this based on the average investor's portfolio or a just a composite portfolio. IOW, if one person has $9 million all in stock and another has $1 million all in bonds, does that make the average 50/50 or 90/10?
i think OP refers to the latter.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
dboeger1
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Re: Why is stock investing not as popular in Europe?

Post by dboeger1 »

I know this is a cliche at this point, but returns (both positive and negative) generally come from unexpected changes in perceived value, not currently known perceived value. Values are perceived to be what they are based on known information. 99% of what people are talking about in this thread is known information. It's one thing to say that socialism is the reason for poor performance in the past; that would imply that investors underestimated the presumably negative impact of socialism on stock valuations in the past. It's another thing entirely to suggest that will continue to result in lower returns going forward; that would imply that investors are still underestimating the negative impact of socialism on stock valuations. On what basis does anyone here make that claim? Companies are valued what they are based on market perception and known information. The lower the expectations priced in, the more potential there is for upside surprise. If someone wanted to sell me all of Nestle for $1 today, I'd be a fool not to take that deal on the basis that socialism is why the market cap dropped so low. The dividend alone would be outstanding. Projecting future returns based on hypothetical justifications for past returns is a fool's errand. I know perfectly well why GameStop stock tanked for years; that wouldn't have made it any better for me to short the stock at its lows before the meme stonk rally.

As for the "popularity" of stock investing, are you sure that's what those charts are showing? It doesn't seem to specify if these are percentages of personal portfolios for all Europeans, or just for those invested. I interpreted it as the latter, basically that European investors have conservative asset allocations, but not necessarily that more or fewer Europeans invest in stocks. For what it's worth, certain countries like Norway have sovereign wealth funds that effectively buy and hold stocks and pay out dividends on behalf of all citizens, so there could be a lot of proxy investing that isn't really being captured.
quattro73
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Re: Why stock investing is not as popular in Europe ?

Post by quattro73 »

klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
No, more demand for a finite supply equals higher prices.
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klaus14
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Re: Why stock investing is not as popular in Europe ?

Post by klaus14 »

quattro73 wrote: Tue Dec 07, 2021 7:42 pm
klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
No, more demand for a finite supply equals higher prices.
right. but we are at the highest stock allocation already. from where will extra demand come?
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
quattro73
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Re: Why stock investing is not as popular in Europe ?

Post by quattro73 »

klaus14 wrote: Tue Dec 07, 2021 7:44 pm
quattro73 wrote: Tue Dec 07, 2021 7:42 pm
klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
No, more demand for a finite supply equals higher prices.
right. but we are at the highest stock allocation already. from where will extra demand come?
I guess I just meant generally. For the immediate future, it is potentially very rocky.

Answer this one - if lower interest rates drive higher PE ratios, why are Euro markets with even lower rates than the US still lagging insofar as valuation multiples?
oilrig
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Re: Why is stock investing not as popular in Europe?

Post by oilrig »

My old boss was from Europe and she told me people are more likely to invest in real estate than stocks there. I think its the old school mentality that stocks are risky and real estate investing is safer.
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AnnetteLouisan
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Re: Why is stock investing not as popular in Europe?

Post by AnnetteLouisan »

I agree with the above and add a few WAGs:

High savings rates and levels of homeownership in many European countries perhaps offsetting the need to invest.
Banks & govt primary means of financing vs equity culture.
Many large and mid sized business are privately held /family owned rather than publicly traded.**
Innovative debt instruments, insurance products and postal banking popular
Popular scandals such as Wirecard, Neuer Markt, OneCoin.
decentralized stock markets and regulatory bodies- LSE, Paris Bourse, Luxembourg Stock Exchange, DAX etc.
Less need to fund education, retirement etc for reasons stated.
Greater risk aversion, less disposable income.

But I think interest in it is growing, with the proliferation of investing programming, MBA schools and popular media analysts.
Last edited by AnnetteLouisan on Tue Dec 07, 2021 8:38 pm, edited 3 times in total.
000
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Re: Why is stock investing not as popular in Europe?

Post by 000 »

dboeger1 wrote: Tue Dec 07, 2021 5:58 pm I know this is a cliche at this point, but returns (both positive and negative) generally come from unexpected changes in perceived value, not currently known perceived value. Values are perceived to be what they are based on known information. 99% of what people are talking about in this thread is known information. It's one thing to say that socialism is the reason for poor performance in the past; that would imply that investors underestimated the presumably negative impact of socialism on stock valuations in the past. It's another thing entirely to suggest that will continue to result in lower returns going forward; that would imply that investors are still underestimating the negative impact of socialism on stock valuations. On what basis does anyone here make that claim? Companies are valued what they are based on market perception and known information. The lower the expectations priced in, the more potential there is for upside surprise. If someone wanted to sell me all of Nestle for $1 today, I'd be a fool not to take that deal on the basis that socialism is why the market cap dropped so low. The dividend alone would be outstanding. Projecting future returns based on hypothetical justifications for past returns is a fool's errand. I know perfectly well why GameStop stock tanked for years; that wouldn't have made it any better for me to short the stock at its lows before the meme stonk rally.

As for the "popularity" of stock investing, are you sure that's what those charts are showing? It doesn't seem to specify if these are percentages of personal portfolios for all Europeans, or just for those invested. I interpreted it as the latter, basically that European investors have conservative asset allocations, but not necessarily that more or fewer Europeans invest in stocks. For what it's worth, certain countries like Norway have sovereign wealth funds that effectively buy and hold stocks and pay out dividends on behalf of all citizens, so there could be a lot of proxy investing that isn't really being captured.
This, 100%.
Jack&Warren disciple
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Re: Why is stock investing not as popular in Europe?

Post by Jack&Warren disciple »

windaar wrote: Tue Dec 07, 2021 4:52 pm I lived 2 years in Europe and the companies and businesses didn't really inspire confidence in me (or most countrymen) who were pretty cynical about them. Poor customer service, inconvenient hours open, closed Sundays (blue laws), deadwood employees and fear to hire due to difficulty in firing, products not internationally competitive due to protectionist policies, clunky advertising, monoculture thinking at the top due to lack of diversity. I have much more confidence in US companies to be innovative and to grow than what I saw over there. Not being a Xenophobe; I love it over there, but I was never impressed or confident in how I saw operations in action.
You may be too young to remember the DHL or Fed Ex commercial on TV in the late 80's that showed a sulking Frenchman looking with distaste at the business people walking by while he is sitting outside at a cafe and says in disdain, "Look at the businessmen in their business suits, what do they know!".

I've tried to find it on YouTube but haven't found it yet! It's hilarious and partly true for at the time and perhaps a little is still true today, Europeans seem to have a certain disdain for business in general and perhaps they tend to put their love of culture, the arts, and the simple joys of life far above any admiration for entrepreneurs and especially big business....

Here's the commercial:. https://www.reddit.com/r/ObscureMedia/c ... have_been/
Topic Author
klaus14
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Re: Why is stock investing not as popular in Europe?

Post by klaus14 »

dboeger1 wrote: Tue Dec 07, 2021 5:58 pm I know this is a cliche at this point, but returns (both positive and negative) generally come from unexpected changes in perceived value, not currently known perceived value. Values are perceived to be what they are based on known information. 99% of what people are talking about in this thread is known information. It's one thing to say that socialism is the reason for poor performance in the past; that would imply that investors underestimated the presumably negative impact of socialism on stock valuations in the past. It's another thing entirely to suggest that will continue to result in lower returns going forward; that would imply that investors are still underestimating the negative impact of socialism on stock valuations. On what basis does anyone here make that claim? Companies are valued what they are based on market perception and known information. The lower the expectations priced in, the more potential there is for upside surprise. If someone wanted to sell me all of Nestle for $1 today, I'd be a fool not to take that deal on the basis that socialism is why the market cap dropped so low. The dividend alone would be outstanding. Projecting future returns based on hypothetical justifications for past returns is a fool's errand. I know perfectly well why GameStop stock tanked for years; that wouldn't have made it any better for me to short the stock at its lows before the meme stonk rally.

As for the "popularity" of stock investing, are you sure that's what those charts are showing? It doesn't seem to specify if these are percentages of personal portfolios for all Europeans, or just for those invested. I interpreted it as the latter, basically that European investors have conservative asset allocations, but not necessarily that more or fewer Europeans invest in stocks. For what it's worth, certain countries like Norway have sovereign wealth funds that effectively buy and hold stocks and pay out dividends on behalf of all citizens, so there could be a lot of proxy investing that isn't really being captured.
this all makes sense. However it doesn't contradict with the observation. Stock allocations are percentage-wise low in Europe, both compared to their own peak (2001) and also compared to US. This suggests there is more room for price appreciation. i agree charts doesn't tell this is individual investors but it probably applies to individual investors too. discussion in this thread provided good reasons why.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
Wannaretireearly
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Re: Why is stock investing not as popular in Europe?

Post by Wannaretireearly »

ScubaHogg wrote: Tue Dec 07, 2021 2:22 pm Personally I think a part of this might be there are just a lot more people in America with six figure plus incomes. The very low income people don't invest must in equities anywhere because they just can't invest much. Whereas "high income" people have a lot more room to invest since they can relatively easily meet their basic needs.
This. Incomes in US are higher. Expenses in the US are higher, especially healthcare!

Need to build a nest egg in Europe is lower. Some countries have close to zero healthcare costs. Imagine that!

Make your money in the US. Retire in Europe 👍
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Tinyz
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Re: Why is stock investing not as popular in Europe?

Post by Tinyz »

Is largely because worthwhile companies in Europe are not many. They are plague by old business which remain private and uninteresting sector. I went there for a study trip for few months. I do not know much of their culture. However, it strike me that the Europeans do not seem to have a drive. There seem to have a lack of motivation for competition. I don't know why I felt that way but I thought this outlook does not inspire me. Sometimes, I really think what is their priority?
Northern Flicker
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Re: Why stock investing is not as popular in Europe ?

Post by Northern Flicker »

klaus14 wrote: Tue Dec 07, 2021 1:28 am
Nathan Drake wrote: Tue Dec 07, 2021 1:25 am :dollar
klaus14 wrote: Tue Dec 07, 2021 1:22 am Stock allocation for US Investors are close to all time highs at 51%. See here.
But it is also on average higher than Europe. See EU allocations here.

Above charts also argue high allocation implies low future returns. This is because there won't be any further demand to move prices even higher.

This means there is more room to run in Europe. So I wonder why stock investing is not as popular in Europe, especially considering their even lower interest rates.
More social safety nets (pensions, etc).

In the US those are mostly a thing of the past, so you’re forced to play the stock market game
Then, can we say US stocks are more crowded assets compared to Europe because US investors have to. And this should translate to lower returns in US?
No, we can say that much more of the retirement assets of Europeans are administered by pension managers instead of by the individual. That in and of itself does not mean that less of it is in stocks.

But also the US has a higher percentage of its GDP generated by publicly traded corporations than do European countries, and European countries have a higher percentage of GDP generated by privately owned corporations and family businesses than does the US.
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