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Interesting that the author assumes that US equity dominance will continue. The US has about 60% of the global investable public equity market by market cap bu
by nly 5y ago
Interesting that the author assumes that US equity dominance will continue.
The US has about 60% of the global investable public equity market by market cap but only 25% of global GDP.
The US public stock market is also at the highest valuation, by any measure you can come up with, since 1929.
I personally wouldn't be undiversified
- jwmerrill 5y ago> Interesting that the author assumes that US equity dominance will continue. The author does not assume this—rather this is held up as an assumption that might be wrong. The article is structured as a list of 5 assumptions that would be tempting to make but could be incorrect, and this is one of them.
- victor106 5y agoThanks. I was a little confused what kind of argument the author was trying to make.
- counternotions 5y agoVanguard PAS (Personal Advisory Service) lately recommends 60/40 diversification on equities, where domestic represents 60% and international 40%. VTIAX is a low-cost fund to hold.
- eatbitseveryday 5y agoI believe their advice is (under agreement with their clients) is not supposed to be shared. At least how I’ve understood it.
- counternotions 5y agoNot a “black box” advisory service from my experiences, which cause some to underrate Vanguard’s professional services. Recommendations are publicly in whitepapers like this: https://personal.vanguard.com/pdf/ISGGEB_042021_Online.pdf https://personal.vanguard.com/pdf/ISGGEB_042021_Online.pdf
- nly 5y agoWell that split in inline with most world/global market cap weighted stock indices so is hardly Earth shattering.
- vasilipupkin 5y agoyeah, that's vanguard standard recommendation, which has been underperforming US markets for years
- nly 5y agoEmerging markets outperformed US markets in the periods between 1988-1994, 2003-2007, and 2009-2011
- vineyardmike 5y agoBut if you just bought+held, even with that those periods (which are the minority of time), you'd lose. https://bit.ly/3n6dE6t https://bit.ly/3n6dE6t (Citation to PV)
- nly 5y agoSure, but if you look at the chart the 60/40 US/non-US portfolio has only really outperformed significantly since around 2011. That's the last 10 years out of the last 35 in the bottom graph. The question now is "what happens next?" given rising rates and crazy high US valuations
- vineyardmike 5y ago> The question now is "what happens next?" Historically, the rest of the world handles recessions terribly. Japan, once an economic engine, is stalled... still. Europe is aging and they're still stuttering after 08. Don't expect them to make any surprise economic growth jumping past the US anytime soon. China + other emerging seem like good promises, but china specifically is a huge regulation risk since those companies operate at whim of a government scared of big co's. Also with Evergrande as example, their economy is real estate driven and highly over-leveraged which seems like a major risk to me. All in all, i'm personally keeping investments in america unless i see real ex-us promising growth. So i think "what happens next" is the global rich keep their money in US assets while they slosh around desperate for returns and speculative investments trying to beat inflation. So... imo more of the same but more stressed this time :)
- pirate787 5y agoI'm interested in the source/methodology on these ratios. US equity markets have deep global participation -- for example, 67% of Apple's revenue is overseas but it is a US stock.
- mrfusion 5y agoI think by at forward PE It’s not nearly as bad.
- prewett 5y agoBut forward PE is making a bunch of assumptions of the type the article warns about, namely that the future will be like the past. So by using forward PE you are implicitly making the those questionable assumptions. If you want something to justify high valuations, forward PE is a good measure. If you want a margin of safety, trailing PE and trailing dividend yield are better measures. Margin of safety is thin on the ground these days, sadly.
- mrfusion 5y agoFair points. On the other hand in a high growth environment, current or past PE might be too pessimistic.
- nickatnight49 5y ago"The US public stock market is also at the highest valuation, by any measure you can come up with, since 1929." How are you defining valuation? And highest valuation relative to what (other markets, itself...some other benchmark)? This is definitely not a true statement.
- nly 5y agoAll of the above
- senkora 5y agoI don’t disagree with the wider point, but I want to point out that those numbers aren’t comparable. US GDP is entirely domestic, but US equities are just US-listed companies, and many of those are multinationals with lots of foreign exposure. GNP is similar in spirit, but it’s still not right because foreigners hold a ton of US equities. https://seekingalpha.com/article/4146992-how-global-is-s-and-p-500 https://seekingalpha.com/article/4146992-how-global-is-s-and...
- reducesuffering 5y ago> The US has about 60% of the global investable public equity market by market cap but only 25% of global GDP. GDP doesn't matter for equity valuations, excess profits captured by a company do. If 99% of companies are in intense competition and make no profit, only enough income to pay their expenses, but one company comes up with a new product no one else can make, they can charge whatever maximizes profit and that's where equity value comes from.
- csomar 5y agoApples and Oranges. You are also assuming that other countries have the same level of participation in the stock market as the USA; which is far from it. Especially in emerging markets where the stock market is really insignificant.