Dare to 'disagree' with Buffet and Bogle?

[mk22]

@englishcatholic17 Well it’s „riskier“ in the sense that if China performs badly then S&P500 won’t take the hit but VWCE will. But in general it’s less risky because of the US performs badly then VWCE will not take as much of a hit as S&P500.

I mean that’s what diversifying means right, you might not enjoy the highs of putting everything in a single winning stock, but you are more safe when things crash.

 

[scripturewinds]

@bonin151 True, but there is absolutely nothing on the horizon from the EU or Japan than might turn this around. Intact both seem hell bent on doing the opposite

 

[bonin151]

@scripturewinds I wholeheartedly agree that the companies coming from the United States will lead the world probably for the rest of my life. The thing is, you and I aren't very smart to think that; the market shares our belief. So that's baked into the price.

Let me quote Benjamin Graham on that: "Obvious prospects for physical growth in a business do not translate into obvious profits for investors."

In order for the European stock market to outperform the S&P500, their companies don't need to be better than those in the States, they just need to do a bit less shitty job in comparison to what's already being predicted.

You can think about it like buying a rental apartment. One city is a thriving business hub with a lot of immigration, so rents are expected to double in the next five years, while in another city there's no population growth and rents are steady. Is the first city the better choice to buy a rental apartment? Well, not necessarily, because people buying real estate count on the growth, so the price in the first city is 30x the current yearly rent, while in the other it's 15x.

 

[scripturewinds]

@bonin151 Yet Europe somehow consistently manages to not clear this lowered bar.

 

[boxer_dog]

@englishcatholic17 Dude just fell for recency bias, and doesn't even understand his mistake... and feels good about it actually... RIP

 

[lushee_00]

@ldarlingt Thanks for the link. Great article.

 

[boxer_dog]

@ldarlingt Bogle lived in normal times.

We have lived in 15 years of 0 interest rates (which is not normal and never happened before) and massive QE which boosted USA asset prices.

We have not been living in normal times.

This will now reverse. Next 10 years will be totally different than last 10 years.

In the long run sure, SP500 will do better than international, but according to Shiller CAPE inverse yield it will only produce 2% at best compounded returns in next 10 years

 

[kaytiedid]

@boxer_dog You mean 2% per year? I need to read more about this CAPE

 

[boxer_dog]

@kaytiedid So the classical measure is CAPE, developed by R.Shiller.

In the last 15 years, there was a zero % interest rate environment.

In that environment, bonds do not yield anything, and stocks do yield dividends, so there is no alternative for major institutions, and they buy stocks for at least some yield, pushing their value higher.

So Shiller understood this and modified his CAPE ratio by taking into account interest rates. The resulting indicator is S&P 500 Excess CAPE Yield.

You can find it here: https://en.macromicro.me/charts/27100/us-shiller-ecy

It predicts the next 10 years of returns. The last reading was 2.13%, meaning that SP500 will be flat for the next decade.

History gives at least some support for this indicator, as for example in 2000 the ratio was negative. And the next 10 years in the USA were a lost decade.

 

[kaytiedid]

@boxer_dog To read this, for a given point of the CAPE this value is the predicted annual return of SP500 over the next 10y?

 

[boxer_dog]

@kaytiedid Yes

 

[boxer_dog]

@kaytiedid You've made me curious for excess cape yields for other countries, so I made a quick excel spreadsheet with the latest data, you can check it here:

https://imgur.com/XBcgQMr

USA will yield 2.77 until 2033, the best will be Germany and UK 8,02 and 7,66 respectively.

 

[kaytiedid]

@boxer_dog Very interesting thanks for sharing. This makes me thing that VWCE is a wise choice instead of VUAA

 

[hanhsoes]

@boxer_dog Bogle published the last edition of the little book of common sense investing in 2017. Doesn't that count as "not normal times"?

He predicted low returns on stock and bonds, from the decade starting at 2017, with bonds being slightly higher. He was right, so far.

 

[boxer_dog]

@hanhsoes Wat? He was right ?

No he wasn't. Bonds had the worst performance like in 50 years. While stocks delivered great returns.

 

[anthony28]

@ldarlingt One thing is where you live and what is your daily currency. Having it all in USD has a currency risk to it obviously.

 

[ldarlingt]

@anthony28 Does it? I currently own SPPW (SPDR MSCI World UCITS), but I am thinking of focusing more on SXR8 (iShares Core S&P 500 UCITS). Both have fund currency USD, but trade in EUR. Seems to be the case for all ETFs that I'm looking at.

 

[nathanh83]

@ldarlingt The ccy of the fund does not matter. You need to look at the ccy of the underlying assets.

 

[anthony28]

@ldarlingt Even if fund currency is EUR the money needs to be converted to USD in order to buy the stock. Unless you go into a currency hedged fund the currency exposure remains.

 

[evietheturtle]

@anthony28 You are buying stocks not USD... even if they are traded in USD.