A Wealth Of Common Sense has been one of my go-to blogs each morning for more than a few years now; Ben Carlson is a tremendous writer and is able to explain important financial concepts in a way that is easy for everyone to understand. If you are a regular reader you already know this because he is a staple in my Weekly Mixtapes.
This week Ben has been on fire, and I wanted to highlight his three most recent posts on their own so they do not get overlooked on the Weekly Mixtape tomorrow.
Let’s start with Tuesday’s:
A Short History of Foreign Stock Market Corrections I’ve voiced my beliefs in a globally diversified portfolio, shared my concerns about home country bias and showed the opportunity cost of neglecting non-US investments in a portfolio. Last year was the first in many the international markets outperformed the US markets and many investors, although they still did well with domestic funds, missed out on the rest of the world’s growth. And like most investors due, many chased back into international funds only to see them significantly underperforming the US in 2018, at least so far.
In this post, Ben shares a history of international market corrections as a reminder this is a part of the investing game; it’s worth reading before bailing on your international funds.
“U.S. investors in foreign stock markets have had a rough go at it the last decade or so but losses are nothing new in international markets. I went through the historical data on the MSCI EAFE index going back to its inception in 1970 to look at the various corrections and bear markets that have occurred in this time frame.”
And now Thursday’s:
Some Considerations For Investing Globally This one needs no explanation other than, JUST READ IT. Here are a few quotes to entice you.
“Since 1970, the U.S. has outperformed the MSCI EAFE (Europe, Australasia and the Far East) 23 out of 48 calendar years (thus, foreign stocks have outperformed 25 of 48 years)…The U.S. has outperformed over this entire period but it’s interesting to note that all of this outperformance has occurred since 2010. From 1970-2009, the annual returns were 10.2% annually for the EAFE and 9.9% per year for the U.S.”
“A portfolio split 70% in the U.S. and 30% in foreign stocks, rebalanced annually, would have given an investor an identical 10.5% annual return to U.S. stocks with a slightly lower volatility that each of the individual indexes themselves.”
“Diversification can protect you from having a home country bias and the risk of holding a concentrated position in a single economy or market. So international diversification is a risk management tool. Even if it doesn’t enhance returns, it’s hard to put a price on the protection it provides from being invested in the wrong country at the wrong time for an extended period.”
The Four Stories Written About Fund Managers Thanks to an article in The Wall Street Journal (Ben links to it), there has been a lot of chatter this week about David Einhorn’s struggles at Greenlight Capital. Once a darling fund manager, who would have found himself in Ben’s “huge success story” category, Einhorn currently finds himself in the “can’t-figure-out-what’s-wrong story” category. It remains to be seen which of the other two categories Einhorn will find himself in (you have to read the post to find out what those are). Check out what Ben has to say about asset allocators and his experience working with these types of investors in the past.
“Quant and index funds aren’t as sexy as a star fund manager, but at least you’ll never have to hire Magnum P.I. to dig through their garbage or worry about the headline risk from their personal lives.”
So, as you can see, in the time it’s taken me to ALMOST finish a post about what I’ve learned in my three years of running my firm (it’ll be out soon), Ben Carlson has written three great posts that are very important for investors to read and understand.
Bravo Ben and Thanks!
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.