Wednesday, November 11, 2015

No International Premium?

Here on the blog, and in client meetings (you clients out there), you've heard me extol the virtues of investing outside the U.S.. And, yet, it seems like it's been forever since we've earned a premium by holding the stocks of companies that call home to Europe, Canada, Australia, Japan, China, India, South Korea and so on.

Never mind the fact that, as I continually preach, the U.S. market only comprises 36% of the world's stock market opportunities---and that emerging nations are where, arguably, the greatest economic growth will occur in the years to come---at what point do we throw up our hands and say to heck it! Let's just move it all to the U.S. market and forget about all that global diversification nonsense---it isn't working anyway!

Well, take a look at the two charts below. The top represents U.S. Stocks (SP500) in white, Developed Market Stocks (EAFE) in green, and Emerging Markets (MSCI EM) in red---over the past 5 years. The bottom represents the same indices, but for November 1995 to November 2000 (amazing the similarity!).

1995 to 2000 vs 2010 to 2015

Clearly, had we been investing (which I was) during that '95 to '00 period, we might have expressed that same frustration. And what if we had? And what if we had abandoned our international positions and gone all U.S.?

Well, take a look below. This was the 10-year stretch (November 2000 to November 2010) in between.

2000 to 2010

Yep, we'll stay globally diversified!

(NOTE [added 11/12]: The charts are each normalized to zero to illustrate the % change for each index for the time period featured)


  1. Interesting charts Marty. However, it would appear from your dates that the edges should match up (11/2010 to 11/2015 for the top, 11/1995 to 11/2000 for the middle, and the in-between 10 years 11/2000 to 11/2010 for the bottom. However, the edges where these should meet are not close to alignment. For example, the lines on the right edge of the middle chart should merge together if they are to flow correctly to the left side of the bottom chart (both supposedly at Nov 2000) and they are not even close!

    Are they on different scales, or possibly not actually Nov begin/end with a month or two of correction between them?

  2. Thanks John! I can see the confusion. The charts don't match up because I normalized each index at the beginning of each period in order to illustrate the percent change for each. I'll go back and add an explanation... Thanks again!

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