World Stock Index instead of TSM in PP, GB

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Kevin K.
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World Stock Index instead of TSM in PP, GB

Post by Kevin K. » Tue Apr 28, 2020 12:36 pm

I've been rereading "The Permanent Portfolio" book and noted with interest that Mssrs. Rowland and Lawson aren't opposed to including a modest allocation to International stocks and even mention Vanguard's Total World Index (VTWSX/VT) as a single-fund option for the equity portion.

Fast forward to Vanguard's latest market analysis and forecast:

https://americas.vanguard.com/instituti ... ctives.htm

"Asset class return outlooks

Vanguard’s 10-year annualized outlook for equity returns has improved since the start of the year as the COVID-19-inspired sell-off reduced valuations. Please note that the figures are based on a 1.5-point range around the 50th percentile of the distribution of return outcomes for equities and a 0.5-point range around the 50th percentile for fixed income

U.S. equities 4.8%-7.8%
Global equities ex-U.S. (unhedged) 8.3%-11.3%
U.S. bonds 1.0%-2.0%
U.S. Treasury bonds 0.4%-1.4%
Global bonds ex-U.S. (hedged) 0.6%-1.6%
U.S. cash 0.6%-1.6%"

Of course no one knows whether these numbers are realistic, but given how much better much of the world has managed its response to the pandemic and how much further along they are with recovery, not to mention long-term demographic trends, I wonder if using a total world index like this isn't a much better choice than VTI, let alone the GB's allocation to SCV.

Thoughts?
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Tue Apr 28, 2020 12:46 pm

International stocks have been dead on the mat with no sign of life for over a decade now. I think it would be unwise to put money into them until they at least show some sign of life. They are currently cheap and underperforming for a reason. Just because something is cheap doesn't mean it has to go up. It can just stay cheap.
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Re: World Stock Index instead of TSM in PP, GB

Post by Kevin K. » Tue Apr 28, 2020 2:06 pm

pmward wrote:
Tue Apr 28, 2020 12:46 pm
International stocks have been dead on the mat with no sign of life for over a decade now. I think it would be unwise to put money into them until they at least show some sign of life. They are currently cheap and underperforming for a reason. Just because something is cheap doesn't mean it has to go up. It can just stay cheap.
That's a valid argument in terms of recent history, but it's not like Vanguard's economists don't have data to support their speculation about higher returns going forward for international. On the other hand, I find this piece from today's New York Times to make a pretty compelling argument for just sticking with TSM or if international is included sticking to the mega-caps. The implications for small-cap value are grim:

https://www.nytimes.com/2020/04/28/busi ... e=Homepage
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Re: World Stock Index instead of TSM in PP, GB

Post by dualstow » Tue Apr 28, 2020 2:20 pm

stinky toes' thread - viewtopic.php?f=2&t=10685
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Vanguard - they've been diverging from the late Mr Bogle* for quite some time now, haven't they.
I guess I expect them to continue to add international.

*Who was personally 100% domestic in his equity share, or close to it.
(50% U.S. stocks and 50% U.S. bonds, maybe).
Sam Bankman-Fried sentenced to 25 years
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Tue Apr 28, 2020 2:40 pm

Kevin K. wrote:
Tue Apr 28, 2020 2:06 pm
pmward wrote:
Tue Apr 28, 2020 12:46 pm
International stocks have been dead on the mat with no sign of life for over a decade now. I think it would be unwise to put money into them until they at least show some sign of life. They are currently cheap and underperforming for a reason. Just because something is cheap doesn't mean it has to go up. It can just stay cheap.
That's a valid argument in terms of recent history, but it's not like Vanguard's economists don't have data to support their speculation about higher returns going forward for international. On the other hand, I find this piece from today's New York Times to make a pretty compelling argument for just sticking with TSM or if international is included sticking to the mega-caps. The implications for small-cap value are grim:

https://www.nytimes.com/2020/04/28/busi ... e=Homepage
The ONLY thing Vanguard uses to base their speculation on is valuation. They place extreme emphasis on their (false) belief that valuation alone dictates long term growth. They fail to realize that they are comparing apples to oranges though. Also, valuation as a method of investment has failed to work at all since the Dotcom bust 20 years ago. The things that are cheap right now deserve to be cheap, broad based international indexes included. Are there some compelling companies to invest in internationally? Absolutely. But at the moment there is no compelling reason to buy and pray (or should I say buy and pay?) an international index fund.
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Re: World Stock Index instead of TSM in PP, GB

Post by Kevin K. » Tue Apr 28, 2020 3:00 pm

Another angle on this from Jonathan Clement's most recent newsletter (4/28/20):

"Start with the global market portfolio, which includes all stocks, bonds and other assets that are readily tradeable. This is the mix of investments that’s owned by all investors worldwide and reflects our collective judgment of what different securities are worth. What does the global market portfolio look like?

Phil DeMuth, a financial advisor and author, says you can replicate it with five exchange-traded index funds: 40% Vanguard Total World Stock ETF (symbol: VT), 21% Vanguard Total Bond Market ETF (BND), 33% Vanguard Total International Bond ETF (BNDX), 5% iShares Global REIT ETF (REET) and 1% Invesco DB Commodity Index Tracking Fund (DBC). The Vanguard Total World Stock ETF currently has 57% in U.S. stocks and 43% in international markets.

Taken together, these funds pretty much reflect the investments that we all own in the percentages that we own them, so arguably it’s the ultimate “neutral” investment mix and hence should be our starting point in designing a portfolio. If we stray from this mix, we’re effectively ignoring the collective wisdom of all investors and making a market bet. My contention: We should stray only if we have a compelling reason.

And, no, our hunch about which investments will perform best in the months ahead doesn’t count as a compelling reason. In fact, I believe we should deviate only for reasons of risk.

For instance, we might keep more or less in stocks depending on our time horizon, job security and stomach for market turbulence. Similarly, we may want to reduce our exposure to currency swings, because we’ll end up spending much of our nest egg on U.S. goods and services. That might lead us to keep less in foreign bonds.

Should we also keep less in foreign stocks? As I’ve noted before, many U.S. investors seem to believe U.S. stocks are both higher returning and lower risk. If true, this would violate perhaps the most fundamental rule of finance—that risk and expected return are inextricably linked. Still, if investors perceive foreign stocks to be riskier and they’ll be more tenacious investors if they have less in foreign markets, overweighting U.S. stocks probably isn’t too grave an investment sin.

Of course, most investors deviate even further from the global market portfolio, banking heavily on, say, blue-chip U.S. companies or perhaps just a handful of technology stocks. This may work out fine—but it sure isn’t guaranteed."

Clements goes on to say:

"That brings me back to Phil DeMuth’s five-fund portfolio. I’d toss out the real estate and commodity funds. They’re modest positions that won’t contribute much to the portfolio, and yet they increase the risk of bad investor behavior by adding complexity and extra worry. On top of that, the Invesco commodity fund—at 0.89% in annual expenses—is way too costly for my taste.

I’d also eliminate the international bonds. That would remove some of the currency risk from a portfolio destined to pay for retirement expenses, college tuition bills and other costs denominated in U.S. dollars.

Where does that leave us? We would own just a total world stock fund and a total U.S. bond market fund—an elegant two index-fund portfolio."

I suppose a lot depends on one's time horizon. Domestic has been trouncing international and mega-caps have been killing value for long enough that for many earlier cycles when things were reversed have been forgotten.

I seem to recall Tyler saying that the PP and GB's substantial gold allocation made international stocks unnecessary but I don't remember why. But I do note that HB and Craig and MT didn't have a problem with it, and in fact it was the latter two's recommendation of VT that got me started on this.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Tue Apr 28, 2020 3:26 pm

"Should we also keep less in foreign stocks? As I’ve noted before, many U.S. investors seem to believe U.S. stocks are both higher returning and lower risk. If true, this would violate perhaps the most fundamental rule of finance—that risk and expected return are inextricably linked."

It's too bad that the "risk" of investing in international has not produced the "expected return" in well over a decade. It also hasn't worked for value investing in 2 decades. I honestly question the guru's like this or Swedroe that preach "risk" as the biggest underlying principle. If "risk" really gave more returns, why have treasury bonds been the strongest performing asset over the last year? Risk has nothing to do with the return of one countries stock market vs another. Over the long term, whatever has the most growth will increase in price the most. The growth of companies in a country depends on many things. Value and risk are side effects of, not causes of, the growth (or lack thereof) of the businesses in a country. Would you rather buy and hold the losers or the winners? You can sign me up for the winners.

What Tyler was referring to is that unhedged foreign stocks have an inherent short position on the local currency built into them. The FX fluctuations can add or subtract from the return. It's not ironic that the years that international outperforms U.S. stocks for a U.S. investor are generally years the dollar falls vs foreign currencies. A position in gold also has an inherent short position on local currency. So you have to ask yourself how long or short do you want to be on your local currency in your portfolio as a whole? I personally think it doesn't make a lot of sense to be long term short your local currency. It may have its strategic and tactical benefits at certain periods of time, but being a lifelong buy and hold short on your local currency doesn't make a lot of sense. I think holding a "global market portfolio" makes a lot more sense for someone without gold than it does for someone with gold. A typical boglehead that is allergic to anything that is yellow and shiny would probably be better off holding global market cap as at least that gives them some kind of currency hedge.
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Re: World Stock Index instead of TSM in PP, GB

Post by Tyler » Tue Apr 28, 2020 3:53 pm

Kevin K. wrote:
Tue Apr 28, 2020 3:00 pm
I seem to recall Tyler saying that the PP and GB's substantial gold allocation made international stocks unnecessary but I don't remember why. But I do note that HB and Craig and MT didn't have a problem with it, and in fact it was the latter two's recommendation of VT that got me started on this.
Think of it this way: Whose portfolio is less dependent on their local economy -- a Permanent Portfolio investor with 25% gold or a Three-Fund investor with 20% international stocks?

One way to eliminate home country bias is to buy additional assets biased to other countries. Another way is to buy truly global assets that transcend any one country. I see gold as the latter. It solves the same problem from a different angle.

That said, I personally have no problem with international stocks in the PP or GB. I do think it's less important for US investors than for non-US investors. And no matter where you live I think a tilt towards your home country is prudent to make sure your money tracks local inflation. But choosing to invest globally instead of limiting yourself solely to a small local economy seems like a very reasonable choice to me.
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Re: World Stock Index instead of TSM in PP, GB

Post by Kevin K. » Tue Apr 28, 2020 4:53 pm

Thanks very much pmward and Tyler for your thoughtful comments.

Yes it makes complete sense that with a substantial allocation to gold international exposure is far less useful.

And speaking of Larry Swedroe pmward he discusses the currency exposure risk issue briefly in this post and provides a link to the updated research paper from Vanguard that shows it's a non-issue over reasonably long holding times.

https://www.etf.com/sections/index-inve ... ubiquitous

At the end of the day I'm personally inclined to limit my dabbling to 5% of the 25% stock allocation being in VEU. The volatility of the individual PP components is entertaining enough to watch without adding unnecessary complexity.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Tue Apr 28, 2020 5:07 pm

Kevin K. wrote:
Tue Apr 28, 2020 4:53 pm
At the end of the day I'm personally inclined to limit my dabbling to 5% of the 25% stock allocation being in VEU. The volatility of the individual PP components is entertaining enough to watch without adding unnecessary complexity.
The one thing to keep in mind (and I bring this up simply because I catch myself doing this...) is that 5% really isn't enough of an allocation to really move the needle in any way. I've found myself in the past wanting to slice 5% to this and that just to feel like I included it. It really was adding complexity for nothing. 10% is my minimum allocation to anything these days, as 10% is enough to make a noticeable difference and I find I place a stricter crap filter on a 10% allocation than a 5% allocation. If I'm not willing to dedicate 10% of my portfolio to something then I should question why I really want to include it in the first place.
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Re: World Stock Index instead of TSM in PP, GB

Post by boglerdude » Wed Apr 29, 2020 12:17 am

Why has international underperformed. Why do markets keep getting it wrong
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Re: World Stock Index instead of TSM in PP, GB

Post by ochotona » Wed Apr 29, 2020 8:27 am

pmward wrote:
Tue Apr 28, 2020 12:46 pm
International stocks have been dead on the mat with no sign of life for over a decade now. I think it would be unwise to put money into them until they at least show some sign of life. They are currently cheap and underperforming for a reason. Just because something is cheap doesn't mean it has to go up. It can just stay cheap.
The contrarian in me loves the argument that we should be allergic to the S&P 500 cap weighted recency bias, but pmward is right; sometimes you end up owning a value trap. EEM hasn't budged in 12 years. What if it takes another 10 to take off? Are you prepared to wait?

I use momentum to surveil US stocks momentum & value, ex-US Developed, and ex-US Emerging to look in those four big buckets for signs of life. US stocks still strongest momentum, and one of the strongest big ETFs out there is MTUM... for now! Could change at any time.
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Re: World Stock Index instead of TSM in PP, GB

Post by ochotona » Wed Apr 29, 2020 8:43 am

boglerdude wrote:
Wed Apr 29, 2020 12:17 am
Why has international underperformed. Why do markets keep getting it wrong
Turn the question upside-down... why has the S&P 500 outperformed since March 2009? All of the outperformance has come since then.

QE, buybacks funded by corporate junk rated and BBB borrowing meant to enrich insiders, the passive investing mania (FIRE sheeple), bubbles in US based tech and shale unicorns which make no profits... take your pick. How sustainable are any of those? And taken together?

That's why don't get wedded to any fixed narrative.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Wed Apr 29, 2020 9:02 am

boglerdude wrote:
Wed Apr 29, 2020 12:17 am
Why has international underperformed. Why do markets keep getting it wrong
Why do you assume markets are getting it wrong? What makes your opinion right and the consensus view of all market participants wrong?
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Re: World Stock Index instead of TSM in PP, GB

Post by Kevin K. » Wed Apr 29, 2020 9:49 am

From the NY Times article I provided the link to above:

"An economic downturn almost always favors giants like Microsoft, Apple and Amazon, the country’s three most valuable companies. But the demand for their shares has only been amplified by a crisis that seems almost tailor-made for their future success.
Even as analysts have trimmed expectations for all three companies’ quarterly earnings, which they’ll report this week, their stocks are climbing. Their combined value rose more than three-quarters of a trillion dollars since the recent market low — more than the cumulative gain of the bottom half of all stocks in the S&P 500.
Investors are betting, in part, that the Covid-19 crisis accelerates the already growing power of America’s corporate colossuses.
“The firms that were the top dogs going into the crisis also happen to have the most resilient business models because they can do everything online,” said Thomas Philippon, a professor of finance at New York University. “It turns out Amazon was one of the most successful businesses in the U.S., and on top of it, they are the ones who can keep processing orders.”

Besides benefiting from their gargantuan size, Microsoft, Amazon and Apple are all sitting on mountains of cash that will make them largely immune to the funding squeezes other companies are experiencing.

But the depth of the current economic decline makes it reasonable to expect that such large companies will emerge in an even more dominant position this time around, said Mr. Philippon, who last year published a book, “The Great Reversal,” that examines the competitiveness of the American economy.

“This one is likely to be much worse because the death rates of small businesses is likely to be even higher,” said Mr. Philippon.
The difference in investor expectations for large and small companies is stark: The Nasdaq 100, an index of the largest technology companies — which also happen to be the largest companies in the country — is down 0.6 percent this year. The Russell 2000 index, which tracks small public companies, is down 22 percent — roughly double the 11 percent in losses for the S&P 500.

That has supercharged the giants’ boom.
According to data from Goldman Sachs, the top 10 stocks in the S&P 500 this month accounted for roughly 27 percent of the total value of the index. That surpassed the previous peak, which came during the tech stock frenzy of the late 1990s. The top five companies alone — Microsoft, Apple, Amazon, Alphabet and Facebook — account for 20 percent of the index."

So it goes way beyond U.S. vs. International. My read on this is that it's kind of Jack Bogle's old arguments for owning only TSM if you're a U.S.-based investor writ large. U.S.-based mega-corporations, since the '08 crisis, have become irreversibly dominant, at least in the short run. The fact that a lot of their growth has been based on stock buybacks and other chicanery doesn't seem to matter. They have the ability to thrive and grow while Int'l, EM and small caps of all sorts are crushed by debt, lack of cash, dependence on brick-and-mortar locations, etc.

I'd be curious to hear what leading MPT folks like Bernstein, Swedroe or the DFA crowd think of these developments, which clearly accelerated in the wake of the '08 crisis and now seem poised to achieve warp speed in light of the pandemic.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Wed Apr 29, 2020 10:02 am

Kevin K. wrote:
Wed Apr 29, 2020 9:49 am

So it goes way beyond U.S. vs. International. My read on this is that it's kind of Jack Bogle's old arguments for owning only TSM if you're a U.S.-based investor writ large. U.S.-based mega-corporations, since the '08 crisis, have become irreversibly dominant, at least in the short run. The fact that a lot of their growth has been based on stock buybacks and other chicanery doesn't seem to matter. They have the ability to thrive and grow while Int'l, EM and small caps of all sorts are crushed by debt, lack of cash, dependence on brick-and-mortar locations, etc.

I'd be curious to hear what leading MPT folks like Bernstein, Swedroe or the DFA crowd think of these developments, which clearly accelerated in the wake of the '08 crisis and now seem poised to achieve warp speed in light of the pandemic.
Bernstein, Swedroe, DFA, etc are biased in their views. They will not budge. Their livelihoods depend on it. They've already been arguing their stance for 20 years now, they aren't just going to wake up one day and say "my bad, I was wrong" even though all evidence shows they have been wrong. Why do people continue to respect and listen to people that have never once in their career actually been right in any of the advice they have given? The very moment Fama/French released their research on factors is the very moment it stopped working. They will all hold to their guns for what could be another 20 years of underperformance. And unfortunately some people will continue to listen to them and ride the wave of underperformance along with them.

The trends of large cap growth stocks didn't even start 10 years ago. They started almost 20 years ago, at the bottom of the tech bust in ~2002-2003. From that period on growth has consistently dominated value. Large has mostly out performed small (unlike growth/value small/large actually has had some periods of strength but on the whole have still underperformed). International did have a good run in the early 2000's, but since then has been flat on it's face with absolutely no sign of life. I think the problem is that "small", "value", and "international" indexes have an extremely high percentage of zombie companies. These are companies that deserve to be cheap. Do I believe that all small, value, and international companies should be avoided? Absolutely not. But one should be very picky in what they invest in. I don't think that buy and hold on small, value, or international index funds are a particularly good deal at the moment. In a low growth world, large cap U.S. growth stocks will continue to shine.
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Re: World Stock Index instead of TSM in PP, GB

Post by jalanlong » Wed Apr 29, 2020 2:12 pm

pmward wrote:
Wed Apr 29, 2020 10:02 am
Kevin K. wrote:
Wed Apr 29, 2020 9:49 am

So it goes way beyond U.S. vs. International. My read on this is that it's kind of Jack Bogle's old arguments for owning only TSM if you're a U.S.-based investor writ large. U.S.-based mega-corporations, since the '08 crisis, have become irreversibly dominant, at least in the short run. The fact that a lot of their growth has been based on stock buybacks and other chicanery doesn't seem to matter. They have the ability to thrive and grow while Int'l, EM and small caps of all sorts are crushed by debt, lack of cash, dependence on brick-and-mortar locations, etc.

I'd be curious to hear what leading MPT folks like Bernstein, Swedroe or the DFA crowd think of these developments, which clearly accelerated in the wake of the '08 crisis and now seem poised to achieve warp speed in light of the pandemic.
Bernstein, Swedroe, DFA, etc are biased in their views. They will not budge. Their livelihoods depend on it. They've already been arguing their stance for 20 years now, they aren't just going to wake up one day and say "my bad, I was wrong" even though all evidence shows they have been wrong. Why do people continue to respect and listen to people that have never once in their career actually been right in any of the advice they have given? The very moment Fama/French released their research on factors is the very moment it stopped working. They will all hold to their guns for what could be another 20 years of underperformance. And unfortunately some people will continue to listen to them and ride the wave of underperformance along with them.

The trends of large cap growth stocks didn't even start 10 years ago. They started almost 20 years ago, at the bottom of the tech bust in ~2002-2003. From that period on growth has consistently dominated value. Large has mostly out performed small (unlike growth/value small/large actually has had some periods of strength but on the whole have still underperformed). International did have a good run in the early 2000's, but since then has been flat on it's face with absolutely no sign of life. I think the problem is that "small", "value", and "international" indexes have an extremely high percentage of zombie companies. These are companies that deserve to be cheap. Do I believe that all small, value, and international companies should be avoided? Absolutely not. But one should be very picky in what they invest in. I don't think that buy and hold on small, value, or international index funds are a particularly good deal at the moment. In a low growth world, large cap U.S. growth stocks will continue to shine.
So is it a bad decision to go with something like the Russell 1000 Growth ETF (VONG) instead of a Total Market Index which will contain a lot of utility and consumer staples etc? If you think the Total Market Index is too highly concentrated though, don't look at the LC growth indexes which are almost 40% in the top 10 stocks.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Wed Apr 29, 2020 2:40 pm

jalanlong wrote:
Wed Apr 29, 2020 2:12 pm
So is it a bad decision to go with something like the Russell 1000 Growth ETF (VONG) instead of a Total Market Index which will contain a lot of utility and consumer staples etc? If you think the Total Market Index is too highly concentrated though, don't look at the LC growth indexes which are almost 40% in the top 10 stocks.
Not a bad thing at all. Seeing as how growth both outperformed in the recent bull and bear cases, I think one could make an argument that large cap growth is a perfectly fine "core holding". You could also split 50/50 TSM/large-cap growth. Or you could even track the returns over time and stay tilted to large cap growth as long as it continues to work. This is a 2 decade long trend, it's likely to continue, and you'll know when it's over.

HB also originally proposed using growth funds in the PP.
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Re: World Stock Index instead of TSM in PP, GB

Post by jalanlong » Wed Apr 29, 2020 2:45 pm

pmward wrote:
Wed Apr 29, 2020 2:40 pm
jalanlong wrote:
Wed Apr 29, 2020 2:12 pm
So is it a bad decision to go with something like the Russell 1000 Growth ETF (VONG) instead of a Total Market Index which will contain a lot of utility and consumer staples etc? If you think the Total Market Index is too highly concentrated though, don't look at the LC growth indexes which are almost 40% in the top 10 stocks.
Not a bad thing at all. Seeing as how growth both outperformed in the recent bull and bear cases, I think one could make an argument that large cap growth is a perfectly fine "core holding". You could also split 50/50 TSM/large-cap growth. Or you could even track the returns over time and stay tilted to large cap growth as long as it continues to work. This is a 2 decade long trend, it's likely to continue, and you'll know when it's over.

HB also originally proposed using growth funds in the PP.
I know that if you backtest from the 1970s until now you will see that value and total mkt have beaten growth. But in context of a PP. if other assets are for recession or deflation, then I don't see why I wouldn't want to lean towards growth stocks and avoid stocks like utilities which generally perform better in an environment that I already have covered by other assets.
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Wed Apr 29, 2020 2:49 pm

jalanlong wrote:
Wed Apr 29, 2020 2:45 pm
pmward wrote:
Wed Apr 29, 2020 2:40 pm
jalanlong wrote:
Wed Apr 29, 2020 2:12 pm
So is it a bad decision to go with something like the Russell 1000 Growth ETF (VONG) instead of a Total Market Index which will contain a lot of utility and consumer staples etc? If you think the Total Market Index is too highly concentrated though, don't look at the LC growth indexes which are almost 40% in the top 10 stocks.
Not a bad thing at all. Seeing as how growth both outperformed in the recent bull and bear cases, I think one could make an argument that large cap growth is a perfectly fine "core holding". You could also split 50/50 TSM/large-cap growth. Or you could even track the returns over time and stay tilted to large cap growth as long as it continues to work. This is a 2 decade long trend, it's likely to continue, and you'll know when it's over.

HB also originally proposed using growth funds in the PP.
I know that if you backtest from the 1970s until now you will see that value and total mkt have beaten growth. But in context of a PP. if other assets are for recession or deflation, then I don't see why I wouldn't want to lean towards growth stocks and avoid stocks like utilities which generally perform better in an environment that I already have covered by other assets.
Go back and test from 2003 to today and you'll see different. These things go in large multi-decade trends. If you want to just hold TSM, go for it, nothing wrong with that. But, if you want to optimize... growth is where it's at until the paradigm shifts.
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Re: World Stock Index instead of TSM in PP, GB

Post by jalanlong » Wed Apr 29, 2020 3:17 pm

pmward wrote:
Wed Apr 29, 2020 2:49 pm
jalanlong wrote:
Wed Apr 29, 2020 2:45 pm
pmward wrote:
Wed Apr 29, 2020 2:40 pm
jalanlong wrote:
Wed Apr 29, 2020 2:12 pm
So is it a bad decision to go with something like the Russell 1000 Growth ETF (VONG) instead of a Total Market Index which will contain a lot of utility and consumer staples etc? If you think the Total Market Index is too highly concentrated though, don't look at the LC growth indexes which are almost 40% in the top 10 stocks.
Not a bad thing at all. Seeing as how growth both outperformed in the recent bull and bear cases, I think one could make an argument that large cap growth is a perfectly fine "core holding". You could also split 50/50 TSM/large-cap growth. Or you could even track the returns over time and stay tilted to large cap growth as long as it continues to work. This is a 2 decade long trend, it's likely to continue, and you'll know when it's over.

HB also originally proposed using growth funds in the PP.
I know that if you backtest from the 1970s until now you will see that value and total mkt have beaten growth. But in context of a PP. if other assets are for recession or deflation, then I don't see why I wouldn't want to lean towards growth stocks and avoid stocks like utilities which generally perform better in an environment that I already have covered by other assets.
Go back and test from 2003 to today and you'll see different. These things go in large multi-decade trends. If you want to just hold TSM, go for it, nothing wrong with that. But, if you want to optimize... growth is where it's at until the paradigm shifts.
I wonder how small of a portfolio is too small? As well as the Russell 1000 Growth ETF has done the past 10 years, the Russell Top 200 Growth has done even better. But that only holds 127 stocks. The top 10 stocks are 50% of the portfolio and the other 190 round out the fund. Microsoft is 11% of the fund.
pmward
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Re: World Stock Index instead of TSM in PP, GB

Post by pmward » Wed Apr 29, 2020 3:44 pm

jalanlong wrote:
Wed Apr 29, 2020 3:17 pm
I wonder how small of a portfolio is too small? As well as the Russell 1000 Growth ETF has done the past 10 years, the Russell Top 200 Growth has done even better. But that only holds 127 stocks. The top 10 stocks are 50% of the portfolio and the other 190 round out the fund. Microsoft is 11% of the fund.
Concentration is a double edged sword. It can work for you or against you. Mega-cap growth concentration has been *the* trade for years now. Do you want more diversification or more concentration? I personally have no issues concentrating to chase alpha, but I also track the inter-market trends regularly and will know when it's time to jump off the train.
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