Education Bill Bernstein Interview

Discussion in 'Share Investing Strategies, Theories & Education' started by Nodrog, 19th May, 2019.

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  1. Nodrog

    Nodrog Well-Known Member

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    80%, 50% or 0% - doesn’t really matter as long as we sleep well at night with our decisions. Unfortunately none of us know the future or even the probabilities for that matter. That’s the wonderful thing about investing, we’re all unique.

    Great thread, thanks for all comments.
     
  2. dunno

    dunno Well-Known Member

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    The sleep well at night justification has a limit. Get it too wrong and you might be sleeping well at night in a cardboard box. Recognising that the future is unknownable should logically steer investment towards broad diversification over positioning towards beliefs about the future.
     
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  3. Redwing

    Redwing Well-Known Member

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  4. Ross36

    Ross36 Well-Known Member

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    This is one reason I'm not that excited about emerging markets (red) compared to the US market (blue). The return since 1995 hasn't been great given the huge volatility. The correlation between the two isn't that high, but that's more because it misses a lot of the upside. When the US sneezes EM seems to catch a cold though so how much worthwhile diversification it offers is unclear. Having 2 distinct 10yr periods with little or no growth in value in a 24yr period is a bit worrisome.
     
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  5. Ross36

    Ross36 Well-Known Member

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    How broad is too broad though? I did the classic mistake when I first started investing in 2007 (!) and had three companies: Emeco Holdings, QBE and Macquarie based on stupid newsletters that I paid money for "hot tips" from. Sold the former but kept both of the latter through it all, what a ride. Definitely not broad enough!

    Since then I've been index funds all the way, but realise even with thousands of companies there are still many more I don't have. But do I want them? Given the international and currency exposure that the US provides, and it's long track record of strong growth, why would I bet against it for emerging markets exposure in countries that might foreclose on my money? Are they just an Emeco or QBE waiting to happen?

    If only the valuations on the US market weren't so high it would be easier to just go 50/50 Oz vs US, it's hard to ignore how high the US PER is at the moment. Hence my interest in emerging markets.
     
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  6. Hosko

    Hosko Well-Known Member

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    It seems as though it is in the eye of the beholder. Speak to somebody who only has CBA or WES since their inception and they appear comfortable that they are only holding a single stock. Or maybe somebody who got the right timing with a FMG or similar. Diversification may indicate that you don't have conviction of your decision in some cases.
     
  7. Hosko

    Hosko Well-Known Member

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    Not saying diversification is a bad thing but just that different individuals can justify their decisions depending on the outcomes. Much easier to do in hindsight
     
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  8. Ross36

    Ross36 Well-Known Member

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    I hear what you're saying - my MQG has been a great long term investment so far. But I want a set and forget plan, if I just owned CBA and WES I wouldn't sleep well during volatile times as it's easier to imagine a world where they don't exist / are fractions of what they once were than a world where the US, Oz and EM have all tanked long term. Everytime a new story like Libra or Amazon coming to Australia pops up would give me itchy trigger fingers to sell.
     
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  9. Nodrog

    Nodrog Well-Known Member

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  10. Nodrog

    Nodrog Well-Known Member

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    From memory that may be in line with what Bernstein was suggesting in that given the risk and poor returns of EM relative to Developed markets you only buy it when it’s cheap as opposed to other major asset classes which generally get topped up to maintain a set asset allocation.
     
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  11. Nodrog

    Nodrog Well-Known Member

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    Keep talking like that and @oracle will be asking you out for a date:D
     
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  12. Nodrog

    Nodrog Well-Known Member

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    Owned all those mentioned and many more up till not all that long ago. Wasn’t so much the SANF but the sheer simplicity and near zero admin associated with owning an index ETF vs direct shares is bliss.
     
  13. Nodrog

    Nodrog Well-Known Member

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    Yes point well taken.
    Then why VAE over VGE? Isn’t that positioning toward beliefs about the future rather than subscribing to broad diversification without a view?

    I suppose what I was getting at in my previous post is being able to put say an 80% probability on China’s outcome? A coin toss, the US market, the Australian market then I might have some chance of deciding on a probability range. But China, given the direction it is taking, makes it damn hard to do so.

    Hence as I stated in a previous post:
    Accepting an unknown future despite well reasoned concerns around China and investing in EM in it’s entirety appears to be the path @The Falcon is taking. I do admire this conviction. If I was a younger accumulator I think I might do the same. However at this stage of our investing lifecycle it’s a step too far despite me trying very hard to always keep an open mind to other’s views and supporting evidence.

    And the point about us being older, retired and in the peak Sequence of Return Risk zone meets to be borne in mind when reading my comments. Younger accumulators are in a very different situation to us. Risk can be your friend when younger whereas for retirees too much of it can be your enemy.
     
  14. truong

    truong Well-Known Member

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    +1

    Sorry if I sound biased against China but I’d never invest in a communist country. Once bitten twice shy… Been confiscated of all our belongings by a communist regime… Seen scores of people cheated and crushed in multiple communist countries at multiple times in history, whole villages kicked out of their homes by local lords... Known someone forced to give away their successful business to a party official.

    To lose your entire investment is bad enough but to lose it for reasons that have nothing to do with economics is incomprehensible.

    I have lots of relatives/friends on the mainland, in Hong Kong and Taiwan and I used to visit the country at length every year. In the early 2000s I even had several business dealings at the urging of my relatives as there was great hope China would somehow transition into a normal market economy. Turned out, normalcy was just a cover and the tiger couldn’t change its stripes.
     
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  15. dunno

    dunno Well-Known Member

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    Hey @Nodrog

    To me the most logical way to invest for an unknown future is as broad based, low cost and consistently as possible. That is also what I interpret @The Falcon is saying with his comments, he’s also made the observation in this thread that good diversification doesn’t always sit the best, something is always underperforming. – that is the nature of the beast.

    I don’t practice what I preach. VAE is certainly a position aligning to my beliefs rather than best investing practice. So is my value tilt, so are my direct holdings which currently dominate my portfolio.

    This is where I resonate with the 80% comment that @Hodor made. So long as your savings rate/accumulated capital only needs 80% of the optimum return to provide the income you need you are free to stray from optimum a bit to indulge your beliefs and take a chace on outperformance. That was the context that I said I was happy with holding VAE. I hold all my tilts in that context – I can afford for them to not work out and underperform.

    Whilst It’s not what I do; not holding any Emerging as you prefer, or concentrating on lowest cost for large chunk of diversification (Aus/US strategy) as per @oracle approach also seem to me to be within the “80% concept” and I find them interesting approaches to "think" about.

    If I have explained myself properly, I suspect you will see we hold similar views.
     
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  16. Nodrog

    Nodrog Well-Known Member

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    A very powerful post @truong. It’s easy for us investors who have grown up in a wonderful, wealthy, free, democratic and law abiding country like Australia to state our views. I know a little of your past but I can’t even begin to imagine the pain, heartbreak and suffering that you experienced at the hands of a communist regime.
    Hence why I take very seriously the wisdom of immigrants from these Countries in question. And this is along the lines of that they will only invest in these countries when they have proven beyond all doubt that the “tiger has changed its stripes”!
     
  17. Nodrog

    Nodrog Well-Known Member

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    Yes you’re correct, I was having a senior movement and misunderstood. 80 / 20 of course is a sensible way of looking at this.

    Put like that it’s no different to me having most of our global allocation in VGS. US alone is not enough diversification for me.

    And come to think of it the hypocrisy of what I’ve posted here given that I continue to stick with our legacy holding in Platinum’s Global LIC (PMC) which is often heavily tilted toward China:oops:. But I try to validate this in that PMC being an active Mgr has the choice to underweight / eliminate China exposure depending on their “view”:confused::). Related Index ETFs don’t have this flexibility.

    Further it could be suggested that a well off retiree who is only dependent on much less than 80% of their wealth can also afford to invest in EM or Asia. I suppose it’s simply my (and my wife’s) risk tolerance which seems to be getting a bit more conservative with age that guides out asset allocation decisions.

    Which suggests readers would be well advised to ignore anything I say:confused::oops::rolleyes:. This is what happens when I manage to periodically escape from the dementia ward.
     
  18. Ross36

    Ross36 Well-Known Member

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    That's what I picked up from the interview - EM is not something you do all the time but when it's relatively cheap it is a viable option.

    This is exactly what I needed to hear to counterpoint my one off visit. On the surface everything looked great, but this sort of experience reinforces my doubts about investing significant funds into non-capitalist and/or emerging countries.

    This is interesting in the context of Paul Merriman's stance that you don't rebalance, just keep investing the same amount into each market and let the winners run. If you rebalanced your EM to US share holdings over the last 24yrs you would have underperformed quite badly compared to not rebalancing at all. So the 80% comments made by @dunno / @Hodor could be applied to the initial investment and contributions, not to the portfolio balance which would end up with a much larger proportion of money going into EM than US over that time period to try and keep the ratio consistent. Oh the complexity...I may be overthinking this.

    Thanks to all for the great information/discussion. I might ditch this share investing gig and just invest my money into diversified real estate. Now off to organise mortgages for a 1 bedroom apartment in Docklands and a large house in Gladstone, can't get much more diversified than that ;).
     
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  19. Nodrog

    Nodrog Well-Known Member

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    :eek::eek::eek:
     
  20. The Falcon

    The Falcon Well-Known Member

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    Right, it comes back to ; I hold these views, but ultimately I am inherently fallible and likely to be wrong as often as not. So, I’ll devote an acceptable (sanf) position size to this pending shambles and either be smug OR richer. A minor win either way!
     
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