I’ve written an article for the Daily Caller site entitled Can We Handle the Truth About Stock Investing?
Juicy Excerpt: Congress has formed a commission to identify the true cause of the economic crisis. I have a funny feeling that the primary cause is something other than the stuff that most people have been talking about since September 2008. I believe we need to launch a national debate on the failure of the Buy-and-Hold Model, on how promotion of Buy-and-Hold led to the economic crisis, and on what we today know (but aren’t yet telling!) about what really works in stock investing.
Rob,
Do you have a post or section where you address international investing? I believe much of what you focus on (U.S. market valuations) would have a tremendous impact on how much stock one should hold provided that there weren’t alternative stock buying options in other countries where their valuations might be really low, and/or have little if any correlation with the U.S. market. Take Japan for instance who’s had a depressed stock market for the past 20 years even during the U.S. boom market of the 90s. Japan could easily have a great next decade and the U.S. could become the next “Japan”.
In short, one solution to investing during a high U.S. stock valuations is to just buy bonds or hold cash as a defense (what you suggest), but why settle for poor returns when there are other countries besides the U.S.?
If you ask me, one of the riskiest ways to invest in stocks is to buy them from just one country. I think it’d be naive to consider the U.S. immune from this rule.
Azanon
Your point is an important one, Azanon. Thanks for taking time out of your day to help us all out.
I write for the typical middle-class investor, not the investor sophisticated enough to study foreign markets. My aim with Valuation-Informed Indexing is to make John Bogle’s ideas workable in the real world. Bogle deliberately kept his approach simple. I think a simple approach is much needed and I view Bogle as a Hero of the Middle Class for the work he has done laying the foundation for a workable simple approach.
You are right that investing in markets other than the U.S. market is an alternative approach to dealing with the problem of overvaluation in the U.S. market. I’d like to see other people flesh out the opportunities here. I do not have time to do so given the amount of work that still needs to be done in developing and promoting the Valuation-Informed Indexing concept.
If you or anyone else has an interest in writing a Guest Blog Entry describing the option you outline here, I would be very happy to host it here.
Rob
Thank you for your response.
I just wanted to make sure I wasn’t approaching the problem of high U.S. stock valuations wrong by considering international investing as part of the solution. I haven’t found as reliable of data as Shiller’s on other countries, but there are some materials out there to at least give indicators of where various other world markets might be in terms of valuations. Another approach might simply be all-inclusive foreign mutual funds where it could be presumed that the valuations of the various countries would at least somewhat equal out.
This would be a particularly good time for someone to explore this angle simply because of the paltry returns that U.S. bonds and money markets are returning right now. Sure, they continue to provide their primary purpose – as a means of wealth protection – but there have been times in the past where they also provided respectable returns.
My view is that what you are saying is right on, Azanon.
In principle you are right that investing internationally is an alternate way to solve the problem. But the thing you have to watch for is making sure that the data is good enough to help you make good choices. Non-U.S. data tends not to be as good as U.S. data. So you need to be sophisticated enough to be able to take note of any problems.
Rob