I think India is a maybe. I think Latin America is not universally well educated enough at this time and there’s too much corruption in the system and too much command economy where a strongman takes over. Argentina is finally making moves to return to a freer economy. We’ll see how that goes. In my lifetime though I’ve not seen any strong promise for south and Central America making good (ie pro growth) decisions. If that changes I think we’ll see it in time to start investingBut what about India, Latin America, and other emerging markets?Let’s say every country in Europe and Asia reproduce at 0.5 per person and, as seems now to be the case, Europe to maintain young workers makes a policy to import a million people in each country who do not speak any European language, do not have any education, are not prepared to work, believe the native Europeans are inferior to them, and prefer to live a life of leisure in welfare. And for Europe this is very year for 75 years?A thought experiment.
Looking at the composition of VT (https://investor.vanguard.com/investmen ... omposition), the US constitutes 61% of the index as of today, with the remaining 39% of market cap coming from the rest of the world.
Much attention in the thread discusses the superiority of US firms, recent outperformance, superior investor protections, governance, etc. For the sake of argument, let's assume that those arguments hold and that the US is truly exceptional. And that the trend of recent outperformance will persist (including the strengthening of the dollar).
If we extrapolate a 1% US outperformance over various horizons, we can extrapolate global market cap.
25Y: 66% US / 34% ex-US
50Y: 72% US / 28% ex-US
75Y: 76% US / 24% ex-US
If we extrapolate a 2% US outperformance over various horizons instead, we arrive at the following extrapolated global market cap:
25Y: 71% US / 29% ex-US
50Y: 80% US / 20% ex-US
75Y: 87% US / 13% ex-US
Call me crazy, but I refuse to believe in an equilibrium asset pricing situation in which the US comprises the entire market cap of the world over the long run.
For those reasons, I'm mostly a VT and chill type, with a tiny bit of "home bias" that I can't fully rationalize (probably performance chasing if I'm being honest).
I'll set a google reminder for 75 years from now (12/24/2098) to recheck the composition of VT and post an update to this thread and see if my assertion holds. If true, then I will be wealthier for having diversified internationally (and perhaps enjoyed a bit of a lower portfolio volatility along the way). If not, I will be poorer for having failed to buy into the persistent US exceptionalism argument. At which point my 117 year old self will shed a tear of sadness.
In that scenario I can see a situation where USA is 75 percent or more of the world market. No, I would hope that Europe does not allow that to happen, and I would hope that educated productive countries begin to make babies again, but I could certainly see a scenario where Europe chooses not to continue to exist, and in that case, with all of the advanced Asian countries also not reproducing, I could see out performance continuing.
Statistics: Posted by KBR — Mon Dec 25, 2023 1:06 am — Replies 3808 — Views 217405