A reminder that it is might be a good idea to diversify among large and small caps and factors (just in case). Here is Nathan's chart. DISVX = International SCV / DFSVX = U.S. SCV / VWIGX = International large growth.Run the analysis with DISVX and you also get "close enough" to US SCV. If you run it with VWIGX (Growth for international rather than Value) you get even higher returns internationally.US broad market cap weighted indexes owe their multi-decade outperformance relative to INTL to US dominance of cutting edge innovative mega cap tech growth companies. If you omitted these companies from your portfolio due to overvaluation concerns by traditional measures, your returns have suffered mightily YTD, 1yr, 5yr, 10yr, 15yr, and 20 yr. By realistic valuation measures, these tech firms were consistently overpriced the whole way. Yet, they thrived while value stocks as well as most stocks in general were left in the dust. The massive outperformance of mega cap tech growth was driven by high quality companies with wide moats, tons of cash, dominance in their markets, and assured future profit growth. But a greater contribution to success came from margin expansion due to hype about the future. Not the totally unrealistic hype of the late 1990s yet IMO, but lofty expectations of future profits which may or may not meet reality.
The rapid introduction of one world changing innovation after another--internet, smart phones, cloud computing, online gaming and shopping, social media, and the latest hype, AI--the world is changing so quickly and so thoroughly. The entire economy and stock market participants as well seem to driven by a dream of getting on board the next NVDA early. Massive amounts of investor money flows into tech innovation firms while many solid stable traditional businesses with real profits are out of the spotlight and neglected. The last and current tech darling is NVDA which now dominates AI chips, but before it similar levels of hype drove up prices of AMZN, AAPL, MSFT, GOOG,FB/META, TSLA into the stratosphere rapidly becoming trillion dollar mega cap stocks.
These are sexy stocks and the frenetic market is obsessed by them, picking future winners and ignoring current sound fundamental valued stocks. Meanwhile the overlooked stocks (V, especially SCV, and INTL) as well as most stocks get cheaper relative to the winners. I agree with Larry that margin expansion in excess of fundamentals cannot go on forever. However, everyone who has bet big on mega cap tech darlings over the last 20 years has done very well indeed. This behavior has become deeply entrenched and will not disappear overnight. We don't focus on PE,PB, DIV, etc.. Instead we focus on picking future tech winners. VTI which has heavy doses of them has prospered and I am glad it is by far the dominant holding in my portfolio.
I personally am not comfortable at this point in overweighting these names above their already robust levels in VTI. At some point, I expect the happy carefree tech darling music will stop and this game of musical chairs will end. I do not think it will be anytime soon. Every now and then there has been a temporary drop in AI enthusiasm. Worry comes into the picture and a brief semi-correction occurs in the magnificent 7. This is actually a positive sign for the market IMO. Bull markets need a climb a wall of worry to climb and die when investors are worry free and ecstatic. It is not possible to reliably pick when this thing will turn around but it is likely at some point to occur. I believe it's wise to hold some level of long term losers like INTL and SCV. Mega cap tech sits on a lofty valuation perch, a long way to fall if something unexpected happens. Lots of good future news already baked into current valuations and that good news may or may not show up when the time comes. I will continue to hold them at cap weight, but at the same time I will add modest levels of their hype-free opposites (SCV, INTL) for diversification. I believe it wise to prepare for everything including what currently looks very unlikely to happen.
Garland Whizzer
US value stocks have done just fine over the last 15 years: https://www.portfoliovisualizer.com/bac ... 8tuoUdTNYz
US Value excludes the high flying tech growth companies and still performs vastly superior to international over this long stretch of US outperformance. Thus, the argument that the US performance is all due to a few overvalued tech stocks doesn’t really hold water once you peak under the hood.
So the prevailing theme is that US > exUS and Growth > Value. This holds broadly true still.
If you had invested in International Growth or International Small Value you did substantially better than International MCW.
https://testfol.io/?d=eJytj01LAzEQhv%2F ... F3wyezgLAy
Statistics: Posted by comeinvest — Tue Sep 03, 2024 11:37 pm — Replies 6825 — Views 1667025