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VLS80% plus what (if anything)?

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Comments

  • teepee83 wrote: »
    Indeed yes, he has done well, but wonder how much of that is riding on the back of US holdings. Obviously his non-US holdings (mainly UK) have done considerably better than the FTSE. He is of course a 'buy and hold' man, so will expect periods of underperformance. The fund has done very well so far - nearly up 100%, so I suppose it stands to reason that the companies he originally picked at good valuations are now looking on the pricey side. Unfortunately I haven't been in the fund for that long, so have missed most of those gains. The trouble is the fund is not even 5 years old, so it is hard to put Terry Smith in the 'exceptional manager' category as of yet.

    Well my own inclination (if he tends to buy-and-hold) would be that the US market is likely to continue to be the main driver of returns ... So it would probably come down to whether you think the US is likely to keep rising over the medium-term

    I avoid the US more than most - because I've chosen to take a value-based approach - but there are plenty of investors out there who continue to see the US as the safest region to be invested in

    With all these rounds of stimulus, there's nothing to say US markets couldn't rise another 100% ... But then again, at today's levels, the US could also be in bubble territory
  • System
    System Posts: 178,227 Community Admin
    10,000 Posts Photogenic Name Dropper
    Well my own inclination (if he tends to buy-and-hold) would be that the US market is likely to continue to be the main driver of returns ... So it would probably come down to whether you think the US is likely to keep rising over the medium-term

    I avoid the US more than most - because I've chosen to take a value-based approach - but there are plenty of investors out there who continue to see the US as the safest region to be invested in

    With all these rounds of stimulus, there's nothing to say US markets couldn't rise another 100% ... But then again, at today's levels, the US could also be in bubble territory

    Yes the US has had a good run. It is of course impossible to time the markets, but there is no doubt that the US is pricey compared to other areas. However it is pricey with good reason as most other areas do have their problems and plenty of uncertainty. Europe worries me far too much and as some of your entries pointed out there is a diverse way of investing in europe. Emerging markets are the best bet long term, but it could be a bumpy ride!
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  • teepee83 wrote: »
    Yes the US has had a good run. It is of course impossible to time the markets, but there is no doubt that the US is pricey compared to other areas. However it is pricey with good reason as most other areas do have their problems and plenty of uncertainty. Europe worries me far too much and as some of your entries pointed out there is a diverse way of investing in europe. Emerging markets are the best bet long term, but it could be a bumpy ride!

    Well on timing the market, I prefer to say you can never be certain about where something will be in the future, but you can be fairly certain about the probability of it being there (just like quantum physics)

    So we know the US's CAPE ratio is currently around 27, and there is a trend in the region of average annualised 15-year returns you can expect from this point (probably between -0.1 and 5.5%)

    2_Connection_CAPE_Real%20Returns_15_Years.png

    The idea being that investor sentiment tends to be chronically out of proportion with actual prospects and risks - so effectively the US would need to double its company earnings just to catch up with its current valuation, while Italy would only need to stop scaring people away for its market price to double
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    edited 25 November 2014 am30 9:04AM
    So we know the US's CAPE ratio is currently around 27, and there is a trend in the region of average annualised 15-year returns you can expect from this point (probably between -0.1 and 5.5%)
    Of course, the US CAPE has not been around 27 or higher in many economic cycles during the 35 year period of your graph, to give you the data to go on. From a glance at another chart, it was 27 or more from 1997 to 2002 and then back up during the middle 2000s. Only the periods 1997,1998,1999 would allow you to see the 15 year returns - because 15 years haven't elapsed since 2006 for example.

    So, it is a bit of a guessing game really, whether the fortunes of the S&P from here over the next 15 years will be in that highly unscientific "-0.1 to 5.5%" range.

    It is true that people think the prospects of the US economy and US listed companies specifically, are regarded as relatively good on a world scale and therefore worth paying high prices in terms of average last decade's earnings (worth noting that some of those years' earnings were heavily depressed in the credit crunch years of 2009,10,11). So, they likely assume there is going to be some growth and that prospects elsewhere are relatively less attractive.

    In Italy as you say, they are less willing to pay as much today for the same amount of [average last decade's earnings track record]. Participants in that market do not want to pay so much as share price for the same average 10yr historic profits and future estimated growth. Either that is because they are good judges and the growth is not actually going to be so high, and they will be stuck with lacklustre annual earnings - or they merely estimate that it will not be so high and will be proved wrong somehow, given another 10 years.

    The current valuations are not necessarily wrong, and the returns from US are not necessarily going to annualise to -0.1% over the next decade and a half. If the US companies deliver on the market's expectations the share prices will rise strongly. IMO it is not true to say that they have to deliver all that growth for 15 years solid 'just to justify today's value' implying that prices would remain static if they did.

    However, I was buying US stocks in 2003 (post dotcom bubble burst, post 9/11, post Enron) when the CAPE was over 20. The 'long term chart' going back to 1890 says that you are paying over the odds if you pay more than CAPE of 15, so what do I know, right?! Of course if you wait for that tasty level of 15 for the US market, you will have only bought US stocks during one or two months in the last two and a half decades. So, I have bought US stocks and other international stocks at all sorts of CAPE values during my adult life, and done quite well, because I realise CAPE is not everything.
  • bowlhead99 wrote: »
    Of course, the US CAPE has not been around 27 or higher in many economic cycles during the 35 year period of your graph, to give you the data to go on. From a glance at another chart, it was 27 or more from 1997 to 2002 and then back up during the middle 2000s. Only the periods 1997,1998,1999 would allow you to see the 15 year returns - because 15 years haven't elapsed since 2006 for example.

    So, it is a bit of a guessing game really, whether the fortunes of the S&P from here over the next 15 years will be in that highly unscientific "-0.1 to 5.5%" range.

    It is true that people think the prospects of the US economy and US listed companies specifically, are regarded as relatively good on a world scale and therefore worth paying high prices in terms of average last decade's earnings (worth noting that some of those years' earnings were heavily depressed in the credit crunch years of 2009,10,11). So, they likely assume there is going to be some growth and that prospects elsewhere are relatively less attractive.

    In Italy as you say, they are less willing to pay as much today for the same amount of [average last decade's earnings track record]. Participants in that market do not want to pay so much as share price for the same average 10yr historic profits and future estimated growth. Either that is because they are good judges and the growth is not actually going to be so high, and they will be stuck with lacklustre annual earnings - or they merely estimate that it will not be so high and will be proved wrong somehow, given another 10 years.

    The current valuations are not necessarily wrong, and the returns from US are not necessarily going to annualise to -0.1% over the next decade and a half. If the US companies deliver on the market's expectations the share prices will rise strongly. IMO it is not true to say that they have to deliver all that growth for 15 years solid 'just to justify today's value' implying that prices would remain static if they did.

    However, I was buying US stocks in 2003 (post dotcom bubble burst, post 9/11, post Enron) when the CAPE was over 20. The 'long term chart' going back to 1890 says that you are paying over the odds if you pay more than CAPE of 15, so what do I know, right?! Of course if you wait for that tasty level of 15 for the US market, you will have only bought US stocks during one or two months in the last two and a half decades. So, I have bought US stocks and other international stocks at all sorts of CAPE values during my adult life, and done quite well, because I realise CAPE is not everything.

    Ah, but remember the famous words of Sir John Templeton:

    “The four most dangerous words in investing are: ‘This time is different.’’’


    With the US, one thing you can't ignore is the sheer amount of cash the fed's created in 6 years, of which much is floating around the markets propping up asset prices

    The 'price' component in Price/Earnings is being held up by over a $trillion in artificial value - more than the US has created in (I believe) 100 years prior ... And what's worrying is 'stealth QE' is still propping prices up (the US is still purchasing bonds with bond interest to the tune of $100bn annually - which is 10x more than prior to QE1)

    The two perspectives you hear are:

    - Buy US equities because the fed won't let them fall this time
    and
    - Don't touch them with a barge pole because current valuations are not only unsustainable, but don't even reflect economic outlook (where else can all this spare money go?)


    Markets today are reacting simply to the prospect of more stimulus - they're ignoring the fact it's taken $100bn in stimulus to create $10bn in GDP growth ... A broker friend of mine called it a "Crumbling sandcastle of s**t"

    It looks likely this can continue through 2015 - but there's no way you can call US equities anything other than a speculative bet ... Without QE, where would current valuations even be? Are we betting on QE because we believe it actually works? Enough to ignore a century of valuations?
  • TheTracker
    TheTracker Posts: 1,223 Forumite
    1,000 Posts Combo Breaker
    edited 25 November 2014 pm30 8:22PM
    there's no way you can call US equities anything other than a speculative bet ...

    What's your definition of speculation v investing? Under some definitions I suspect you'd be the speculator for betting against it.

    And a trillion is what, 5% of the U.S. Market cap?
  • TheTracker wrote: »
    What's your definition of speculation v investing? Under some definitions I suspect you'd be the speculator for betting against it.

    And a trillion is what, 5% of the U.S. Market cap?

    I was away from my computer so couldn't check the figures easily (and didn't want to overestimate)

    It's $4.5 trillion in 6 years ... Previously, in the whole period from 1913 to 2008, the fed's total bond purchasing amounted to less than $1 trillion

    How much this may have artificially inflated markets is anyone's guess (after all, where else are you going to put your money?) ... "Only when the tide goes out do you discover who's been swimming naked" - Warren Buffett

    I think people who believe there's some *magic* in cap-weighted indexes tend to think you need to be invested in the US because it's 'big'

    - Being 'underweight' US means you're trying to make "predictions"

    Japan's been the second largest economy in the world for most of the past 30 years, and 20 of them have been labelled "the lost decades"

    Basically: valuation is a good predictor of returns; market-cap isn't ... You could definitely call a value-investor's views 'contrarian' - but I'm not sure about speculative
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