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Emerging Markets Allocation
Comments
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I find it really interesting.
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The mistake is that there's a blue print for an engine and you can check the tolerance of the pistons and see where you might be losing compression. The economy isn't a machine - it is far more complex with emergent properties that can be counter intuitive. Researching at a fine level can be interesting and has put a lot of pundits' children through college, but the danger is reading too much into the results.
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
Yes, it can be interesting to read the papers and then look at the pundits and companies like DFA who overweight various sectors. It's a strategy amongst thousands of others that can be compared against history, but it is no better than any other serious strategy for future markets. If you believe that a particular EM allocation will help you meet your financial goals then that is a good strategy for you.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
There can be no mistake in simply trying to take it apart and understand it all, that's exactly what the OP tries to do and it states as much. The mistake, if there is one at all, is in not doing anything apart from blindly following the herd, without really understanding what was purchased or what's really inside the shiny box. I find it amazing that people spend huge amounts of time and do significant research, before making a major purchase like buying a car. Yet they are willing to spend similar sums of money, if not much more, on brand name index trackers whose contents they don't fully understand, without doing much research into the internals of their chosen product. To then suggest that trying to understand the complex detail of markets, is a futile effort, I think is distinctly odd.
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"Trying" is the pivotal word here. The mistake isn't in doing the EM research, it's likening it to a definable mechanism that can be fully grasped and modelled with certainty. I have nothing against doing the analysis as long as it is done with a measure of skepticism. In this I'm just reflecting the wide range of opinions noted in your OP.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
That's funny, AI says about that word skeptisism………
"Skepticism is the fundamental attitude of doubting or questioning knowledge claims, theories, or beliefs. Rather than blindly accepting information",
It seems to me that the people who may be blindly accepting information are those people who buy Index trackers (or other investment funds), without knowing what percentages are assigned to which markets and which sectors are overly concentrated, eg US and Tech, as we've seen repeatedly in posts over the past few months. If you take that arguement one stage further, people who buy combinations of trackers, because a popular book on investing says it's a good idea, even though the author is the company that sells the trackers!
I'm happy to believe that any research and analysis I might do on any subject is going to be limited by own ability to interpret the information correctly or find all the correct data in the first place….that's the margin or error in anything.
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I'd think the vast majority of people don't understand the inner workings of their car. Nor do they need to beyond some basics. Knowing that their engine contains tumble flaps in the intake manifold to help mix fuel and air isn't going to help them improve their driving skills.
Characterising someone who selects index trackers to fulfil their investment objectives as "blindly following the herd" is actually quite offensive, don't you think? And quite unfair to many investors whose wisdom you are underestimating.
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It shouldn't be taken as offensive and it certainly isn't intended to be so, it's intended to be realistic. And my argument doesn't imply all holders of all tracker funds, just that there are some people who fit that model ! How many times have we read in this forum quite recently where people have talked about not knowing/understanding their US holdings nor their sector allocations resulting from Tech sector bloat, espcially longer term buy and hold investors. If the choice is to buy a tracker and not check its contents, or, to do the sorts of detailed analysis that I favour, there is no choice in my mind.
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I completely believe there are people who "hear through the grapevine" about someone getting great results investing in a S&P500 tracker or some such thing and then come here, mind made up, looking for the best way to do it, without having considered if it is right for them. Those people are in need of some education and there is no shortage of people here to dispense that.
However, many people, perhaps most, who decide to invest using index trackers have a bit more understanding of what they are investing in. Some will be doing so under financial advice.
A perfectly rational response to the statement "don't you know how much Tech sector bloat there is in your index tracker?" is "so what?" If someone is looking to get exposure to the total stock market at low cost having understood the investment case, why should their opinion that it doesn't matter be any less valid than yours or mine, which lead us to tilt away from what we are seeing as irrational exuberance? It is we who have been wrong so far. I've been wrong about the US for close to a decade. Any fall that now materialises will be unlikely to reach levels where I'll be right in the end.
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It seems to me that the people who may be blindly accepting information
are those people who buy Index trackers (or other investment funds),
without knowing what percentages are assigned to which markets and which
sectors are overly concentrated, eg US and TechIndex trackers don't overly concentrate sectors. They have only the concentrations relevant to the index - if you have an S&P 500 tracker then of course it's going to be 100% US concentrated. If you have a global index it'll only be as concentrated as the indexing method - market cap for e.g., or equal weight.
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