AgPa #58: International Diversification – Doing the Right Thing is Hard Sometimes

International Diversification—Still Not Crazy after All These Years (2023)
Cliff Asness, Antti Ilmanen, Dan Villalon
The Journal of Portfolio Management 49(6), 9-18, URL/AQR

In the last post (AgPa #57), we have already seen that international diversification is a powerful protection against the higher-than-expected risk of losing real wealth with stocks over the long term. By coincide, three of the OGs from AQR Capital Management also just released an article about the Fors and Againsts of international diversification. Unsurprisingly, I picked that one for this week’s AGNOSTIC Paper…

  • For: Not everyone can invest in the best-performing market
  • Against: Everything crashes together
  • For: Historic returns don’t show changes in valuation
  • For: Valuation levels should eventually matter
  • For: International diversification provides opportunities for active investors

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AgPa #57: Stocks for the Long-Run – Riskier Than Thought

Stocks for the long run? Evidence from a broad sample of developed markets (2022)
Aizhan Anarkulova, Scott Cederburg, Michael S. O’Doherty
Journal of Financial Economics 143(1), URL/SSRN

Stocks for the Long-Run – this is not only the title of Jeremy Siegel’s popular book but also a well-established idea among investors. If you can wait long enough and don’t need your money on the way, just put it in a diversified index fund and wait. This week’s AGNOSTIC Paper challenges this simple advice and shows that even over very long periods, the chance of losing money with stocks can be higher than previously thought…

  • History offers some scary events of wealth-destruction
  • The US equity market is not necessarily representative
  • Global diversification helps tremendously

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SA #12: VOO – Global Revenues And Global Diversification Are Not The Same

VOO: Global Revenues And Global Diversification Are Not The Same
February 07, 2023


  • In 2017, about 29% of S&P 500 revenues came from overseas. This fraction increased to about 40% by the end of 2022.
  • Some investors argue that this global exposure is a substitute for true international diversification, i.e., that it is not required to invest in non-US stocks.
  • Global revenues certainly help to stabilize the fundamentals and stock prices of the underlying companies, but they are unlikely to save your portfolio from bets on the wrong country/region.
  • A counterexample from European stock markets shows that true global diversification was much better to escape the region’s underperformance than overweighting European companies with a higher share of global revenues.
  • That said, the Vanguard S&P 500 ETF (VOO) remains an outstanding instrument to track the S&P 500 Index. But despite global revenues of the underlying firms, it remains a bet on US large caps.

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AgPa #11: Concentrated Stock Markets (2/7)

Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks (2021)
Hendrik Bessembinder, Ta-Feng Chen, Goeun Choi, K.C. John Wei
SSRN Working Paper, URL

The second of seven AGNOSTIC Papers about the extreme concentration within stock markets. This one goes beyond the US and examines global stock markets between 1990 and 2020. The pattern of extreme concentration is very similar for 41 countries beside the US and in some cases even stronger.

  • Longer investment-horizons lead to extremer return distributions – also outside the US
  • Just 2.4% of all companies created the entire net wealth in global stock markets
  • All stock markets are concentrated but there are regional differences

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AgPa #10: Concentrated Stock Markets (1/7)

Do stocks outperform Treasury bills? (2018)
Hendrik Bessembinder
Journal of Financial Economics 129(3), 440-457, URL

I try to be careful with superlatives, but I think that this week’s AGNOSTIC Paper(s) are a must-read for everyone seriously interested in stock markets.

A few very successful companies drive the entire US market while the majority of stocks underperform even risk-free treasuries. Moreover, the most frequent lifetime return for U.S. companies is -100%. Those brutal empirical facts have strong implications for investors.

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