Buy U.S. Forget the Rest.
Perhaps I was in an "international" mood. After all, I was sitting in the Adonis meeting room at the Atlantis Paradise Island resort in the Bahamas.
In truth, I just thought I was smarter than everyone else... And it cost me a lot of money.
It was 2014. All of Stansberry Research's financial experts had gathered in the Bahamas to share investment ideas for the year ahead.
We had brought in an outside expert on global asset allocation to give a talk. He started by asking us all to write down what percentage of our personal assets were in international stocks versus U.S. stocks.
I wrote down 40%... the highest in the room.
You see, I had done the research. And I knew exactly what the speaker was about to tell us...
Investors suffer from "home country" bias. They tend to favor domestic stocks over foreign stocks. And historical studies showed that this led to subpar returns in the past.
The speaker told us that we should invest across the globe and in line with each country's market cap. For U.S. investors back in 2014, that meant putting nearly half of your equity investments into international stocks.
I knew the theory. I had the right number. But the way the past decade has turned out, I've been completely wrong.
No matter how you run the numbers, U.S. stocks have dominated the rest of the world.
I've no doubt you should still have robust diversification to markets around the globe. It's just that finance isn't perfect, and this theory will take some more time to play out... Sometimes, even 10 years isn't long enough.
By my calculations, my "proper" weighting to international stocks led me to miss out on an extra 30% boost to my retirement account.
Now, as we wrote in a recent issue of The Stansberry Investor Suite, U.S. stocks don't always outperform their international counterparts.
Going back to 1970, there have been five prolonged periods where international stocks, on average, have been a better place to park your cash. But that's not the case today...
To look at big cycles of performance like this, I like to subtract the returns of one asset from another (in this case, U.S. stocks versus foreign stocks) over varying periods. This should allow you to see the ongoing cycles... even if they're a bit messy.
Over the past 10 years, the MSCI World ex U.S. Index has returned 22%. The MSCI U.S. Index has returned 192%... a 170-percentage-point gap. You can see this is a big cycle, starting in the shadow of the financial crisis...
Many strategists have called for this trend to reverse. But it has only accelerated.
Looking at a shorter-term view, you can see that U.S. stocks have returned 32.5% over the past year compared with foreign stocks' 10.2% gain. That's a spread of around 22 percentage points...
Those expecting this cycle to turn keep getting it wrong.
The U.S. stock market has been a powerhouse over the past year and the past decade.
This week on Wall Street, we saw a bit of why. Whatever you think of the turmoil of U.S. politics, the U.S. is still one of the most stable, business-friendly countries in the world.
That's not necessarily the case elsewhere...
To the shock of just about everyone, South Korean President Yoon Suk Yeol declared martial law this week.
The reasons are a little unclear. Yoon blamed forces plotting a rebellion, but the evidence is spotty. Parliament voted to lift the order, and now Yoon may be impeached.
Either way, the South Korean won plummeted nearly 3% against the dollar in a matter of hours before regaining about half its loss.
The Korea Composite Stock Price Index fell 2.4%... and, rather than rebounding, it has kept grinding lower.
In France, the government has failed a no-confidence vote, meaning Prime Minister Michel Barnier and his entire cabinet are out.
Just three months ago, President Emmanuel Macron had appointed Barnier as prime minister to try and negotiate a budget plan between the three dueling factions in French Parliament. But they couldn't get anywhere near a decision.
Now the government will dissolve, and Macron will try to appoint a new prime minister to build a new coalition.
The French government's problems have had more of a slow-burn effect on markets. The euro is down 5% since September, and the CAC 40 Index – which you can think of as the French Dow Jones Industrial Average – has lost 11% since May. Meanwhile, global markets – as measured by the MSCI World Index – have soared...
Two failing governments in a week. And that's on top of all the trouble in China, Russia, Ukraine, the Middle East, and Argentina.
South Korea and France are not developing countries. These are two of the wealthiest, most stable nations in the world. And their economies are among the largest.
But their breakdowns have weighed on their stock markets, which makes them – and other foreign markets – much less appealing to U.S. investors.
Asset returns come from two sources... improving fundamentals and higher valuations.
U.S. stocks have benefited from both.
Skeptics point out that valuations can't expand forever – and they're right. But investors increasingly want the certainty and stability of the U.S. economy.
The U.S. may not feel like a stable country, given the state of our own politics and national debt. But if you look at our markets, we're still leaps and bounds above the rest of the world.
Of course, the outperformance of U.S. stocks can't continue at this pace in perpetuity. Foreign stocks will eventually gain ground – even if they don't catch up all the way.
Timing the turn in performance, however, is near impossible... The imbalance can run for much longer than you think.
The earlier research on home-country bias was correct. You shouldn't have all your money in U.S. stocks. But giving a little extra weight to the greatest economy in the world likely keeps you on the right side of global asset allocation.
What Our Experts Are Reading and Sharing...
In breaking news this week, Brian Thompson, the CEO of UnitedHealthcare, was shot and killed in New York City on Wednesday outside his hotel on his way to the company's investor day. A manhunt for the shooter is underway, along with rampant online speculation of what may have motivated the shooter to target Thompson. CNN is posting live updates of the latest news on the attack.
Last week, Donald Trump further outlined plans for big tariffs on China... and surprised Mexico and Canada by adding them to his target list as well. According to the BBC, Trump reportedly met with Canadian Prime Minister Justin Trudeau after the announcement. And Mexico's president, Claudia Sheinbaum, has warned of vast economic disruption – including Mexico potentially retaliating with its own tariffs.
Dr. David "Doc" Eifrig and the Retirement Millionaire team waited years to buy one particular stock, calling it the "one that got away." And now they've sold it for a triple-digit gain. In his free Health & Wealth Bulletin, Doc explained why Costco Wholesale (COST) is such a stellar company... and why he recently sold shares today.
New Research in The Stansberry Investor Suite...
Even investing legends get calls wrong... sometimes big ones.
In the December issue of Stansberry's Investment Advisory, Whitney Tilson and his team tell the story of how the great Stanley Druckenmiller lost $3 billion by making an investment that he knew was stupid at the time.
When asked what he learned about the mistake 15 years later, he said...
I didn't learn anything. I already knew that I wasn't supposed to do that. I was just an emotional basket case and couldn't help myself. So, maybe I learned not to do it again. But I already knew that.
With stocks hitting all-time highs today, it's getting harder to stay disciplined.
That's why this month, the Investment Advisory team is giving a thorough analysis of the market and its valuations... so you don't make the same mistakes Druckenmiller did.
They share what I believe is the single best way to value the stock market – with a measure they built themselves through painstaking bottom-up research.
It shows that stocks are as expensive as they were prior to the 2008 crash... though we haven't reached dot-com-bubble levels just yet.
The team also looks back at their performance over the past year and discusses what's in store for 2025. (Plus, they take a triple-digit gain on a company in what has been one of the fastest-growing markets in the country.)
If you have any questions (or worries) about managing your portfolio in today's market, this issue has everything you need to know.
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our new special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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