The only way to compare GG scorecard (or any other TMF newsletter scorecard with any index is doing a monthly average return. The easiest way for an investor to fool oneself is look the returns in the form of (1mo, 3mo, 1y and 3 y) and make decisions. This is how the mutual fund industry fools people. This is one reason why I like TMF's unique monthly average returns so much. Few appreciate this metric but this is the most transparent and useful metric. I did the painful exercise with VWO. I calculated the average monthly return with VWO starting from Dec 2006 till April 2012. Result? 10.1% gains - close to GG scorecard 9.4% gains. GG scorecard already reports SP500 gains as 13% on this calculation. My calculation does not include the dividends for VWO which will only make it higher.For the last 4 years, I have been buying VWO several times a year during dips (disproportionately higher capital investment during deep pullbacks) and as a result my monthly average return is way higher than the one done by mechanical means. My average annual returns with VWO for last 4 years now exceeds 15%. So easy to do with a well diversified and high quality index based on a volatile and emerging economy. In case of GG, I have a handful of winners. The way I accelerate my returns is to keep deploying capital and widely (15-30%) separated value points (as opposed to price points) to the good firms and build a momentum. Although I have not calculated I have a feeling that despite debacles like the rural basket where I lost 2% of my current portfolio capital (4% when I invested), my returns are much better than GG scorecard due to fresh capital concentration on firms with rising value. SO I do not know how they compare with VWO. But I know that I had to jump a lot of hoops with the individual GG stocks to reach here. VWO was so painless. With time, I am reducing my exposure to new GG stocks and concentrating more on indices. I find it much better to obtain multibaggers from SA, HG and RBS newsletters. So it makes sense to focus on individual stocks from those newsletters and use indices for other areas. It is quite possible that in future the only reason why I keep GG sub is to track just a dozen stocks.My recent (last 1-2 years) indices are EIDO, PLND and AFK. Already, with EIDO, my returns now smash GG's TLK by a wide (>50%) margin). EWY has allowed me to capture the growth of a far cleanly governed market (than China) of South Korea. Same technique. Accelerated buys on dips of quality indices. I am unable to do so with PLND as I have less conviction and understanding over there. I got into GG introduced DGS last year (high yielders from emerging markets) and plan to similarly build a large position into it. I think this will be really easy.Conclusion: After 5+ years, monthly averaging into something like VWO yields better returns than GG scorecard and with far less effort. One can boost returns easily by disproportionately investing higher into indices during the dips. Anurag
Anurag --Thank you for taking the time to post so much information on your experience with VWO. It obviously took you a lot of time to compile that information, and it makes for a good discussion.I don't really know what you mean by "monthly average return." What GG reports is "total average return." They calculate the total return for each of their recommendations to date and average them.Whether that is the best way to report performance is something that has been debated over and over again on the boards, but one thing is clear: it really does not reflect any real portfolio performance. It isn't even annualized. But MF does it this way because GG is an idea service, not a portfolio management service. So the performance numbers are just a figure of merit on their ideas. So it's not a direct comparison with fund performance calculations, and I don't think your "10.1% vs. 9.4%" is really comparing apples to apples.VWO had a great year in 2009, gaining 75%, but even that put it only in the 38th percentile of emerging market funds. Since then, they haven't done so well, never really getting above the average performance for their peer group, and significantly underperforming in 2011, when they lost 18%.VWO has very low expenses (being a Vanguard product), which is a great thing for passive investing. But it's also important to realize the composition of the fund. They are very heavily weighted toward large cap stocks, with the median market cap of their holdings being $17B. They are also strongly weighted toward the financial sector, with 23% of their portfolio invested in financial services companies. None of this is necessarily bad, but people should realize they in owning VWO, they are getting very little exposure to small caps, and the performance in the future will be closely tied to the financial sector. It explains why they did badly in 2011 when there was so much worry over European debt, and why they rebounded so strongly coming out of the financial crisis of 2008-2009. If you believe the Euro crisis is going to get solved, VWO might be a good bet. If you believe that it's going to get worse...well, you decide.In any case, much of the performance differences you see between an index ETF and GG, even if you came up with a valid way to compare, depends mostly on differences in sector, capitalization, and geography. It's not so much about the quality of the stock picks in GG, in my opinion. GG tries to spread out their bets more than what you will see in an ETF like VWO. But I know others might reach a different conclusion. Your own portfolio performance will depend on the timing of when you put funds in (wasn't March, 2009 great?) and what subset of GG recs you choose.I do believe that passive investing approaches like ETFs can play an important role in portfolios, particularly for:* people who don't have the time or temperament to pick individual stocks,* people (like my investment advisor) who think it's impossible to beat the market over the long run by picking stocks,* or, people who just want to supplement their portfolio with a more diversified holding.Personally, I'm biased toward analyzing businesses and taking ownership in them. I was in VWO at one point, but I couldn't identify the "value points" so I didn't know when to add. That was because I was trying to apply my stock-picking mentality to a completely different sort of instrument. It didn't work for me, but I think it works for a lot of other people. And I don't think that any of the backwards-looking data is going to predict anything about returns for the different approaches going forward. The market is changing all the time. I think the approach one chooses needs to be matched to one's temperament and portfolio management policy. I have no doubt you will do fine with a disciplined approach to investing in VWO over the long term. I also think that it's impossible to say whether you will do better or worse than if you put that money into carefully selected GG stocks. You just need to pick an approach you're comfortable with.Jim
"...GG is an idea service, not a portfolio management service."This is a crucial distinction that is totally ignored by many subscribers to TMF "2 picks a month" newsletters.Nice post Jim.Simple
I don't think your "10.1% vs. 9.4%" is really comparing apples to apples. I used the same method of calculation as GG scorecard that is why this is indeed apples to apples (on the conservative side due to lack of my accounting VWO dividends). If you want to use some other yardstick to define GG performance and then use the same to evaluate SPY or VWO, lay it all out please and perform a complete comparison - GG stocks, VWO and SPY like I did with the average returns yardstick. And I don't think that any of the backwards-looking data is going to predict anything about returns for the different approaches going forward. I have come to believe - past performance is the most reliable predictor of future performance. Once David Gardner stated this on one of his posts, I was so thrilled. I value the judgement of only those individuals who have a past good record. The longer the record the more trustworthy they are to me. Same deal for companies. The longer the success record of the management the more valuable to company is to me - valuation methods be damned. My 7 year old daughter recently asked me how do we know sun will rise again tomorrow. The best answer I had was because it has risen every day till today. I get a kick when I think about Taleb's example of the turkey who thinks every day is great till the day of the slaughter simply because every day till the last day was so cool. But what can the turkey do anyway? To avoid becoming a total turkey, I have been planning for case of total currency debasement while I get permanently disabled from a road accident any moment. I haven't found the best course of action but this is the what has been keeping me intellectually very busy on the investment front. I will start a separate thread on this. I failed to get much response at II boards. Obviously people are not planning for such scenarios. Weddings, retirement, child education are higher up in the priority list. Bottom line: it is imperative to know when to trust the past and when not. For companies and advisors, past seems to be the best yardstick - very much against the grain of conventional wisdom - learnt from Dave Gardner and TMF1000. For personal financial planning, consequences are more important than probabilities - learnt from Taleb. I do believe that passive investing approaches like ETFs... If you try to understand what I have been trying to imply on the boards for so long (more than an year), you may see things similar to the way I do.* Emerging markets are difficult to tame for a foreign investor due to limited trading access to the market and lack of local information such as public perception of the management and the firms in the socio-cultural context. Bill Mann tried to decipher it and failed big time. Traveling to foreign nations or even staying there for a few months does not make much difference. * Large caps in emerging markets are like small caps in developed markets - dollar capwise and performance wise. While large cap performances like that of Apple or Google are exception in the west these are rules in the emerging markets. That is the reason why it is such a low hanging fruit to capture those firms with ETFs. With EWY, I have managed to capture so much of advances from firms like Samsung in Korea. * You talk of financial services as risky investments. Don't forget that the collapse happened mostly in the developed markets. Besides 23% is hardly overweight. In emerging markets, high quality financial services offer the best returns. Aren't we already experiencing this in GG with HDB, BLX and PVD? Although, out of context, after my serious losses in western financial sector, I experiences solid success with quality US firms like SCHW, OPXS (now sold to SCHW), EZPW, FCFS, USB, IBKR, FII etc. All I need is to invest in least opaque of these firms with reputable management having long tenure.Based on these points, you will see that ETFs can offer an easy way to capture solid returns when you use them actively instead of passively. Passively meaning - invest fixed amount every fixed interval of time. Actively meaning taking advantage of differential volatility in the markets. Go after country specific and multinational specific ETFs in a an opportunistic manner and you will be surprised at the gains. GG could never figure out how to capitalize on its table of cheap eats in their monthly issue. I did. Invest in country specific ETFs when they become cheap eats. TLK can never capture the full impact of Indonesian economy. By riding the EIDO bandwagon I am already beating TLK by 50% although I started with TLK several years ago. I don't go after any Chinese ETF due to heavy weighting on state owned firms. VWO or DGS is a better deal. But with other emerging nations where state control is not that prominent country specific low fee ETF evenly weighted across several large caps do quite well.I am not debating here. Just sharing how I am successfully making money with foreign markets - region specific ETFs and the best run firms from GG.Anurag
AnuragThat is a great post about global investing. You are either a genius or learned from many decades of investing. Do you mind publishing the ETF's?Emerging markets are difficult to tame for a foreign investor due to limited trading access to the market and lack of local information such as public perception of the management and the firms in the socio-cultural context. Bill Mann tried to decipher it and failed big time. Traveling to foreign nations or even staying there for a few months does not make much difference.Incredible, have you spoken to the GG folks about this?Mark
My 7 year old daughter recently asked me how do we know sun will rise again tomorrow. The best answer I had was because it has risen every day till today.Hi Anurag,I think your contrarian posts are very valuable, even though they often may rub people the wrong way. I appreciate how much time it takes to write them, and the fact that you do so to help other community members have more investing success. In fact I adopted your "wait for x% improvement in value proposition before averaging down" ideas years ago, to my benefit.Despite this general appreciation of your efforts, and despite the fact that I am winding down my posting career in rapid order (having finished forever as MazonCreekRich and BrokeInTheBurgh -- with the possibility of one more post, depending on circumstances), I am compelled to stand up and defend Emmy Noether and the law of conservation of angular momentum. (Noether was the great female mathematician who showed that every symmetry leads inexorably to a conservation law -- the fact that physical laws are constant across space implies conservation of momentum, constancy across time (less certain) implies conservation of energy, and conservation across angular direction implies -- you guessed it! -- conservation of angular momentum.)*I submit, without argument or proof, that a better answer for your daughter would have been that we know the Sun will rise tomorrow because we know that angular momentum is conserved.And with that, I bid you adieu!Best regards,Rich*Noether's Theorem is far deeper than is suggested by these laws. For example, constancy of physical laws through a local (i.e., varying across time and space) rotation in mathematical phase space leads directly to the conservation of electrical charge and other similar quantities.
Mark,I have been globally investing since 2002 and learned almost everything I know from TMF subs (I have 7 now - SA, HG, RBS, II, GG, MFO, SN) and from my family's (in India) 5 decades of investing in stocks and real estate.The ETFs that I have been using so far are:VWO - 800+ firms from a bunch of emerging nations. 8 years of investing into it now. I buy regularly in small quantities and aggressively during market correction in emerging markets. I especially go for a deep dive when emerging markets are out of synch with global markets and are down quite a bit. Based on my cost basis, the dividend on my invested capital exceeds 6% annually.EIDO - Indonesia - started last year. It is a good one - I think.EWY - South Korea - since 4 years. Very good ETF.AFK - Africa - 2 years. So far not much success other than a 2% yield (no failure either) but I think it should be good going ahead as Africa is growing at a healthy clip. PLND - Poland - since last year. Most speculative of the bunch. PLND is relatively insulated from EU mess and sits on untapped natural resources. I was hoping some detailed coverage from GG to develop a strategy here.DGS - emerging markets high dividend payers. Introduced by GG last year. I think this would be a great investment.India - unable to recommend any India centric ETFs as I don't invest in them due to direct access to Indian stocks exchange. GG recs of HDB and RDY are excellent picks. And so is the wildcard Larsen & Toubro (pink sheets).Europe, Japan and US - too developed for my taste. Individual stocks do much better.Latin America - GG was most successful here. PVD, BLX, ITRN, MELI (GG sold too early), ARCO, BOBS.OB (wild card - my 4+ bagger now). ILF is a good one by GG collection of stocks is a better deal - I think.China - no good ETF that I know. GG recommended stocks have mixed success. Other TMF subs recs such as BIDU, SINA and CTRP have done much better for me. Between GG and other TMF subs there is a good collection of individual stocks available for China to not need an ETF.I have not studied any other country specific ETFs so far but if we can locate ones with low fee and not overweight in a specific sector or govt controlled firms it should be a good deal.I have been a constant critique of GG trips abroad for a while now. I am unable to recall any GG trip (at least one per year during last 5 years) to result in any sustained market advantage for the subscribers.Anurag
Rich, I submit, without argument or proof, that a better answer for your daughter would have been that we know the Sun will rise tomorrow because we know that angular momentum is conserved. Angular momentum concept to a 7 year old? :) But even without that constraint think about it - Sun rising everyday is philosophically an empirical construct. Angular momentum argument, philosophically, is a rationalization construct over the observation. Together they make a scientific fact (highly corroborated hypothesis) but still not an absolute fact. For example, how can we be certain that some object won't warp out of deep space tomorrow and knock earth out of the orbit? I might wind down too someday - most likely abruptly. I am at a point in my investing career that I am not finding room to grow as an investor in the TMF world, the exception being MFO service. The community at TMF is not yet mature to discuss black swan events such as investing against total currency collapse at a global scale or personal issues destroying one's portfolio - health or career or something unfortunate. Anurag PS: Thanks for the words of appreciation
I agree with everything Anurag said except I would substitute YONG for VWO.Just kidding. I did a somewhat less painful exercise last year and compared the performance of only the Best Buy Now list to equal contributions in EFA (emerging markets index) and SPY (S&P). The Best Buys Now did much better than the 2 monthly picks. I'll have to go back to the spreadsheets for better numbers, but it was a material difference. I know Motley Fool has studied this effect, but Global Gains only reports the results infrequently.
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