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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
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