FYI: This is a motto many live by, not only in their daily lives but also in their investment philosophy. Historically, “buying cheap” stocks was a good idea (i.e., the so-called “value” premium).
But how might valuation matter when it comes to country allocations? In other words, given valuations, how much money should I allocate to U.S. equity and how much should I allocate to International equity?
There is no right or wrong answer here. Some, such as Warren Buffet, recommends ~100% U.S. exposure (as of 2017). However, as we have discussed here, the high U.S. equity returns may be anomalous.
So given current valuation information, and knowing that diversification is the so-called “free lunch” of investing, how can one approach the U.S./International allocation decision?
Two simple solutions are generally offered:
Allocate according to overall market-cap of the respective markets. This is currently around 52% U.S. and 48% Developed International.
Split the assets evenly — 50% U.S. and 50% International.
Both are decent approaches to this decision.
But what about allocating capital based on “cheapness”? In other words, value-investing across equity exposure
Regards,
Ted
https://alphaarchitect.com/2018/04/03/timing-country-exposure-value-valuation-measure-horserace/
