Tags: OShaughnessy | stocks | investing | safe

Patrick O'Shaughnessy: Global Investing May Be Safer Than U.S. Stocks

By    |   Wednesday, 30 July 2014 03:14 PM

American investors should diversify globally because having too much money in one market is too risky and U.S. stocks are the priciest in the developed world, says portfolio manager Patrick O'Shaughnessy.

“The U.S. equity market is expensive. The median stock is about as pricey as it’s been in 50 years, and valuations are all clustered: there are far fewer bargains than in years past,” he wrote in a Tumblr post.

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

“What’s strange, then, is how little attention global equities get. The debate is all about the U.S. market, which represents less than half of the global stock market," according to the investment adviser, who runs O'Shaughnessy Asset Management.

He said global equities are cheaper than U.S. stocks, yet too many Americans still succumb to what he calls “portfolio patriotism.”

“The preference to own companies in one’s home country is one of the most pervasive and persistent biases in investing. We prefer familiar companies that offer products or services that we use and know. Lots of U.S. investors own Coke, but very few own Suntory (a Japanese drinks company).”

Australia's 7.4 percent and South Africa's 6.7 percent annualized returns have outperformed the U.S.'s 6.3 percent gain in real dollars from 1900 to 2012, he said.

Some other world markets have come very close to the U.S. performance during that period, and could conceivably be good alternatives at a time when U.S. stocks are so expensive. They are Candada with a 5.8 percent annualized return, New Zealand with a 5.8 percent figure, Sweden at 5.6 percent and Denmark at 5.6 percent.

“Overcoming portfolio patriotism is important if you want to reduce long-term risk in your portfolio,” O'Shaughnessy said. “It just so happens that today, international country stock markets offer many of the best opportunities.”

O’Shaughnessy’s thinking appears to be shared by a growing segment of American investors.

The Wall Street Journal reported more than 25 percent of the money in U.S. stock mutual funds and exchange-traded funds is in foreign-stock funds, up from 14% in 2000, according to data from the Investment Company Institute.

Investors hold nearly $2.6 trillion in foreign funds, up considerably from less than $600 billion since 2000, the ICI estimated.

“Experts say a stock portfolio that is widely diversified internationally can provide protection against a prolonged downturn in an investor's home market,” the Journal said.

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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American investors should diversify globally because having too much money in one market is too risky, especially when that market is the most expensive in the developed world, says portfolio manager Patrick O'Shaughnessy of O'Shaughnessy Asset Management.
OShaughnessy, stocks, investing, safe
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2014-14-30
Wednesday, 30 July 2014 03:14 PM
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