I’m collaborating with Texas Public Radio and journalist Paul Flahive to examine changes wrought by COVID. This latest episode is on the travel industry – Hotels, tourism, airlines – and the folks whose livelihoods are completely up-ended.
As a kind of time capsule regarding democracy in America, I wrote a bunch of posts (6) following the 2016 election. You can revisit them, starting with the first one here.
In advance of next week’s election, I wanted to write about a recent ugly Saturday morning encounter. It fills me with dread for the election, and for whatever comes after.
Last month my family and I drove to a small rural Hill Country Texas for socially-distanced State Park family time.1
During the drive 1.5 hours directly west of San Antonio, of course we saw our fair share of Trump2020 and Trump/Pence signs. That was to be expected.
We live in a downtown San Antonio bubble which, like all of Texas’ cities, bleeds blue. But I know, overall, I live in a one-party state. 2
Saturday morning, 9am, Central Breakfast Taco Time. Hill Country, Texas.
We drove from our AirBnB to the nearest drive-through breakfast place. There were only three places that seemed to be serving breakfast in town, and the first two didn’t appear to have outdoor seating. 3
Getting into the drive-through line required a second pass through, left onto a side road, before circling back and getting line.
The first strange impression on this side road was the line-up of fifty or sixty cars, all parked but with people in them. This was in a very small town, where fifty cars represented a major part of the town’s population. 4
So many people lined up in cars, patiently waiting presented a puzzle at first. But I guessed (correctly, it turned out): Food Bank.
Parked in line for the drive-through tacos window we faced the Food Bank line, half a block away. But that wasn’t the big shock. The big shock happened after the middle aged, white lady in the drive-in window looked up expectantly, to take our order.
Coffee, water, tacos. Normal stuff.
We could see two other wait staff – another middle-aged woman and a younger man – inside bustling around, serving the people seated inside the restaurant.
The blue t-shirts of the two waitresses matched. Maybe a uniform? But no, actually they wore a “TRUMP 2020” t-shirt, printed with large white lettering on dark blue.
That was surprising, as both waitresses wore the same political shirt at a taco place.
But below, under three white stars to offset the TRUMP 2020, was the message, “FUCK YOUR FEELINGS.”
I turned back to my wife in the shotgun position. Had she seen this? Oh yes, she’d seen it. My two daughters in the back seat hadn’t read the shirt yet.
Well. Despite her exhortation to self fornicate, I can say I had a whole bunch of feelings.
Wearing a political t-shirt while serving breakfast is certainly a choice. A rare choice, but one that could only be taken with the knowledge of what the restaurant owner would want. And relatedly, what customers would want. But this was not an ordinary political t-shirt. This was an attack on any customer who didn’t share their sentiment. I don’t share their sentiment.
“Fuck Your Feelings.”
Not: Vote Trump if you enjoy business de-regulation.
Not: Vote Trump if you want lower taxes.
Not: Vote Trump because you believe he’s a useful tool for placing judges who will rule in line with the current Christian-Political-Right.
Rather: Vote Trump, and also, if you have any disagreement with me – or any empathy for people who are different from yourself – go fuck yourself.
That, I felt, told me a lot about what management of this restaurant believed. About customers of the restaurant. About this town. About America in 2020. And, I couldn’t help but think, about their feelings for the fifty or so cars lined up half a block away. Lined up for food.
Something clicked into place for me. More concretely than it has in the past 5 years of the Trump nightmare. His supporters hate the people he hates. His contempt, his attacks, his denigration of others.
They don’t care for his policies. (He has no policies.)
They care that he hates the right people.
I couldn’t help but feel that the waitress’ t-shirt was a direct attack on the people lined up a half a block away, trying to get enough food for the week for their families. The people in line for food from the food bank aren’t thriving in Trump’s America. For that matter, the woman serving breakfast tacos to me through a drive in window isn’t thriving in Trump’s America either.
But she seethes with hate. How else to explain “Fuck Your Feelings” as, practically a business slogan? She may have very little power, but she has power over the people in line for the food bank. She derives power from his attacks.
After we paid and she handed us out tacos through the window, she said goodbye with “Have a Blessed Day.” Because of course she did.
“Fuck Your Feelings!” Just like Jesus would say.
Did she notice the rainbow Beto sticker, leftover from his 2018 Senate campaign, on the back of our car?
Sunday morning, 10am Tubing Central Time. Hill Country Texas
The next day on our trip we rented inflatable tubes to go down the Frio River from an outfit that flew a “TRUMP 2020: No More Bullshit” flag. This wasn’t as aggressive as the taco place t-shirt uniform but was further confirmation that:
a) Only expletives properly express Trump supporter views, and
b) Trump, the greatest con artist in history, somehow always manages to make his supporters project Trump’s flaws on to the rest of the world.
I mean, “End The Bullshit?”
The guy is the biggest and most successfully bullshitting bullshit artist who has ever lived. And he has his supporters (I understand, between 40 and 45 percent of my fellow citizens) believing that Trump will “end the bullshit?”
I just. I mean. This is amazing.
Anyway, here’s hoping our Democracy doesn’t end next week.
But if it does, well, Fuck Your Feelings. And do have a blessed day.
I received a question from a long-time reader, noting the multi-year underperformance of non-US stocks relative to US stocks.
Over a 10-year interval, he noted, international stocks very rarely outperformed US stocks, and concluded that it “makes me wonder why any asset manager would invest more than a token amount in international stocks, funds, or ETFs.”
I wildly disagree with his conclusion, but it is a great question. What exactly is the point of investing in international stocks, especially those that just seem to do worse than US stocks over a decade?
To begin, can we nerd-out for a moment on portfolio theory? We start with the first principle that we choose assets because they offer a return. But unfortunately, they also carry some risk.
As a second principle, we also assume that we want to maximize returns, while minimizing risk. More returns = good. More risk = bad.
Portfolio theory says that you can accomplish the goal – more returns and lower risk – by owning more than one investment.
If you have two (or more) investments (or mutual funds, in our analysis) that are not perfectly correlated, then portfolio theory says that you improve your combination of risk and return – as a combination, as a portfolio – when you combine these two (or more) assets.
The key ingredient to this recipe working is non-correlation between the investments. In non-technical terms, when one asset zigs, the other one zags. Underperformance during some period of time with one asset will be offset and blended with outperformance of the other asset.
When you combine a US-based mutual fund with an international-based mutual fund, portfolio theory does not promise you better returns. Instead, it promises that the combination will, over time, get you closer to the maximum return on your portfolio for a given level of blended portfolio risk.
To be sure, the highest returns possible often come from concentrated, undiversified, investments. However, those returns may come at a cost of higher risk than may be prudent.
The theoretical language we use (I mean, financial theorists use) is approaching the “efficient frontier” of risk and return, through diversification.
Kroijer offers strong advice that directly addresses my reader’s question about whether to bother with both international and domestic funds. His advice, which I endorse, is that there is no rational reason to have more US stock exposure than the proportion of global stocks that are based in the US. Which, if you’re curious, is about 37 percent right now. I’ve never met an American stock investor who had such a low percentage of stock investments in their portfolio. But I present it as an anchoring idea, in order to be challenging. In my stock mutual fund portfolio, I’m at 60 percent US, 40 percent international. Which, again, I’ll guess is still more international than most.
A historical note. Japanese investors experienced approximately zero price appreciation if they bought only the Nikkei 225 Index 30 years ago, versus a roughly ten-fold appreciation in prices of the US-based S&P 500 Index. Including dividends, the 30-year return on the Nikkei versus the S&P 500 is roughly 50 percent versus 1800 percent, respectively. I’m not adjusting for inflation here.
For Japanese investors, owning only the main stock index of their own country would be a very expensive choice, over this 30 year long run. The point is not that Japanese stocks are bad and US stocks are good. The point is that owning only investment assets from your own country can be an extremely poor decision. Which you only learn in retrospect.
People who grow up in countries outside the US and who have an appreciable net worth rarely make this same choice. They hedge their risks by owning non-domestic assets, stocks, real estate and currencies. Wealthy Mexican nationals who lived through the 1982 banking crisis or the 1994 currency crisis wouldn’t dream of owning only Mexican assets denominated in Mexican pesos. Wealthy Brits who lived through the pound devaluation in 1992 feel the same way. Or wealthy Russians during the 1998 devaluation. Same with anyone who grew up anywhere in Latin America at any time in the last one hundred years. You get the idea.
Lots of easy caveats and corrections may be applied to this theory of international diversification I’ve presented. One, for example, is that many US multinational companies provide exposure to developed and emerging market economies, so that a US-based portfolio still has quite a bit of global exposure embedded in it. Ok, sure, I partly agree.
Another argument is that a strong tradition of rule of law and regulatory protection makes US-investing inherently superior to non-US investing, for now and for the foreseeable future. I don’t disagree with the initial observation, but I would argue that prices, market capitalization, and future returns will efficiently reflect those institutional differences, over time. Including, especially, in the future.
At the risk of being accused of unpatriotic thoughts, I would also argue that US exceptionalism was real in the past, may still mean something in the present, but isn’t something I would permanently bank on for the future. A main point of portfolio theory investing is that we don’t know what will happen in the future. We can’t control the future, but we can manage our risk and return – as close to the efficient frontier as possible – through diversification.
Another key caveat is that international stocks have become more correlated with US stocks over the past few decades, so we achieve less non-correlation in recent years than we would want from non-US investing. That’s not a reason to not diversify, but rather, a reason to stay vigilant about correlations.
If you broaden your risk examination beyond the stocks you own to think about other financial risks – risks of real estate you own, risks to your income, and risks to your currency exposure, you might realize that many of your eggs are kept in the same US, dollar-denominated basket. Your risks actually stack on top of one another in a correlated way. For portfolio theory to give you the best returns at a given risk, you want to seek out less correlated, or non-correlated, risks.
So, in sum, even if your international stocks have underperformed your US stocks, it doesn’t mean you should give up international exposure in your portfolio.
To restate, for emphasis: The majority of US investors are woefully underinvested in non-US assets. We are exposed to our own country’s risk to a degree people from other countries – from hard-won experience – would never, ever, dream of being.