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Compared to nose bleed valuations for SPY, developed markets ex US (IDEV ETF) looks a lot more reasonable. It's not top heavy either. Japanese stocks have been doing well and should continue to do so. UK may move in the right direction, especially with the latest political changes. Any thoughts/comments on moving a small/medium chunk from SPY to below?

Number of Holdings  2,226
30 Day SEC Yield    2.54%
P/B Ratio	    1.82%
Dividend Yield	    2.86%
P/E Ratio           15.69

Top 20 holdings:
NOVO NORDISK 
ASML 
NESTLE
ASTRAZENECA 
SHELL
TOYOTA MOTOR CORP	
LVMH	
SAP	
NOVARTIS 
ROCHE
HSBC
ROYAL BANK OF CANADA
TOTAL
BHP
SIEMENS
BANK OF AUSTRALIA
UNILEVER
SCHNEIDER ELECTRIC
MITSUBISHI
SANOFI

Country concentration:
Japan		20.34
UK		13.33
Canada		10.48
France		10.06
Switzerland	8.67
Other		37.12

https://www.ishares.com/us/products/286762/ishares...

Ex-U.S. developed markets could be an interesting diversifier.

IMO (not worth much), it's not so much the current valuation level (e.g. current P/E, P/B) that's key, but how these levels are changing over some reasonable past stretch of time.
For example if one did a similar slice&dice exercise on the U.S. market, e.g. dividing it into "sectors", then some have always had a much higher P/E (or P/B) than others but this doesn't necessarily mean that a certain sector is more attractive, based on it's current valuation, relative to others.

But if the "ex-US developed countries" segment of the world market is becoming increasingly cheap on a value basis, while the U.S. segment is becoming increasingly expensive, then it makes that investment thesis more attractive.

Ex-U.S. developed markets could be an interesting diversifier.
...
IMO (not worth much), it's not so much the current valuation level (e.g. current P/E, P/B) that's key, but how these levels are changing over some reasonable past stretch of time...

Looking at the valuation of individual firms makes good sense (rifle method). Some people also look at broader swaths of valuation (shotgun method).

If you're looking at ex-US markets in terms of top level valuation (The CAPE of the FTSE or Topix, etc) looking for good deals, two things to keep in mind:
(a) it's important to compare valuation levels to the historically average valuation levels of the same group, not to the US, and
(b) the group you're looking at has to be broad enough to be meaningful. A market dominated by 1-5 companies, or just 1-2 sectors, won't mean revert predictably to anything at all.

FWIW, here are some historically average CAPE values by sector for Europe and the US. Data up to 2013, I think it might have started 1973.
Top half tend to be more highly valued in the US, vice versa for the bottom half.

                Euro avg    US avg
Energy             15        18
Materials          15        19
Industrials        17        22
Healthcare         21        27

Telecom            20        18
Utilities          18        13
Financials         28        17
Tech               28        32

Here's another table, median historically observed CAPE by country index, all available data up to mid 2012. US and UK had a century, most others start in the 1970s-1980s.

Australia       17.15
Austria         26.80
Belgium         14.89
Brazil          17.34
Canada          19.85
Chile           20.93
China           24.40
France          19.92
Germany         17.90
Greece          15.91
Hong Kong       18.16
India           24.56
Indonesia       16.37
Ireland         10.94
Italy           21.66
Japan           43.89
Malaysia        18.49
Mexico          19.62
Netherlands     11.95
Portugal        16.43
Russia           9.15
Singapore       21.96
South Africa    16.22
South Korea     17.84
Spain           17.33
Sweden          19.54
Switzerland     18.16
Taiwan          19.43
Thailand        11.48
Turkey          17.02
UK              11.84
USA             14.63

So much for shotgun comments.

On the rifle front, here are some international picks of mine. Prices as of Tuesday. Do with them what you will, I don't currently own 'em : )
IFI:WSE at 23.90 PLN, yield 8.41%
KMDS:JKT at 458 IDR, yield 4.73%
6070:TYO at 2493 JPY, yield 4.79%
4481:TYO at 2815 JPY, yield 3.21%
Tickers are in the format used by FT.com

Jim

Don't ignore earnings growth.
Yes, it won't go on forever.

US market itself has bifurcated. S&P PEG is ~1.7 vs non-S&P 1.2. VEA, comparable to IDEV also 1.2. EM VWO < 1.

Earnings growth about 16% for S&P, US non-S&P, EM. About 12% for developed.

As Bogle said, (assuming constant P/E), your returns are earnings growth + dividends.

Earnings growth about 16% for S&P, US non-S&P, EM. About 12% for developed.
As Bogle said, (assuming constant P/E), your returns are earnings growth + dividends.

I would rephrase that to make it meaningful:

Recent past earnings growth about 16% for S&P, US non-S&P, EM. About 12% for developed.
As Bogle said, (assuming constant P/E), your returns are future earnings growth + dividends.

It's a very big difference. "Recent past" and "future" are very different in this case.
Over the long run, earnings growth in the S&P 500 will necessarily resemble US GDP growth pretty closely. US GDP is NOT going to grow at 16%/year. Since 1985 US GDP has risen nominal 4.99%/year = inflation + 2.59%/year.

Jim


PS
Slight improvement:
"...(assuming constant P/E), your real returns are future real earnings growth + the nominal dividend yield when you buy."
The non-obvious thing there is that dividends are not very cyclical so it's the initial yield that matters most, but they do rise with inflation so they are in effect already inflation-adjusted figures. Thus it counterintuitively makes most sense to add the inflation-adjusted annualized rate of price return to the nominal dividend yield.

PS
Slight improvement:
"...(assuming constant P/E), your real returns are future real earnings growth + the nominal dividend yield when you buy."

I wish I had your crystal ball and the unwavering ... and so far unwarranted ... certainty that the big won't get bigger.
No doubt trees don't grow to the sky etc. Just unsure if that holds in the brave new world of the network effect.

Apple and NVidia come and go. Microsoft and Facebook (+ WhatsApp/Insta) are forever.
Copycat Microsoft killed CP/M, Netscape, Lotus Notes, Wordstar etc and now they can charge an yearly fee for me to write Word documents. I don't own anything, I have to rent it. And they will no doubt do the same to generative AI.

Facebook swallowed up the up-and-comer competition and can do it indefinitely.

Not sure what GDP has to do with any of this. The S&P juggernauts can snuff out any competition worldwide and become a virtual supranational monopoly. And have monopolistic pricing power.

now they can charge an yearly fee for me to write Word documents. I don't own anything, I have to rent it.

You don't have to rent it. You can still purchase Microsoft Office (as opposed to subscribe) for 149.99 if you are so inclined.

https://www.microsoft.com/en-us/microsoft-365/buy/...

For those that don't believe in paying for software, web and mobile versions of Word, Excel, PowerPoint, OneDrive (up to 5GB) and Outlook are free.

https://www.microsoft.com/en-us/microsoft-365/free...

Another hack is to somehow get a referral from a Microsoft employee. I believe they are allowed to give out 5 per year. With a referral, you can buy an Office 365 subscription for 19.99 instead of the standard 69.99 from the Microsoft Store.

You don't have to rent it. You can still purchase Microsoft Office (as opposed to subscribe) for 149.99 if you are so inclined.

LibreOffice is free. https://www.libreoffice.org/

Largely interoperable with MS Office.

LibreOffice is free. https://www.libreoffice.org/

Being a nerd I already use it.
Point is, not many do. Certainly not many corporations.

Bigger picture, every time is different. That Reinhart and Rogoff title is misused too often.

But OK, we will wait for NVDA to trade at 15 P/E. Or CostCo for that matter.

But OK, we will wait for NVDA to trade at 15 P/E. Or CostCo for that matter.

There is no one size fits all right answer. We all don't need to do the same thing. Each one simply needs to do what they think is best for them.

Be that as it may, your comment did remind me of a recent Chris Bloomstran tweet about index valuation levels including some specific comments regarding Costco.

====================

Stunning. Nvidia passes Microsoft and Apple as largest market cap. Combined, the three are valued at $9.9 trillion, 21.5% of the entire market capitalization of the S&P 500. The three are today LARGER than the capitalization of the ENTIRE S&P in September 2011, not a market low.

Including Google, Amazon, Meta and Tesla, the Magnificent 7 have a $16 trillion combined market value, 34% of the S&P 500 and LARGER than the ENTIRE S&P as recently as February 2016, just over 8 years ago and most definitely nowhere near a market bottom.

Nvidia is valued at 42x and 78x trailing sales and earnings on an unsustainable 54% net profit margin.

Microsoft is valued at 14x trailing sales and 39x earnings on a 36.4% net margin.

Apple is valued at 8.6x and 33x trailing sales and earnings on a record 26.3% net margin.

These are crazy valuations for very large companies that can grow sales and earnings nowhere near as rapidly as they did over the past one and two decades. Microsoft and Apple traded for less than 10x earnings at various points over the past 20 years.

This is the goofiest and likely most dangerous concentration of overvaluation I’ve seen in 34 years investing and throughout financial history. The extremes extend beyond the three and seven to companies like fellow Nasdaq 100 member Costco, now with a $386 billion market cap on $254 billion in sales. Costco has a 2.8% profit margin, up from 1.7% when I first bought the stock. With $7.1 billon in earnings, the P/E multiple is an incredible 54x. How do you make money with an initial 1.8% earnings yield, 2.5% growth in systemwide square footage (down from 7.5% growth 20 years ago), double inflation same-store sales growth and modest potential to increase margins? You are looking at seven to eight years of no change in the share price for the stock to trade at 25x earnings.

Mr. Market is very good at rewarding business success but to a fault. In the short term, stocks can trade at extremes relative to fundamentals, both on the low side and the HIGH side. At 23x 2024 expected earnings, the market-cap weighted S&P 500 is froth with excess and in my judgment uninvestable. Under the hood, the majority of stocks are not overvalued. The bifurcation between the dear and the cheap reminds me of March 2000. From that point the index has returned 7% per year, spending much of the subsequent decade in the red. You can have extremes of over or undervaluation in the short and even intermediate terms. But in the long run, Mr. Market gets it right.

At 23x 2024 expected earnings, the market-cap weighted S&P 500 is froth with excess and in my judgment uninvestable.

Check out the multiples and the returns for Google since it's IPO. At this point NVDA:AI::Google:search.

But Costco is not Nvidia. So why is CostCo always so insanely high?
My SWAG is (1) the relentless gusher of money from US retirement plans, and lately from foreigners, in the US stock market; coupled with (2) valuation-oblivious marjet-cap weighted index investing that did not dominate in 2000 as it does now.
(2) is a positive feedback loop for giant companies as well as small stocks. Index inclusion creates demand creates higher price creates higher market cap creates more demand and (for small stocks with limited total and free float) inclusions in other indexes; an infinite loop.

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