Beck's World Portfolio

Hi Mustachians,

I am interested on your thoughts on Beck’s World portfolio.

Basically he recommends investing in the world stock market, similar to the VT ETF.
However he makes sure the different world regions have an equal p/e ratio instead of being weighted by market capitalisation.

So for example US stocks currently have a p/e ratio of 25, emerging markets on the other hand have a p/e ratio of 10. So the portfolio is tilted in the direction of emerging markets.

His portfolio keeps 20% liquidity reserves in safe goverment bonds (CH, DE, FR, NL). If a market downturn occurs assets will be shifted from the bonds to stocks and once stocks have normalised again the portfolio is rebalanced to 20% bonds, 80% world stocks.

The official global portfolio one has a TER of 0.7% and is still rather small. What I like about the idea is that you can easily put together this type of portfolio yourself.

The holdings are published here:

I’ am slowly shifting my portfolio to match my asset allocation to that of global portfolio one.

I did this by buying VT (World ETF) and then adding VPL (Pacific region) VWO (Emerging Markets) and VGK (Europe) to counterweight the US Portion of VT. If course one call also sprinkle a little VB (Small Cap US) and VSS (Small Cap non US) in to the portfolio.

The US currently makes up roughly 60% of VT, with Global Portfolio one’s equalised p/e it should be around 44%.

The bonds part I replicate by keeping cash in a bank account, should the market drop I still can decide if I want do invest or do something else with the money.

There are numerous videos on youtube where he explains the idea behind the portfolio:

Let me know if you think it is worth the (modest) effort to replicate his approach, or if you just would opt for VT or VWRL.

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I actually like him and his approach but decided the following

-buy only VT (KISS principle) given that simply buying value (cheap stocks with low pe) isn’t necessarily a great idea, requires rebalancing, thinking about multiple etfs, etc. also i am unsure whether non-us markets will really do well in a big downturn.

-dont keep 20% in cash (more like 3-5%) and rather use IB portfolio margin to buy more VT after a severe dip. interest rates usually go down after a major crisis - so buying on margin wouldn’t even be expensive plus he usually sells the 20% extra anyhow after the upswing.

(for context: i have a fairly big portfolio / already fired. i don’t care about every extra % in perf - but rather enjoy simplicity and peace of mind)

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I like the idea, as its a kind of value strategy, which does appeal to me in general.
But it seems to be a kind of ’ lazy value strategy’ by looking at p/e only - and for the most part evidently the p/e of growth stocks. For sure your you will collect all value traps too.
So it is a bit of a paradox in that sense.
I’m not sure if the effort and its effect is really connected well to the expectation.

Value is gonna be a lot of effort to have its desired effect.
If you like putting the effort I’d prefer to go all world and then maybe select a very limited number of value companies that you can dive into - for the game of it.

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I just watched the video and can understand his thoughts. IMHO, there is, however, one “flaw” in his arguments. There is no proof that a stock market selection based on P/E is superior to other methods. Among other attributes, it neglects the growth portion of the stock valuation. If a company has tremendous growth, it’s justified to have a higher p/e ratio, because the earnings will be much higher in the future. I don’t think that there is a “correct” method to define the weight a stock should have in a global portfolio.

I watched his interview with Finanzfluss and he really seems to be a smart, very calm and realistic guy.

Why buy VT instead of VTI ?

VT is the whole world whereas VTI is the comolete the US market.

Well according to Factor Investing there is a value premium over the long run. However it has not played out in the last 15 years:

That’s the point. You get the US with it and you get the rest of the world with other ETFs, each one with its own ratio. I thought you wanted to differentiate

ok, I see what you mean. Well I went the other way, but thats more because I started off with VT. If one plans to start from scratch I guess its easier to add VTI, VWO, VPL etc according to their relative weights.

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Thanks for all the comments so far. Since such a portfolio is only slightly tilted from a market cap weighted portfolio like VT, I will take my chances on hope of a better long term performance.

Also what I like about Beck is that in his private portfolio he also runs some small scale bets like buying Aeroflot stock. These purchases are of course completely separated from the world portfolio. He says a little Spieltrieb is important, apart from the rational investment approach.

Page 7 in Fundsmith 2019 letter to shareholders gives opinions from a couple of very successful investors as to why P/E is probably a lousy predictor of outperformance

“ the value investor who buys one of these companies which are indeed lowly rated but which rarely or never make an adequate return on capital is facing a headwind.”

Well, Factor Investing, just as any investment manager, needs a strategy. They are free to pick whatever strategy they favor. They refer to “Decades of academic research” but don’t give any concrete references. They also admit, that “there is no guarantee that these factors will continue to out-perform over time”, but believe “empirical evidence” suggests, that it will. So we are basically back to “Past Performance Is No Guarantee of Future Results”.
One reason for this is that the financial system is highly complex and chaotic, making it inherently unpredictable, IMHO. Circumstances are different all the time. For the last 20 to 30 years, a lot of new and highly disruptive technologies have been developed, so who is to say that the results of “decades of academic research” still hold true in this new environment or in a future environment which might even be more disruptive.

My “belief” is, that if there were a definite prove that one strategy was superior to all others, over time most people would follow that strategy and by doing to, would render this strategy ineffective. :slight_smile:

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If you want to factor invest, use either Avantis or DFA ETF’s. I recommend Avantis as they have a higher factor exposure compared to the current ETF offerings of DFA. Both firms follow the academic literature pioneered by Fama and French. Neither of them has an all-world ETF, though.

If I understood Andreas Beck correctly, he uses the P/E ratio as a proxy for both value and profitability, which is very concerning given current academic literature. In addition, I would love to see the results of a Fama-French 6-factor regression of his portfolio, given his comments on backtests…

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