International and emerging market stocks underperformed U.S. stocks over the past 15 years. It wasn’t consistent every year. In fact, international led in three of those 15 years while emerging markets led in four. Still, it wasn’t enough to outpace the U.S.

So far, this year has been another exception. Through nine months, both international and emerging markets have outperformed both U.S. large and small caps by a wide margin.

The obvious question is: is this another one-off year or the start of a longer trend much like the one experienced during the early 2000s?

Which brings us to the first of several lessons from the returns so far this year:

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Quote for the Week

The first thing you need to understand is that bubbles can only come when all the stars align: The economy’s got to be good; the outlook has got to be good. New technological changes are going on. As far as the eye can see, there’s only prosperity. Only in that kind of an environment are you going to get everybody to just throw caution to the wind and say, “I want to be part of it.”

What can we learn from that? First of all, when you have an era of total participation — an era in which people suspend all logic, become part of the crowd and buy things just because they’re going up — you’ve got a bubble. And there’s only one way a bubble goes down — the only way you let air out of a balloon — it either pops, or you just slowly let it out. However, one way or another, the air has to come out of the bubble…

The dictionary definition of a bubble: “Something insubstantial, groundless, or an impractical idea or belief” — in short, an illusion. In other words, stock market bubbles create illusions. But Sigmund Freud had about the best definition of an illusion as to how it affects the stock market… “Illusions commend themselves to us because they save us the pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality, against which they are dashed to pieces.” In other words, bull markets create bubbles, and bubbles create illusions, and illusions eventually lead you astray. — Arnold Van Den Berg (source)

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The asset class, sector, international, and emerging markets quilts are up to date through the third quarter of 2025.

You can find updated interactive versions of each here:

• Asset Class Quilt
• Sector Quilt
• International Market Quilt
• Emerging Market Quilt

You can also download copies here or grab the images below.

The usual dive into the quarterly and monthly returns on the year will be posted next week.

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Quote for the Week

While all the chatter and excitement is taking place about big stocks, big gains, and “three-baggers,” long-term investment success really depends on not losing — not taking major losses.

We all know that a 50 percent loss requires a double the next time up just to get even, but still we strive for the Big Score, even though we also know full well that accidents happen most often to too-fast drivers; that Icarus got too close to the sun; that Enron Corporation, WorldCom, and many dot-coms had very high “new era” multiples before their obliteration.

Large losses are forever — in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk. — Charley Ellis (source)

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Every bull market produces a small percentage of people that get rich quick. They pick that one stock that goes to the moon or hit a lucky streak that never seems to end. They’re celebrated. Stories are written as if to suggest, “If they can do, maybe you can do it too.” It feeds hope.

But their stories are rarely followed up on or when they are, never draw the same amount of attention. The encore falls short of the initial performance.

Fred Schwed Jr. once described this admiration. He’d seen it before with his father.

I have often heard people describe the financial shenanigans of Pop and other men like him. Inevitably they are lost in admiration for such derring-do. “A millionaire for a while!” they exclaim. “And then flat on the seat of his pants,” they continue with even more gusto. “And then the whole business all over again! And again. Wow!”

These admirers must feel that this method of handling one’s finances has something to recommend it. Perhaps they feel that this is living dangerously. (It is, at that; to appreciate just how dangerously you should be an intimate member of the hero’s family.)

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Quote for the Week

It seems to me that Wall Street analysts show an extraordinary combination of sophistication and naiveté in their attitude toward speculation. They recognize, and properly so, that speculation is an important part of their environment. We all know that if we follow the speculative crowd we are going to lose money in the long run. Yet, somehow or other, we find ourselves very often doing just that. It is extraordinary how frequently security analysts and the crowd are doing the same thing. In fact, I must say I can’t remember any case in which they weren’t.

It reminds me of the story you all know of the oil man who went to Heaven and asked St. Peter to let him in. St. Peter said, “Sorry, the oil men’s area here is all filled up, as you can see by looking through the gate.” The man said, “That’s too bad, but do you mind if I just say four words to them?” And St. Peter said, “Sure.” So the man shouts good and loud, “Oil discovered in hell!” Whereupon all the oil men begin trooping out of Heaven and making a beeline for the nether regions. Then St. Peter said, “That was an awfully good stunt. Now there’s plenty of room, come right in.” The oil man scratches his head and says, “I think I’ll go with the rest of the boys. There may be some truth in that rumor after all.”

I think that is the way we behave, very often, in the movements of the stock market. We know from experience that we are going to end up badly, but somehow “there may be some truth in the rumor,” so we go along with the boys. — Ben Graham (source)

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