Why International Stocks Are Beating the S&P + How Scott Invests his Money

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1:50Welcome to Office Hours with Prof G, where we answer your questions about business, big tech entrepreneurship, and whatever else is on your mind. Today's episode includes questions from our time in Austin, specifically South by Southwest, which I really enjoy. These are questions presented to us from our listeners back in March at South by Southwest. Question number one. Scott, thanks for coming to South by Southwest. My question is related to last year, you had recommended to diversify away from emerging markets and international markets. And I know So with everything happening in the Middle East, there's been a big plummet in those indices.

2:24Do you still recommend diversifying away from the U.S. stock market and into international markets? And do you still see a value there based on their energy reliance and things like that? Thanks for coming. So every year we make a series of predictions. And the one I'm most proud of is that last year we predicted that for the first time in, what, 17 years, there'd be a rotation out of U.S. stocks into emerging market stocks and emerging markets would outperform U.S. stocks. And we got a ton of shit for this. Never bet against the U.S. U.S. is the home of AI. And look what's happened. If you watched our most recent Prop G pod or listened with Josh Brown, who's one of our kind of fan favorites and a friend of the pod, here's some data from that episode.

3:10On a rolling one-year basis, developed markets outside of the U.S. are up 48 percent. Emerging markets up 55 percent. And the S &P 500 is up 34 percent. Year to date in 2026, emerging markets are up 5 percent. And developed markets ex-U.S. are up 2.4 percent. And the S &P is down 3 percent. There's just no arguing here. International is winning, even despite the Iran shock. And it doesn't matter which style you pick or asset class. every version of international is beating the U.S. equivalent year to date. International growth stocks are up 5.5 % versus U.S. down two. International momentum is up 9.2 % versus U.S.

3:52at 1.3%. International quality is up 7.1 % versus U.S. at 1.8%. And as Josh put it, it almost doesn't matter what stocks you buy. If you have any global allocation, your portfolio looks amazing right now. Emerging markets are at about 13.5 forward earnings versus developed markets at 20. I think the U.S. or the S &P is now at 19. And the S &P was at about 23 and has come down to 19, as I said. That gap is unusually wide even by financial standards. Even with the international markets coming up and U.S. markets coming down, there's still a pretty big delta here. E.M. Ford P is also well below its own trailing P.E.

4:30of 18.8, meaning analysts are already pricing in a big earnings surge in 2026 to justify current prices. J.P. Morgan is forecasting 40 % earnings per share growth in emerging markets this year. So what do you have? Cheap stocks plus strong earnings growth means you capture both multiple expansion and earnings expansion simultaneously. Multiple expansion is something most investors don't understand. And if you invested in Latin America the last 10 or 15 years, it didn't matter how well the underlying company was doing because you just can't outrun multiple contraction. At the same time, you look like a fucking genius if there's multiple expansion.

5:06So the fear is, and what do you do, is look at how concentrated you are and if you're suffering from a bout of U.S. concentration risk. The top 10 stocks now make up 40 % of the S &P 500, more than double their 19 % share in 2015 and the highest level since 1972. By contrast, the top 10 make up just 13 % of the international equivalent, the MSCI. Most mega cap stocks peaked in November 2025. The S &P's forward PE has already compressed from 23, as we referenced earlier, to 19 this year. So in sum, if you think, if you're on SPY, if you think you're in the S &P that you're diversified, you're not.

5:44About 40 % of your assets are in just 10 stocks, and you're in a market that is still expensive on a relative basis. Let's talk a little bit about the dollar. The DXY fell nearly 10 % in 2025. That's the worst performance in over a decade, driven by fiscal concerns, policy uncertainty, and eroding confidence in U.S. exceptionalism. Morgan Stanley warned in March of 2026 that the dollar's Iran war rally is short-lived and expects further weakening as U.S.-Europe rate differentials shrink and the war curbs economic growth. A weaker dollar is a direct mechanical tailwind for U.S.-based international investors, currency efforts drove nearly half of international returns in 2025.

6:23And some are out of fucking control. Deficit spending, fiscal irresponsibility, sclerotic foreign policy, head up your ass decisions in terms of our allies mean that the dollar is weakening us as confidence in the United States. Also, I think that some of the kind of autocratic cronyist approach to companies taking golden shares in Intel and in U.S. Steel and punishing certain companies that don't support this administration has weakened one of the underpinnings of why we trade at a premium in terms of a PE multiple, and that is rule of law. And I think that is being eroded and people are rotating out of U.S.

7:00stocks into other stocks. So I still think this trade has juice left, if you will, in some. And I've been doing this. I bought a British Aerospace Company. I'm actually looking a Mercado Libre or a Latin American stock. And my biggest investment is in a fund that finds special situations outside of the U.S. In sum, this is the prediction from a financial standpoint I'm most proud of because it was definitely a contrarian. It has played out and I still think it has legs. Question number two. Hey, Professor Galloway, this is Chris Marr. I live in the New York City area, and I run a small social impact venture fund.

7:40You look at tons and tons of investment opportunities, and I'm sure you get bombarded with them, but how can people actually get legitimate investment opportunities in front of you to evaluate? To be blunt, it's difficult. I get pitched a lot on small angel investment opportunities. I don't really do angel investing unless it's a friend, and I ride it off. I'll throw$50 ,000 in an idea if I'm friends with the person and just assume it's going to go away. I basically invest in public stocks and then private opportunities where I feel like I have an edge, where a tier one VC has invited me in with no fees into a company that they've done diligence on, and they'll maybe even give me additional juice or boost my participation by going on the board.

8:27So I basically only invest in stuff where I feel, one, it's a great public company where I can just hold it and give it to my kids and Apple and Amazon, something like that. Or I feel like I have some sort of an edge. I get deal flow because of the people I know, or I get some sort of economic advantage. I've had investment opportunities where if I invest a million bucks, they give me two million in equity if I go on the board. If I do that enough times, I should be able to do okay. And now at this point of my life, I'm looking not to get rich, but to not get poor. So I try and diversify a lot.

9:01But in terms of just an inbound inquiry, would you be interested in investing in this company? I almost never do that. Only one in seven angel companies ever get liquidity or get a return. I'm not smart enough to kind of be in that ecosystem. The reason why people pitch me on that is they want me involved. And I like to think I'm generous with everything but my time. So I'm trying to get off the boards and have fewer investments, if you will. And then the other, kind of the third leg of the stool, private companies where I have an edge, public companies that I want in my trust is real estate. My thesis is that income inequality is only gonna get worse.

9:37And by the way, I don't think it's a good thing, but it's just an observation. And that wealthy people are the super wealthy, as I identified by people who have over 50 million assets, wanna live in one of five cities, Dubai, London, New York, Palm Beach, or Aspen. and now I think Dubai's fallen off the list because of the war of Iran. It's just so ironic. We thought that putting U.S. bases in the Gulf would be a security blanket and intended of being a bullseye. Anyways, and I own homes that are four of the five. I own homes in all of those cities except for Dubai and I own some rental properties because I think that you're gonna see just an explosion in the values because the rich or the super rich are the most boring people in the world.

10:18What do I mean by that? They all look, smell, and feel exactly the fucking same. They all vacation in St. Bart's, wear a mask, and try and get their kids into U.S. Ivy League schools. And you could put 10 of them in a room, and they literally look like the same people, whether it's a billionaire from Buenos Aires or an industrial magnet from Hamburg, Germany. They're remarkably similar. Once you get into the middle class, different food, different clothes, different tastes, much more heterogeneous. Anyways, they all want to live in the same goddamn places. And all these places have finite real estate.

10:49I also love investing in real estate because I get to consume it. And most of these are homes that I spend time in. I love kind of one of my hobbies is furniture and interior design. It's sort of a creative outlet for me. And the other thing I love about investing in real estate is I don't have a mark. By the way, as I say all this, I realize I come from tremendous privilege. I'm not suggesting that everyone should be able to do this or can do this. I recognize my privilege. There's my land acknowledgement. See above, my mother was a typist. But I like it because there's not a mark every day. And I don't, with my stocks, I'll get off this pod.

11:24I'll check my stocks. And I find that's unhealthy and takes my blood pressure up and down. It's kind of fun, but it's also sometimes unhealthy. Whereas real estate, you really don't have a mark. And I think that's kind of nice. So those are where my assets are. So all the kind of inbound, hey, I have a, you know, a small little SaaS platform or I'm opening gyms or I have, everyone thinks I'm in love with marijuana. them because i said i do edibles which i do but i'm constantly getting pitched on thc infused beverages or something like that i don't do that stuff because i don't have the time and i don't have the skill set to evaluate angel investing by the way the worst part of the capital structure or the worst asset class is angel investing even if you find a good company you might be washed out at some point and it just takes forever and it's a ton of investment in time um although i know a lot of guys my age who really enjoy angel investing because there's a chance for them to mentor young people.

12:18But in some, how do you get an investment in front of me? Quite frankly, you probably don't. That's not that aspirational. Anyways, thanks for the question.

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16:02Question number three. What insight were you have for teachers now? Because things are changing really fast and evolving really quickly and how that impacts classroom stuff because it's completely upended everything everybody does on the academic side. Thanks for the question. So first off, I hate, I'm not going to call you a hero. I hate it when people call any profession heroes. If someone calls you a hero, it means you're being, you're being fucked. What do I mean by that? It means you're underpaid and overworked. No one ever calls a CEO or radiologist a hero. They call public workers or military or teachers are heroes or nurses, which means they're being dramatically underpaid.

16:41So we call them heroes in commercials to sell more fucking life insurance and assume that that's some sort of compensation. Don't call them heroes. Pay them a fair wage. Let me give you some data here. Teachers reported working an average of 49 hours per week in 2025, 10 hours more than their contracted hours. Average base salary was$73 ,000 versus$103 ,000 for comparable college-educated workers. So teachers are making about 30 % less. U.S. teachers average 53 hours a week. OECD averages 40 hours. So get this, U.S. workers are working 30 % more, U.S. teachers, ranging from 33 hours in Finland to 56 in Japan.

17:21Over 8 in 10 students reported using generative AI during the 2025 school year. 89 % have used chat GPT for homework, though many don't consider it cheating. 94 % of AI-generated work still goes undetected, according to research. Faculty have been told a blanket ban on AI is not a viable policy. Schools are scrapping take-home tests, returning to pen and paper, in-class exams, and moving to flipped classrooms where homework is done in-class instead. So, look, I'm of two minds here because I think the labor market needs to be supply and demand. And that is if people are willing to work and teaching because they get psychic reward from it and feel like they're doing good work, they're naturally going to make less money.

18:00At the same time, it's hard to imagine a more important job in terms of tomorrow's youth. So it makes sense probably to have some sort of federal benefits, similar to what we do with the military, where they get to shop at government stores with lower prices. I think it's called the PX or whatever it's called. Access to certain types of insurance, lower costs. I know at the school, my son's school, who I was on the board of in Gulfstream, Florida, we had housing for teachers. I have seen, I do think their salaries are going to go up. I wish I had data on this because I think that schools are recognizing, I think there's a bit of a battle for good, really quality teachers.

18:38And parents, especially private schools who have the money, will find ways to compensate those people. I also think there's going to be a lot of opportunity post that career for good teachers. So I'm actually hopeful that teachers are going to make more money moving forward. I think a bigger threat than AI is phones. And that is, I think we're sending into these classrooms a group of DOPA-addicted monsters who just can't wait to stop learning and check their Instagram to see how many likes they got from their post from the school cafeteria. The most accretive thing that's happened to schools in terms of test scores is the banning of phones.

19:18I think the most consequential scholar of our generation is my colleague, Jonathan Height, who is getting phones because of his book, The Ancient Generation, banned in schools in entire countries. So I'm actually hopeful through K-12, I think AI will help bring up the lowest quartile of underfunded schools with the most crowded classrooms. Sort of AI agents can serve as tutors because, and I know this personally as someone who of money. The education industrial complex for the wealthy just is outclasses low-income households. So the average public school spends$15 ,000 per student in low-income area,$10 ,000 per student.

20:00The average private school, get this, spends$72 ,000 per student. So let's look at 12 years of primary education. You have$180 ,000 being spent on the average kid, and you have about $900 ,000 being spent on the kid from the wealthy household that gets to go to private school. which is just fucking insane. Well, of course, kids from wealthy households are just much better prepared for college, more qualified. And it shows. What's interesting is that the average SAT score for a middle-income kid is 120 points greater than a lower-income kid. But where income inequality goes just insane is the difference between middle-income and upper-income, because then again, see above tutors, private schools, it's 250 points higher.

20:42So if you were gonna try and create an equivalent playing field for a low-income kid, and a high-income kid. In the SAT, you would spot the low-income kid, 370 points. And I believe we should do that. I don't believe in race-based affirmative action. I think we needed it 60 years ago, where the academic gap between black and white was double between rich and poor. Now that has flipped. In sum, I don't think Trevor Noah or Eddie Murphy's children need any help. I think poor kids need help. And the way we come together around this is that that would still impact 70 % of the kids who get affirmative action now because we still do have sort of an economic apartheid where white households' average wealth is 140 grand and Latino and black households, it's about 25 or 28 grand.

21:29So what's needed here? Affirmative action that puts more money in the pockets of parents from low-income and middle-income households, full stop. I think it all kind of stops there. I think income inequality is just a virus in the United States. And two, I think the market and maybe some federal programs availability around low-cost mortgages, housing credits, access to things like auto insurance and maybe medical care that's subsidized to trying to attract more people into the field. We definitely need more male teachers. 70 to 80 percent of primary school teachers are female. I think school's been feminized and there's a bias against boys.

22:06Boys are twice as likely to be suspended on a behavioral adjusted basis. Anyways, back to teaching. I think it's an outstanding profession. I do think it's appreciated in that I do think there's going to be more competition for the best teachers and you will see income start to increase. But I think some school reform recognizing that we are creating a two-class or two Americas and that the kids from wealthy households are just pulling away from the other kids. I do think there's some government intervention required there. I would like to tax private schools more. I think there should be a$10 ,000 per head tax to send your kid to a private school.

22:44If you exit the public school infrastructure, you are hurting it because the most important thing about a school is not its resources even, it's engaged parents and wealthy households have the time for one or more of the parents to be engaged. Anyways, big topic of conversation and very much appreciate the question. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursofproftmedia.com. That's officehoursofproftmedia.com. Or if you prefer to ask on Reddit, post your question on the Scott Galloway subreddit, and we just might feature it in an upcoming episode.

23:19This episode was produced by Jennifer Sanchez and Laura Janair. Cammy Rieke is our social producer. Brad Williams is our editor. And Drew Burrows is our technical director. Thank you for listening to the PropG pod from PropG Media.

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