Has anyone seen the Japanese Stock Market?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
Waller12
Posts: 1
Joined: Fri Feb 21, 2014 10:18 pm

Has anyone seen the Japanese Stock Market?

Post by Waller12 »

Check this out:

I don't know why this has happened, but 15 years of stock market going down and never recovering.... [link fixed by admin LadyGeek]

Image

What are the chances of this happening in the US?
placeholder
Posts: 8421
Joined: Tue Aug 06, 2013 12:43 pm

Re: Has anyone seen the Japanese Stock Market?

Post by placeholder »

No one knows.
John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: Has anyone seen the Japanese Stock Market?

Post by John3754 »

Impossible to say, but it's something that people don't seem to take into account when they talk about equity risk. I see statements like this on a regular basis... "I'm highly risk tolerant because I know that if the market crashes it'll recover within a few years". This is not a good understanding of what equity risk really means IMO.
User avatar
TheTimeLord
Posts: 12130
Joined: Fri Jul 26, 2013 2:05 pm

Re: Has anyone seen the Japanese Stock Market?

Post by TheTimeLord »

I might look at the P/Es at the market peak and the demographics of the Japanese population.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
hicabob
Posts: 3796
Joined: Fri May 27, 2011 5:35 pm
Location: cruz

Re: Has anyone seen the Japanese Stock Market?

Post by hicabob »

StarbuxInvestor wrote:I might look at the P/Es at the market peak and the demographics of the Japanese population.
Yup - it is considered a classic case of the dreaded "bubble"


http://en.wikipedia.org/wiki/Japanese_a ... ice_bubble
am
Posts: 4233
Joined: Sun Sep 30, 2007 9:55 am

Re: Has anyone seen the Japanese Stock Market?

Post by am »

Anything can happen with our stock market. There is relatively little history available.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Has anyone seen the Japanese Stock Market?

Post by abuss368 »

When I see graphs like this it really puts global diversification into perspective for me.

We are presently 60% US and 40% International and plan to stay the course.

I would expect however that the graph does not include dividends or the compounding of dividends. The return to the average Japanese investor should be higher than noted on the graph.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
bobcat2
Posts: 6076
Joined: Tue Feb 20, 2007 2:27 pm
Location: just barely Outside the Beltway

Re: Has anyone seen the Japanese Stock Market?

Post by bobcat2 »

Waller12 wrote:Check this out:

I don't know why this has happened, but 15 years of stock market going down and never recovering.... [link fixed by admin LadyGeek]

Image

What are the chances of this happening in the US?
Actually it's not 15 years - it's 24 years and counting. :(

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Has anyone seen the Japanese Stock Market?

Post by nisiprius »

Don't forget this one.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 3:17 am

Re: Has anyone seen the Japanese Stock Market?

Post by hiddensee »

In the late 80s the Japanese stock market was priced in the belief that Japan's GDP per capita would significantly exceed that of the US sustainably into the future. In fact Japan has a Western EU GDP per capita. Added to this, there has been declining workforce participation since the 1990s, so regular economic growth hasn't been able to recover the difference. These factors are very unlikely to repeat on a global scale.

Shame to be a Japanese with home market bias though.
User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 12:22 am
Location: ~ Mi Propio Camino ~

Re: Has anyone seen the Japanese Stock Market?

Post by cfs »

Yes, markets go down, and some will stay down for a couple of years, that's what happened to the Nikkei 225 index.

Based on what I see on the Yahoo finance charts, the Nikkei 225 Index went from 10,200 points in February 1984 to 38,900 points in December 1989, then it took only nine months to lose 18,000 points dropping to 20,900 points by September 1990. The index was at 7,900 points in March 2003, flat for six years with the index back at 7,900 points by January 2009, and finally making some gains by reaching 14,800 points in February 2014. Those invested 100% in Japanese equities were happy campers from the Spring of 1984 to the Spring of 1990. Again, all this is based on the Yahoo finance charts.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~
z3r0c00l
Posts: 3807
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Has anyone seen the Japanese Stock Market?

Post by z3r0c00l »

Waller, this is a very well known, very carefully studied history. Google search "lost decade" and "lost two decades." There are a series of reasons why this terrible chart did not, has not, is not resulting in bad living conditions in Japan. Instead, life in Japan has improved, and has been consistently better than life in the US by several different measures such as longevity, health, poverty and homeless rates, etc. All of that aside, what we know is that the stock market and real estate market were both involved in one of the largest bubbles ever. Cut off the top of that extreme asset bubble spike, and you have something more akin to the troubling but not catastrophic 1970s in the US economy. In other words, the chart does not show the whole story. Importantly, few people ever purchase stocks at the pre-crash high.

This is a most useful history for those who keep getting spooked by the bond market. Rates can stay low for a very long time. If they do, running to short duration funds will look quite silly. Also, as much as the stock numbers are misleading towards the bad, the unemployment numbers are misleading towards the good. Full-time work in Japan has become extremely hard to find, especially for young people. Moving to a temp. and part time economy is also occurring here. It is the single most worrying trend to emerge from the recent recession; the decline of the job market.

Prepare for any outcome by holding about your age in bonds, and diversity in your equity holdings towards global market weight. You can do even more by earning as much as possible today, and saving as much as possible for tomorrow.
70% Global Stocks / 30% Bonds
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Has anyone seen the Japanese Stock Market?

Post by JoMoney »

z3r0c00l wrote:... diversity in your equity holdings towards global market weight...
...understand that Japan is one of the largest holdings you'll have in a global market-weight portfolio. Not that I think Japan is in the bubble territory of the past, but there are still some significant challenges in their economy (but I suppose that can be said of everywhere). I just find it ironic when people use what happened in Japan's stock market as a reason to "diversify" into owning a heavy portion of Japanese stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
anakinskywalker
Posts: 487
Joined: Sun Aug 24, 2008 8:20 pm

Re: Has anyone seen the Japanese Stock Market?

Post by anakinskywalker »

nisiprius wrote:Don't forget this one.

Image
It was making no sense to me. Now I see the link says "Russia".

Anakin
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Has anyone seen the Japanese Stock Market?

Post by JoMoney »

anakinskywalker wrote:
nisiprius wrote:Don't forget this one. ...
It was making no sense to me. Now I see the link says "Russia".
Anakin
I wonder if having a "global stock portfolio" would have provided higher diversification benefits to a Russian with investment accounts in that time period. Or if it helped Argentina retirement accounts invested in other markets in more recent times.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Has anyone seen the Japanese Stock Market?

Post by Johm221122 »

hicabob wrote:
StarbuxInvestor wrote:I might look at the P/Es at the market peak and the demographics of the Japanese population.
Yup - it is considered a classic case of the dreaded "bubble"


http://en.wikipedia.org/wiki/Japanese_a ... ice_bubble
I don't know if this is true, but didn't I read once that at one time it was cheaper to play golf if you lived in Tokyo, to fly to Hawaii and play than actually play in Tokyo
John
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Has anyone seen the Japanese Stock Market?

Post by nisiprius »

Well, first off it's a matter of degree. If the U.S. stock market behaves like Japan, and you are retired, and your stock allocation is (say) 40% of your portfolio, then the difference between having 30% of your stocks in international (12% of portfolio) and 50% (20% of portfolio) is going to be meaningful, but it isn't going to be a magic shield of invulnerability.

Second off, these charts are what they are and show whatever they show and are susceptible to varying interpretations. The data is from Dimson & al. Credit Suisse Yearbook 2013, and I just edited their charts to remove non-equities returns, and to allow me to slide the U.S. equities curve up and down. First, the entire long-term history. Using all of the Dimson & al. data:

Image

This should at least suggest that global diversification may not be an obvious free lunch.

Now, I really never know how to deal with the "long-term" concept. Because I'm never sure at what point you're continuing to look at the same "thing." In this case, the behavior of the U.S. stock market relative to Dimson & al's "globally diversified" portfolio, really seems to me to be different before and after the end of World War II. If we just look at the behavior from 1946 on and start both at the same point, we get this:

Image

Admittedly this is a "view from 30,000 feet" and there are all of the usual problems in deciding what the past tells us about the future, but all I can say is that this chart, to me, doesn't suggest that that global stocks have behaved very differently from U.S. stocks.

Another thing that stands out even in this view is, look at the 17-year 1966-1982 "Death of Equities" era, the period when inflation grew so quickly that it wiped out the real return of stocks. In some ways this was one of the worst periods for U.S. stocks since World War II. Notice that the globally diversified portfolio wasn't terribly different. I don't know what a more detailed view would show--it looks like global diversification helped a little, but only a little.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
cbeck
Posts: 640
Joined: Sun Jun 24, 2012 1:28 am

Re: Has anyone seen the Japanese Stock Market?

Post by cbeck »

The economist that Paul Krugman recommends reading on the Japanese economy is Richard C. Koo. For instance, his book, "The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession."
http://www.amazon.com/The-Holy-Grail-Ma ... ichard+koo

Koo invented the term "balance-sheet recession" in which economic agents strive to minimize debt rather than to maximize profit, reversing what many take to be an iron law of economics. In Japan in the early 90's it was the companies and banks that were over-indebted while in the US in 2007 it was households and banks. Recovery from a balance-sheet recession takes a very long time because the debt burden, having arisen from asset bubbles (stocks, housing in both the US and Japan), is excessively and aggravated by low or negative inflation. The same was true after the Great Depression in the US where debt levels were slowly reduced during the 30's. Then, during the war, consumer goods were largely unavailable despite full employment and wage/price controls enabled households to build savings leading to the post-war boom.

Japan's situation is certainly relevant to the US, both countries having experienced a credit boom followed by stock and housing bubbles which burst threatening a collapse of the financial system. For almost all of the two lost decades Japan maintained a trade surplus in a world economy that was expanding strongly, conditions unlike what the US now faces.

Koo is essential reading on the subject. An awareness of the Japanese example kept me from ever thinking that the Fed's actions would lead to inflation then or now. Low inflation/deflation (essentially the same thing) continues to be the risk going forward. Bond interest rates are unlikely to rise much in such an environment.

Here's a link to one of Koo's summaries. You can find his talks on the internet, too.

http://ineteconomics.org/conference/ber ... -1990-2005
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: Has anyone seen the Japanese Stock Market?

Post by Oicuryy »

Something similar to the Nikkei's rise and fall in the late '80s has already happened in the U.S. The Dow Jones Industrial index rose four-fold from its 1924 low to its 1929 high. Then it lost 90% by mid 1932.

The decline in the Nikkei since the mid '90s is probably due, at least in part, to deflation caused by a too-tight monetary policy.

Image

Ron
Money is fungible | Abbreviations and Acronyms
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: Has anyone seen the Japanese Stock Market?

Post by plats »

Keep in mind the Nikkei's slump was allieviated somewhat for US investors by the tripling of the yen during this time.
User avatar
Watty
Posts: 28859
Joined: Wed Oct 10, 2007 3:55 pm

Re: Has anyone seen the Japanese Stock Market?

Post by Watty »

One thing to remember is that the first chart starts in the 1980's and that the Japanese economy had started out at next to zero after World War II less than 40 years before the start of the chart.

I'm not sure where you would find it but it would be interesting to see a chart of the Japanese stock market that goes from about 1950 to now.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Has anyone seen the Japanese Stock Market?

Post by JoMoney »

Watty wrote:...I'm not sure where you would find it but it would be interesting to see a chart of the Japanese stock market that goes from about 1950 to now.
Morningstar has some data on the Nikkei you can chart against a mutual fund going back to around then...
Image
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Has anyone seen the Japanese Stock Market?

Post by talzara »

nisiprius wrote:Don't forget this one.
Imperial Russian bonds should see a slight bump at the extreme right of the graph.

British holders of Imperial Russian debt received a partial recovery in the 1980s of 54.78 decimal pence on the pound, paid from frozen Imperial Russian assets in the UK.

Of course, real performance was terrible, because this was in nominal pounds. And the high recovery rate depended on the fact that most of the bonds had gone missing. http://www.independent.co.uk/money/eigh ... 83278.html

If the graph had extended past 1990, then there would be another bump in the 1990s. French bondholders received a partial recovery, paid directly by the government of the Russian Federation.

Of course, common equities were wiped out. As in a bankruptcy, equities get wiped out, bondholders get pennies on the dollar. For this reason, governments will negotiate for a partial settlement for their bondholding citizens, but they ignore the equities.
richard
Posts: 7961
Joined: Tue Feb 20, 2007 2:38 pm
Contact:

Re: Has anyone seen the Japanese Stock Market?

Post by richard »

Waller12 wrote:Check this out:

I don't know why this has happened, but 15 years of stock market going down and never recovering.... [link fixed by admin LadyGeek]

Image

What are the chances of this happening in the US?
I'd rate the chances of US unemployment going down to 4.5% as rather low (I don't believe US unemployment was ever as low as 2% in the modern era). On the other hand, high unemployment results in higher margins for US companies due to lower labor costs, boosting stock prices.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Has anyone seen the Japanese Stock Market?

Post by in_reality »

richard wrote: I'd rate the chances of US unemployment going down to 4.5% as rather low (I don't believe US unemployment was ever as low as 2% in the modern era). On the other hand, high unemployment results in higher margins for US companies due to lower labor costs, boosting stock prices.
This is true and there are significant legal barriers to firing people in Japan. Temporary work has become much more common.

Not at all sure about the factual accuracy here but it's surely the trend ...."In 1992, 80 per cent of young Japanese workers were in regular jobs. By 2006, over half were temp workers in one form or another. "
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Has anyone seen the Japanese Stock Market?

Post by Valuethinker »

richard wrote: I'd rate the chances of US unemployment going down to 4.5% as rather low (I don't believe US unemployment was ever as low as 2% in the modern era). On the other hand, high unemployment results in higher margins for US companies due to lower labor costs, boosting stock prices.
You have to go back to the late 1960s, when the Labour Force participation ratio was in any case lower (women's lib is really a thing of the 70s, not the 60s).

You had full mobilization for the Vietnam War plus all the spending to keep that going (the logistics side of Vietnam is often ignored/ underestimated: it wasn't just the 550k man expeditionary force + say another 250k troops sailors airmen all over Asia, it was the *best supplied* army in US history, and its Vietnamese allies), plus the Great Society and the end of the long boom. In fact the introduction of the container ship, which has revolutionized world trade, was driven by the US military being prepared to invest in a West Coast container port, and container ships, to get the materiel to the theatre of operations.

I'd have to check, but Unemployment Rate did get down below 3%, at least.

Employment Rate is probably just as important. 'Full employment' is usually deemed to be around 4.5-5.0%, but the same labour force participation rate as we say in 2000 is a long way off (I don't believe the argument that demographics says it cannot again be achieved-- there's plenty of 60+ year olds who would work if they could, and the Generation Y is coming into the labour force).
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Has anyone seen the Japanese Stock Market?

Post by Call_Me_Op »

Waller12 wrote:Check this out:

I don't know why this has happened, but 15 years of stock market going down and never recovering....
Actually, 25 years...
Waller12 wrote:What are the chances of this happening in the US?
Greater than zero.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
richard
Posts: 7961
Joined: Tue Feb 20, 2007 2:38 pm
Contact:

Re: Has anyone seen the Japanese Stock Market?

Post by richard »

Valuethinker wrote:
richard wrote: I'd rate the chances of US unemployment going down to 4.5% as rather low (I don't believe US unemployment was ever as low as 2% in the modern era). On the other hand, high unemployment results in higher margins for US companies due to lower labor costs, boosting stock prices.
You have to go back to the late 1960s, when the Labour Force participation ratio was in any case lower (women's lib is really a thing of the 70s, not the 60s).

You had full mobilization for the Vietnam War plus all the spending to keep that going (the logistics side of Vietnam is often ignored/ underestimated: it wasn't just the 550k man expeditionary force + say another 250k troops sailors airmen all over Asia, it was the *best supplied* army in US history, and its Vietnamese allies), plus the Great Society and the end of the long boom. In fact the introduction of the container ship, which has revolutionized world trade, was driven by the US military being prepared to invest in a West Coast container port, and container ships, to get the materiel to the theatre of operations.

I'd have to check, but Unemployment Rate did get down below 3%, at least.

Employment Rate is probably just as important. 'Full employment' is usually deemed to be around 4.5-5.0%, but the same labour force participation rate as we say in 2000 is a long way off (I don't believe the argument that demographics says it cannot again be achieved-- there's plenty of 60+ year olds who would work if they could, and the Generation Y is coming into the labour force).
Unemployment http://research.stlouisfed.org/fred2/series/UNRATE
Labor force participation http://research.stlouisfed.org/fred2/series/CIVPART
Employment / population http://research.stlouisfed.org/fred2/series/EMRATIO
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Has anyone seen the Japanese Stock Market?

Post by Valuethinker »

plats wrote:Keep in mind the Nikkei's slump was allieviated somewhat for US investors by the tripling of the yen during this time.
Hi. Was the Yen Dollar really 270 in 1990? X-Rates.com only goes back to 2004 unfortunately.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Has anyone seen the Japanese Stock Market?

Post by nisiprius »

Watty wrote:One thing to remember is that the first chart starts in the 1980's and that the Japanese economy had started out at next to zero after World War II less than 40 years before the start of the chart.

I'm not sure where you would find it...
Same place I got the charts for Russia and U.S. versus global. Very very useful, and very nice that it's available at no cost--I'd been kicking myself for not buying Triumph of the Optimists when it was briefly available for $30 but now I probably don't need to.

Credit Suisse Global Returns Yearbook, 2013
... but it would be interesting to see a chart of the Japanese stock market that goes from about 1950 to now.
Looking over this post, I want to begin by saying that I am NOT arguing against international diversification, and I am NOT arguing against staying the course and settling for the longest-term sample of stock market returns you can get. However, one should not be misled into an over-optimistic view. The stock market is still risky, a thirty-year holding period doesn't erase that risk, and global diversification doesn't erase that risk.

The big take-home here is that in Japan, 1990-present was nothing, nothing at all, compared to the elephant in the room, World War II.

Image

And to tell the truth, I'm getting increasingly troubled by the "long-term perspective" point of view. I probably need to reread it, but as I recall Siegel's Stocks for the Long Run presents the stock market as simply a time series, driven by business fundamentals which have an intrinsic return, and almost unconnected to panics, wars, etc. Yet the significant events that make it into the high-school history books also feed into the stock market. Stuff happens, the stock market not one long smooth process disconnected from human social tipping points and eras. To assert the long-term stability of investment returns is to assert the long-term stability of the number and severity of the wars that affect a nation. There's a certain tendency in some optimistic writing to dismiss the Great Depression as an exception, and not to feel that wars count at all.

What do you want to do about wars that have had devastating economic effects, or political changes that have caused stock markets to go to zero? Within the sample of twenty-two countries charted by Dimson & al. you can find two stock markets that went to zero, and several in which wars had much larger effects than they did on the U.S. How about Austria, below, 0.6% real returns on equities from 1900 through 2012? It appears as if Austria did have a continuously functioning stock market over that period of time. Should it count? Or not?

And before someone beats me to it, yes, equities outperformed bonds.

Image
Last edited by nisiprius on Sun Feb 23, 2014 8:26 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Has anyone seen the Japanese Stock Market?

Post by nisiprius »

P.S. I misinterpreted the thread title, and got curious to know what the Japanese stock market actually looks like... so for those who like me are curious, Google found me a picture captioned "Employees work on the trading floor of the Tokyo Stock Exchange." Took me a while to see that, yes, there are employees shown in that picture.

Businessweek: Japan's investment banks love Abenomics

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
richard
Posts: 7961
Joined: Tue Feb 20, 2007 2:38 pm
Contact:

Re: Has anyone seen the Japanese Stock Market?

Post by richard »

Valuethinker wrote:
plats wrote:Keep in mind the Nikkei's slump was allieviated somewhat for US investors by the tripling of the yen during this time.
Hi. Was the Yen Dollar really 270 in 1990? X-Rates.com only goes back to 2004 unfortunately.
No, but it was 270 in the early 1980s. Low 100s in the early 1990s
http://research.stlouisfed.org/fred2/data/EXJPUS.txt
User avatar
Wildebeest
Posts: 1204
Joined: Fri Dec 27, 2013 1:36 pm

Re: Has anyone seen the Japanese Stock Market?

Post by Wildebeest »

nisiprius wrote:
Watty wrote:One thing to remember is that the first chart starts in the 1980's and that the Japanese economy had started out at next to zero after World War II less than 40 years before the start of the chart.

I'm not sure where you would find it...
Same place I got the charts for Russia and U.S. versus global. Very very useful, and very nice that it's available at no cost--I'd been kicking myself for not buying Triumph of the Optimists when it was briefly available for $30 but now I probably don't need to.

Credit Suisse Global Returns Yearbook, 2013
... but it would be interesting to see a chart of the Japanese stock market that goes from about 1950 to now.
Looking over this post, I want to begin by saying that I am NOT arguing against international diversification, and I am NOT arguing against staying the course and settling for the longest-term sample of stock market returns you can get. However, one should not be misled into an over-optimistic view. The stock market is still risky, a thirty-year holding period doesn't erase that risk, and global diversification doesn't erase that risk.

The big take-home here is that in Japan, 1990-present was nothing, nothing at all, compared to the elephant in the room, World War II.

Image

And to tell the truth, I'm getting increasingly troubled by the "long-term perspective" point of view. I probably need to reread it, but as I recall Siegel's Stocks for the Long Run presents the stock market as simply a time series, driven by business fundamentals which have an intrinsic return, and almost unconnected to panics, wars, etc. Yet the significant events that make it into the high-school history books also feed into the stock market. Stuff happens, the stock market not one long smooth process disconnected from human social tipping points and eras. To assert the long-term stability of investment returns is to assert the long-term stability of the number and severity of the wars that affect a nation. There's a certain tendency in some optimistic writing to dismiss the Great Depression as an exception, and not to feel that wars count at all.

What do you want to do about wars that have had devastating economic effects, or political changes that have caused stock markets to go to zero? Within the sample of twenty-two countries charted by Dimson & al. you can find two stock markets that went to zero, and several in which wars had much larger effects than they did on the U.S. How about Austria, below, 0.6% real returns on equities from 1900 through 2012? It appears as if Austria did have a continuously functioning stock market over that period of time. Should it count? Or not?

And before someone beats me to it, yes, equities outperformed bonds.

Image



In my humble opinion a brilliant post and I hope it will go into Wiki
The Golden Rule: One should treat others as one would like others to treat oneself.
User avatar
Rob5TCP
Posts: 3812
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: Has anyone seen the Japanese Stock Market?

Post by Rob5TCP »

I also remember some other speculative bubbles from Japan circa 1980's. There was also heavy borrowing against real estate. But their values went far absurdely higher than they did in the US.
From Wiki:

Tokyo Imperial Palace (皇居 Kōkyo, literally, "Imperial Residence") is the main residence of the Emperor of Japan. It is a large park-like area located in the Chiyoda area of Tokyo close to Tokyo Station and contains several buildings including the main palace (宮殿 (Kyūden?), the private residences of the imperial family, an archive, museum and administrative offices.

It is built on the site of the old Edo castle. The total area including the gardens is 3.41 square kilometres (1.32 sq mi). During the height of the 1980s Japanese property bubble, the palace grounds were valued by some as more than the value of all the real estate in the state of California.[1][2]

In hindsight (and even back then) this was unsustainable. We lost 50% in many areas during the real estate bubble. I have no idea what the decline was in Japan and how that exasperated the stock market slump.
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Has anyone seen the Japanese Stock Market?

Post by Valuethinker »

richard wrote:
Valuethinker wrote:
plats wrote:Keep in mind the Nikkei's slump was allieviated somewhat for US investors by the tripling of the yen during this time.
Hi. Was the Yen Dollar really 270 in 1990? X-Rates.com only goes back to 2004 unfortunately.
No, but it was 270 in the early 1980s. Low 100s in the early 1990s
http://research.stlouisfed.org/fred2/data/EXJPUS.txt
Looks like it was 140 Y/Dollar when the market peaked in 1990, and 110 now?

So 30% currency return. Does not offset the losses on Japan by any stretch of the imagination.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Has anyone seen the Japanese Stock Market?

Post by nedsaid »

Wow. This gets to be pretty scary stuff. We have been taught that stocks give you a real return of six to seven percent a year over long periods of time. The charts show that this ain't necessarily so. Hmmm.

When one realizes that the baby boom is now retiring and that the US is no longer experiencing the credit expansion that we saw since WWII, one wonders if we will see rather muted economic growth in the future. And of course one wonders how this affects the stock market. I know that government borrowing has filled the credit contraction in the private sector but even the government borrowing is slowing.

So to me this argues for broad diversification.
A fool and his money are good for business.
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Has anyone seen the Japanese Stock Market?

Post by Valuethinker »

nedsaid wrote:Wow. This gets to be pretty scary stuff. We have been taught that stocks give you a real return of six to seven percent a year over long periods of time. The charts show that this ain't necessarily so. Hmmm.

When one realizes that the baby boom is now retiring and that the US is no longer experiencing the credit expansion that we saw since WWII, one wonders if we will see rather muted economic growth in the future. And of course one wonders how this affects the stock market. I know that government borrowing has filled the credit contraction in the private sector but even the government borrowing is slowing.

So to me this argues for broad diversification.
I am somewhat taken aback that you did not know this?

We have been saying this for years on this site-- every debate about 100% stocks, every debate about the irrelevance of bonds. We weren't making stuff up.
freebeer
Posts: 2014
Joined: Wed May 02, 2007 8:30 am
Location: Seattle area USA

Re: Has anyone seen the Japanese Stock Market?

Post by freebeer »

z3r0c00l wrote: Prepare for any outcome by holding about your age in bonds...
Danger, Will Robinson! You subject yourself to significant inflation risk in so doing and would likely have to over-save by a wide margin to attain the same spending during retirement. It is not accidental that VG Target Funds' glide path (*) is not at all (other than sharing the same direction to the curve) like "your age in bonds" (e.g. ages 25-40 stays 90% equities rather than 75%-60%). And now there's research indicating that it might be safer to *increase* equity exposure later in retirement.

"age in bonds" seems about as well-researched a principle as "feed a cold, starve a fever" and may similarly be just about as accurate (possibly kinda half-right).

(*) http://www.bogleheads.org/w/images/2/23 ... e_Path.gif
berntson
Posts: 1366
Joined: Mon Oct 29, 2012 12:10 pm

Re: Has anyone seen the Japanese Stock Market?

Post by berntson »

nisiprius wrote: Image

This should at least suggest that global diversification may not be an obvious free lunch.
A parody: Berkshire Hathaway has had strong historic returns that have had high correlation with the US economy as a whole. So diversification between individual stocks is not a free-lunch. You can just own BRK!

Of course, if an investor had known ahead of time that Berkshire Hathaway was going to be one of the winners, it would have been fine to just hold Berkshire Hathaway. If you know ahead of time that company-specific risk is not going to hurt a company's returns compared to the market as a whole, then diversification between companies isn't needed. Similarly, if you know ahead of time that a country's country-specific risk is not going to hurt its returns compared to the global market, then international diversification is isn't needed.

But of course, the entire reason to diversify away company-specific risk and country-specific risk is that you don't know ahead of time whether that risk is going to hurt of help returns compared to the market as a whole.
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Has anyone seen the Japanese Stock Market?

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general question, theory).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: Has anyone seen the Japanese Stock Market?

Post by plats »

Valuethinker wrote:
richard wrote:
Valuethinker wrote:
plats wrote:Keep in mind the Nikkei's slump was allieviated somewhat for US investors by the tripling of the yen during this time.
Hi. Was the Yen Dollar really 270 in 1990? X-Rates.com only goes back to 2004 unfortunately.
No, but it was 270 in the early 1980s. Low 100s in the early 1990s
http://research.stlouisfed.org/fred2/data/EXJPUS.txt
Looks like it was 140 Y/Dollar when the market peaked in 1990, and 110 now?

So 30% currency return. Does not offset the losses on Japan by any stretch of the imagination.
I was referring to the timeframe of the chart in the original post. Just when I got here [Japan], coincidentally.
Clive
Posts: 1950
Joined: Sat Jun 13, 2009 5:49 am

Re: Has anyone seen the Japanese Stock Market?

Post by Clive »

Japan's N225 performed poorly post 1990, but other stocks have performed relatively well (go grab a copy of Kenneth French's data).

We've seen somewhat similar effects in the UK since 2000, but not as extreme (at least not as yet). FT100 (largest 100 stocks) relatively flat, whilst the FT250 (next 250 biggest) has performed relatively well.

Image

I conjecture that its a large cap thing. £20B stock value might halve down to £10B, but still remain within the large cap index set, and investors might wait years for the former giants to recover back to former levels.

I don't know how the N225 is structured, but the UK FT100 can have 40% weighting in just ten stocks being a cap weighted index, and some of those stocks can be in the same sector (such as tech's in the late 1990's, financials in 2008). i.e. certain sectors doing well, growing fast such that they become more heavier parts of the index, only to then have a set back and a sizeable affect upon the whole index. Smaller and mid cap indexes seem to be less prone to such effects (more evenly weighted).
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: Has anyone seen the Japanese Stock Market?

Post by plats »

Rob5TCP wrote:In hindsight (and even back then) this was unsustainable. We lost 50% in many areas during the real estate bubble. I have no idea what the decline was in Japan and how that exasperated the stock market slump.
The slump in real estate follows the slump in the stock market closely, and it certainly exasperated it. The lot I'm living on in the suburbs of Osaka is worth about 75% less than in 1990. Other areas fared worse. Probably the worst area was golf club memberships, which were bought like tulip bulbs, with many falling from 100's of thousands of dollars to zero.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Has anyone seen the Japanese Stock Market?

Post by nedsaid »

Valuethinker, what I was speaking to was the assumptions that a lot of us have had as investors.

Of course, I believe in the virtues of diversification. I am invested in both stocks and bonds and invested both in the U.S. and Internationally. I am not in the 100% stock camp and I have posted many times that I think this is a foolish course except for young investors in their twenties.

I have read Jeremy Siegel and he paints a pretty sunny picture of stocks. It is from him and others that people assume that stocks give you the six to seven percent real return. What my comments spoke to is that perhaps Siegel is not correct. Perhaps we all got spoiled by the post WWII boom and perhaps we won't see those conditions again. I have also wondered on this forum if the United States could suffer the same fate as Japan. I don't believe we are another Japan but we should consider the possibility.

I have been investing for about 30 years and have seen both good and bad markets. I am painfully aware of the risks in stocks. What I saw a scary would be the prospect of a stock market that falls and never really recovers as what we have seen in Japan for the last twenty plus years. If we experienced that here, it would sure blow a big hole in a lot of people's retirement plans.
A fool and his money are good for business.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Has anyone seen the Japanese Stock Market?

Post by nedsaid »

In the "Bond Question for Dr. Bernstein" thread, there was a discussion about the safety of bonds. Dr. Bernstein mentioned that long treasuries had a minus 62% real return from July 1941 to June 1981. During the same period he said that the 5 year treasury lost 38% in real terms.

So between the Japanese Stock Market thread and the Bond Question for Dr. Bernstein thread, that is enough scary stuff to give pause to investors. So the assumptions that investors have had of a seven percent real return of stocks and the safety of bonds are pretty much blown out of the water.

Scary stuff indeed.
A fool and his money are good for business.
rustymutt
Posts: 4001
Joined: Sat Mar 07, 2009 11:03 am

Re: Has anyone seen the Japanese Stock Market?

Post by rustymutt »

I think every portfolio should own a small percentage of Japanese equities. As part of a well diverse investment plan. Diversity has never played a more important role in reducing risk than it does in a portfolio today. Just read what the academic intellectuals say about it. I'm sure some of you folks could recommend books that cover the subject.
Even educators need education. And some can be hard headed to the point of needing time out.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Has anyone seen the Japanese Stock Market?

Post by nedsaid »

Having said what I have said about "scary stuff", I think optimism serves investors a lot better than pessimism. With an optimistic attitude, one will see a lot more opportunities.

I am not one who wallows in pessimism about the long bear market in Japanese stocks or in US Treasuries from 1941 to 1981. We saw a monster bull market in US bonds from 1981 to 2012. A thirty year bull market!! Perhaps the Japanese market will see a similar phenomenon. But even in optimism, we should realize that things can go wrong.

So be optimistic but keep a touch of realism too that things can go wrong.
A fool and his money are good for business.
boggler
Posts: 598
Joined: Thu Feb 07, 2013 1:29 am

Re: Has anyone seen the Japanese Stock Market?

Post by boggler »

Valuethinker wrote:
nedsaid wrote:Wow. This gets to be pretty scary stuff. We have been taught that stocks give you a real return of six to seven percent a year over long periods of time. The charts show that this ain't necessarily so. Hmmm.

When one realizes that the baby boom is now retiring and that the US is no longer experiencing the credit expansion that we saw since WWII, one wonders if we will see rather muted economic growth in the future. And of course one wonders how this affects the stock market. I know that government borrowing has filled the credit contraction in the private sector but even the government borrowing is slowing.

So to me this argues for broad diversification.
I am somewhat taken aback that you did not know this?

We have been saying this for years on this site-- every debate about 100% stocks, every debate about the irrelevance of bonds. We weren't making stuff up.
But if the global market drops precipitously for an extended period of time, like Japan, does that mean we would have a serious enough economic situation that bonds wouldn't perform well either? For example, no one may be lending anymore.
z3r0c00l
Posts: 3807
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Has anyone seen the Japanese Stock Market?

Post by z3r0c00l »

JoMoney wrote:
z3r0c00l wrote:... diversity in your equity holdings towards global market weight...
...understand that Japan is one of the largest holdings you'll have in a global market-weight portfolio. Not that I think Japan is in the bubble territory of the past, but there are still some significant challenges in their economy (but I suppose that can be said of everywhere). I just find it ironic when people use what happened in Japan's stock market as a reason to "diversify" into owning a heavy portion of Japanese stocks.
You find it ironic perhaps because you don't understand it. This is a reason not to own 100% of any country, such as the US for most of us or Japan for those who would have been harmed by this red herring of a scenario. Owning market weight means that you hold what, 8% Japanese stocks? A terrible loss of 50% leaves you with a portfolio loss of 4%. Does it make sense now?
70% Global Stocks / 30% Bonds
Lauren Vignec
Posts: 260
Joined: Sat Feb 16, 2008 8:34 am

Re: Has anyone seen the Japanese Stock Market?

Post by Lauren Vignec »

richard wrote: Labor force participation http://research.stlouisfed.org/fred2/series/CIVPART
I think about all sorts of weird stuff that I'd probably be happier if I didn't think about.

I wonder if 200 years from now everyone will look back at 1982- 2008 and call it, "The Great Labor Force Participation Bubble."

Aren't we already living in the era of "Peak Child"?
Post Reply