The Japan Thing

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
daryll40
Posts: 1804
Joined: Wed Feb 28, 2007 9:40 am

The Japan Thing

Post by daryll40 » Sun Nov 02, 2008 2:47 pm

I have been thinking more and more about "the Japan thing". Equities have returned ZERO over a 25 (26? 24?) year period. And Japan is not some 3rd world country, but rather the producer of some (many!) of the worlds leading products.

How can this be?

In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?

livesoft
Posts: 68647
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Sun Nov 02, 2008 2:55 pm

I am not worried. I travel to Japan routinely. My colleagues there are doing just fine. For whatever reasons no one seems to be worried about retirement, the stock market, etc. But then again, no one wants to retire early and take it easy either. And guess what? Japan has survived all this time without major difficulties. So why worry?

User avatar
cflannagan
Posts: 949
Joined: Sun Oct 21, 2007 11:44 am
Location: Palm Harbor, Florida

Post by cflannagan » Sun Nov 02, 2008 3:03 pm

I read in other threads here that many Japanese investors are doing fine because they invested into international markets (outside Japan).

User avatar
Topic Author
daryll40
Posts: 1804
Joined: Wed Feb 28, 2007 9:40 am

Post by daryll40 » Sun Nov 02, 2008 3:03 pm

Yeah, I get it that MAIN Street in Japan is fine. But what does that have to do with whether or not equities are worthy of long term investment?

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Post by Harold » Sun Nov 02, 2008 3:11 pm

I'm not particularly knowledgeable about Japan, but presumably this says they were properly priced. That is, there was no upward movement in expected cash flows.

Companies can still be producing a lot without generating more revenue than was "expected". It's only a change in expectation that would change the prices.

Also, I'd presume that stockholders are sharing in the revenue stream through dividends, so it's not as if they're getting nothing.

Again, I don't know about Japan, but this is what I'd guess, before looking into it more.

Edit: I should've thought a little more before posting. For "pricing" there would seemingly be discounting by GDP growth or some similar rate.
Last edited by Harold on Sun Nov 02, 2008 5:04 pm, edited 1 time in total.

livesoft
Posts: 68647
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Sun Nov 02, 2008 3:15 pm

OK, how about this: Many folks do not invest in the stock market during their entire lives and they still retire. Other "studies" show that folks do not actually get the average returns of the stock market, but eke out money market returns because of their active trading and missing the "best" days. These folks eventually retire as well.

So do you need equities in order to eventually retire? The answer has to be no. So are they are good long term investment? Maybe not for most folks.

User avatar
Taylor Larimore
Advisory Board
Posts: 28824
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Japan Thing

Post by Taylor Larimore » Sun Nov 02, 2008 3:26 pm

daryll40 wrote:I have been thinking more and more about "the Japan thing". Equities have returned ZERO over a 25 (26? 24?) year period. And Japan is not some 3rd world country, but rather the producer of some (many!) of the worlds leading products.

How can this be?

In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?


Hi daryll40:

This is an insightful article on the subject:

http://www.marketoracle.co.uk/Article5201.html

Best wishes.
Taylor

User avatar
wab
Posts: 559
Joined: Fri Feb 23, 2007 6:51 pm

Post by wab » Sun Nov 02, 2008 3:35 pm

Harold wrote:I'm not particularly knowledgeable about Japan, but presumably this says they were properly priced. That is, there was no upward movement in expected cash flows.

Companies can still be producing a lot without generating more revenue than was "expected". It's only a change in expectation that would change the prices.

Also, I'd presume that stockholders are sharing in the revenue stream through dividends, so it's not as if they're getting nothing.
So stock prices in other countries are continuously mispriced?

Earnings, dividends, and stock prices should grow at roughly the same rate as GDP (less a factor for equity dilution). It would be interesting to compare GDP growth to Nikkei growth over the last 25 years. I suspect that their stock market is growing at a significantly lower rate than GDP, but their recent GDP growth is probably low relative to most other countries.

Valuethinker
Posts: 39071
Joined: Fri May 11, 2007 11:07 am

Re: The Japan Thing

Post by Valuethinker » Sun Nov 02, 2008 3:59 pm

daryll40 wrote:I have been thinking more and more about "the Japan thing". Equities have returned ZERO over a 25 (26? 24?) year period. And Japan is not some 3rd world country, but rather the producer of some (many!) of the worlds leading products.

How can this be?

In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?
As I expect we shall see with American housing prices, if an asset is fundamentally overvalued then it can take a long time for that overvaluation to correct. As in decades. Commercial property in Texas did something like that in the 1980s. Houses in Toronto were not worth more in 2003 (real terms) than they were in 1989.

Similarly US equities didn't go anywhere 1968-1980.

There were some very peculiar Japanese things:

- bad record on corporate governance - Japanese companies were not run for shareholder return

- systematic mistakes by Central Bank and government authorities re monetary policy, and the general mess of Japanese politics

- some Japanese companies are run for shareholder value and are globally competitive (not always the same companies) and those share prices have done relatively well

- it was the property-insurance-financial stocks in particular that did so poorly for so long

Given Japan's orientation towards exports, the domestic recession has not been the only cause of the underperformance of the Japanese market, nor the primary one. As much an effect as a cause.

The lesson is that equities are risky, and sometimes that riskiness pays off in unpleasant ways.

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: The Japan Thing

Post by richard » Sun Nov 02, 2008 4:13 pm

Valuethinker wrote:The lesson is that equities are risky, and sometimes that riskiness pays off in unpleasant ways.
Expanding a bit, equities offer a risk premium because they bear greater risk. Part of that risk is that they may lose money, underperform bonds, etc. over the very long run. Sometimes that riskiness manifests itself.

User avatar
tokyoleone
Posts: 376
Joined: Mon Feb 19, 2007 6:36 pm
Location: Tokyo, Japan

Post by tokyoleone » Sun Nov 02, 2008 4:53 pm

I would add that comparing Japanese stock markets to US markets is comparing apples and oranges.

Here there is much more emphasis on taking care of management and employees before shareholders. Thus there is a lot of cross-shareholding among institutional investors, poison pills to prevent takeovers, low dividends and low return on equity and hoarding of cash. Many companies are profitable but their stock prices remain stagnant.

In addition, investor psychology is also different. Individual stock ownership is quite low in Japan compared to the US and most people, especially the young, have no interest in buying stocks to fund retirement.

Much of the Nikkei bubble of the late 1980s was due to speculation, manipulation and other shenanigans on the part of institutional investors. Eventually the bubble burst and reality set in, as it had to. So perhaps you could say that stocks in Japan are actually fairly priced now.

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Post by Harold » Sun Nov 02, 2008 5:05 pm

wab wrote:So stock prices in other countries are continuously mispriced?

Earnings, dividends, and stock prices should grow at roughly the same rate as GDP (less a factor for equity dilution). It would be interesting to compare GDP growth to Nikkei growth over the last 25 years. I suspect that their stock market is growing at a significantly lower rate than GDP, but their recent GDP growth is probably low relative to most other countries.
Yeah, I posted too quickly.

yobria
Posts: 5978
Joined: Mon Feb 19, 2007 11:58 pm
Location: SF CA USA

Re: The Japan Thing

Post by yobria » Sun Nov 02, 2008 5:27 pm

daryll40 wrote:I have been thinking more and more about "the Japan thing". Equities have returned ZERO over a 25 (26? 24?) year period. And Japan is not some 3rd world country, but rather the producer of some (many!) of the worlds leading products. How can this be?
Because in the late 1980's Japan appeared to be taking over the world. Japan Inc was buying everything in America (and other places), from cattle ranches to Hollywood studios to universities to luxury homes to govt debt. Its exports beat its competitors in every area. It was unstoppable, and its assets were priced accordingly: Japan as a whole was worth more than the US in 1988, despite being 4% the geographic size. The problem is Japan didn't live up to its promise and achieve world domination. It's now just one of many export driven countries in Asia. And asset prices have slowly deflated back to "just another country" size.

Nick

User avatar
Topic Author
daryll40
Posts: 1804
Joined: Wed Feb 28, 2007 9:40 am

Post by daryll40 » Sun Nov 02, 2008 6:12 pm

Sounds like you're saying the bubble was just so huge that it took 25 years to revert. Not sure I agree or disagree but I guess at 80x earnings at the peak...well...give some comfort that the DOW will do better from it's October 2007 peak and even more possibly from today.

yobria
Posts: 5978
Joined: Mon Feb 19, 2007 11:58 pm
Location: SF CA USA

Post by yobria » Sun Nov 02, 2008 7:53 pm

daryll40 wrote:Sounds like you're saying the bubble was just so huge that it took 25 years to revert. Not sure I agree or disagree but I guess at 80x earnings at the peak...well...give some comfort that the DOW will do better from it's October 2007 peak and even more possibly from today.
Yes, while Japan's performance is unusual for an entire country, you can find many similar cases looking at individual companies of course - priced to perfection and they didn't deliver. I don't think this means you can market time in any way though - there are also plenty of companies with low P/Es that will fail going forward for example. Or for example Korea had a P/E of 9 a few years ago. Did that mean it undervalued and sure to perform well going forward?

Nick

User avatar
jeffyscott
Posts: 8268
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: The Japan Thing

Post by jeffyscott » Sun Nov 02, 2008 8:09 pm

daryll40 wrote:In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?

Not related to Japan, but I've had that sort of thought from time to time: "is this whole stock market thing a scam, are the prices really based on nothing, should I just get completely out while I'm ahead :?: "

Unfortunately those sort of crazy thoughts did not move me to act. So now I will wait, again...next time though, when those prices seem high maybe, just maybe I'll get out :idea: ...nah, probably not.
Time is your friend; impulse is your enemy. - John C. Bogle

cmarino
Posts: 228
Joined: Sun Oct 12, 2008 1:19 pm

Re: The Japan Thing

Post by cmarino » Sun Nov 02, 2008 8:13 pm

jeffyscott wrote:
daryll40 wrote:In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?

Not related to Japan, but I've had that sort of thought from time to time: "is this whole stock market thing a scam, are the prices really based on nothing, should I just get completely out while I'm ahead :?: "

Unfortunately those sort of crazy thoughts did not move me to act. So now I will wait, again...next time though, when those prices seem high maybe, just maybe I'll get out :idea: ...nah, probably not.
When we're down another 30% from here, you'll get vast portions of the population thinking "is this whole stock market thing a scam". Then I will increase my equity allocation.

Gekko
Posts: 3779
Joined: Fri May 11, 2007 5:00 pm
Location: USA

Post by Gekko » Sun Nov 02, 2008 8:16 pm


snowman9000
Posts: 1001
Joined: Tue Feb 26, 2008 10:16 am

Re: The Japan Thing

Post by snowman9000 » Sun Nov 02, 2008 8:25 pm

Valuethinker wrote:
As I expect we shall see with American housing prices, if an asset is fundamentally overvalued then it can take a long time for that overvaluation to correct. As in decades. Commercial property in Texas did something like that in the 1980s. Houses in Toronto were not worth more in 2003 (real terms) than they were in 1989.
Why should a house's real value ever go up? If they have, I'm having trouble seeing why that would be, other than short term noise.
It seems like real house values should keep pace with inflation, no more, no less.

jegallup
Posts: 672
Joined: Sat Feb 09, 2008 8:34 pm
Location: San Diego

Post by jegallup » Sun Nov 02, 2008 9:32 pm

Does Japan have a substantial government-run pension system the way most western European countries do? (By "substantial," I mean, the sort that pays everybody enough to live on and is wired into the political system and peoples' expectations so tightly that no one dares to tinker with it.) If Japan has such a system, that might explain why investors there are less worried about market growth.

User avatar
tokyoleone
Posts: 376
Joined: Mon Feb 19, 2007 6:36 pm
Location: Tokyo, Japan

Post by tokyoleone » Mon Nov 03, 2008 3:10 am

jegallup wrote:Does Japan have a substantial government-run pension system the way most western European countries do? (By "substantial," I mean, the sort that pays everybody enough to live on and is wired into the political system and peoples' expectations so tightly that no one dares to tinker with it.) If Japan has such a system, that might explain why investors there are less worried about market growth.
In short answer to your question: Yes, Japan does have a government-run pension system which a large part of the older population depends on as a substantial source of income. It is as you say, "wired into the political system and peoples' expectations".

However, there is some question as to its future solvency because of Japan's dire demographic situation. It has also been plagued recently by scandal: the government (incredibly) lost the records of 50 million pension account transactions so some people's accounts are in disarray. There was also a scandal of pension agency employees fiddling with account holders' records to make it appear they contributed less then they actually did ( and decreasing their benefits, thus saving the government money).

The pension system is here to stay but because of the demographic problem and the poor performance of the economy, it will have to be reformed in some way, which probably means eventually reducing benefits.

I believe uncertainty over the integrity of the system and the incompetence in running it are reasons why domestic consumption has not led a recovery in the economy - people are afraid of the future and would rather save money than spend it.

Karamatsu
Posts: 1348
Joined: Mon Oct 27, 2008 2:42 am

Post by Karamatsu » Mon Nov 03, 2008 3:40 am

Daryll,
Anyone else share my concerns?
Yep! Really I think you can probably separate equity prices into a "real" component and an "illusory" one. We could argue all day about metrics, but one common way of measuring the "real" component is free cash flow per share, with any significant divergence between that value and the share price attributable to speculative froth.

When you think about it, after all, what value does any company really have? It has assets and free cash flow. Creditors will claim the first, so the only thing left for common stockholders is the cash flow, and even that is (practically speaking) an unenforceable claim.

Beyond that, it's pretty much a house of cards.

Valuethinker
Posts: 39071
Joined: Fri May 11, 2007 11:07 am

Re: The Japan Thing

Post by Valuethinker » Mon Nov 03, 2008 4:28 am

snowman9000 wrote:
Valuethinker wrote:
As I expect we shall see with American housing prices, if an asset is fundamentally overvalued then it can take a long time for that overvaluation to correct. As in decades. Commercial property in Texas did something like that in the 1980s. Houses in Toronto were not worth more in 2003 (real terms) than they were in 1989.
Why should a house's real value ever go up? If they have, I'm having trouble seeing why that would be, other than short term noise.
It seems like real house values should keep pace with inflation, no more, no less.
Hi

The value of buildings, any building, depreciates unless money is spent keeping it up. The extreme of this is upstate NY, where in places the houses would be worth more for the materials in them, than they sell for (Michigan as well). This partly reflects the obligation for future property taxes.

Conversely the value of land tends to rise. The US has growing population and economy, and zoning is tightening. Edward Gleaser of Harvard has shown that much of the premium you pay to live in NYC or San Francisco or Boston (which is much greater than the same premium 40 years ago vs. say Cleveland) arises from tight zoning laws.

Paul Krugman talks about 'Flatland' and 'Zoneland'. Flatland is Dallas and Atlanta, where the city sprawls in response to new demand, thus real housing prices don't tend to rise a lot. Zoneland is the 'hip' coastal cities like NYC, Washington, Boston, SF, Seattle etc. where additional demand is not fully met by urban sprawl. Hence the phenomena of commuin

I think Robert Shiller estimates that over long periods, adjusting for the improved quality of our homes (who amongst our parents had Central AC, en suite bathrooms etc.?) real housing prices in the US have risen by 0.8% pa since 1890? (someone else was citing 0.4%).

Houses in Buffalo and Cleveland and other 'Great Lakes' cities have most assuredly not kept up with that over the last 50 years. San Francisco and NYC have shot way way ahead.

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Post by richard » Mon Nov 03, 2008 6:35 am

tokyoleone wrote:I would add that comparing Japanese stock markets to US markets is comparing apples and oranges.
It's not enough to point out differences between the US and Japan and difficulties with Japanese stocks.

If markets are efficient, the prices of Japanese stocks take into account the issues regarding Japan you mention. If markets are not efficient, there's no assurance that any US advantages will manifest in stock performance.

Valuethinker
Posts: 39071
Joined: Fri May 11, 2007 11:07 am

Re: The Japan Thing

Post by Valuethinker » Mon Nov 03, 2008 6:59 am

yobria wrote:
daryll40 wrote:I have been thinking more and more about "the Japan thing". Equities have returned ZERO over a 25 (26? 24?) year period. And Japan is not some 3rd world country, but rather the producer of some (many!) of the worlds leading products. How can this be?
Because in the late 1980's Japan appeared to be taking over the world. Japan Inc was buying everything in America (and other places), from cattle ranches to Hollywood studios to universities to luxury homes to govt debt. Its exports beat its competitors in every area. It was unstoppable, and its assets were priced accordingly: Japan as a whole was worth more than the US in 1988, despite being 4% the geographic size. The problem is Japan didn't live up to its promise and achieve world domination. It's now just one of many export driven countries in Asia. And asset prices have slowly deflated back to "just another country" size.

Nick
Ironically on a much smaller scale, Iceland was doing the same thing since 2000. Taking over 10% of the store fronts on the UK High Street, for example.

Iceland has fewer people than a London Borough. And will have a lower GDP than a (prosperous) London Borough when this is all done and dusted.

jegallup
Posts: 672
Joined: Sat Feb 09, 2008 8:34 pm
Location: San Diego

Post by jegallup » Mon Nov 03, 2008 11:36 am

tokyoleone wrote: However, there is some question as to its future solvency because of Japan's dire demographic situation. It has also been plagued recently by scandal: the government (incredibly) lost the records of 50 million pension account transactions so some people's accounts are in disarray. There was also a scandal of pension agency employees fiddling with account holders' records to make it appear they contributed less then they actually did ( and decreasing their benefits, thus saving the government money).

The pension system is here to stay but because of the demographic problem and the poor performance of the economy, it will have to be reformed in some way, which probably means eventually reducing benefits.

I believe uncertainty over the integrity of the system and the incompetence in running it are reasons why domestic consumption has not led a recovery in the economy - people are afraid of the future and would rather save money than spend it.
Japanese have always been big savers anyway, have they not?

Very interesting to hear about the scandals, demographic problems, etc. My Italian friends have similar tales to tell about their system. Whenever there's a pot of money that large, the political pressure to use it for this or that worthy or unworthy (depending on whom you ask) purpose is always going to be strong.

I don't think most Americans, or at least most people in this forum, expect SS to fully fund their retirement income--or if they did, we wouldn't have so many interesting discussions about Safe Withdrawal Rates and Minimum Required Distributions.

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Post by Rodc » Mon Nov 03, 2008 12:01 pm

I see Japan much like the Nasdaq. Japan had P/E of about 100. Not sure of nasdaq but it was crazy.

It may take decades for the nasdaq index to climb back to its peak, just like Japan. Just eye-balling a little graph at yahoo it looks like it might need to about triple to get back to where it was (absent dividends, but that will only help somewhat) and it is already about 8 years after the peak.

So Japan is not unique in that regard.

My take away is simply not to buy stocks at a P/E of about 100. :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

User avatar
nisiprius
Advisory Board
Posts: 39469
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: The Japan Thing

Post by nisiprius » Mon Nov 03, 2008 3:16 pm

snowman9000 wrote:Why should a house's real value ever go up? If they have, I'm having trouble seeing why that would be, other than short term noise.
It seems like real house values should keep pace with inflation, no more, no less.
The Single Tax movement was based on a theory governments should be completely supported by real estate taxes, on some theory about how labor and land prices and value interacted, and how land prices could be used to sort out speculative value, which was an ill-gotten gain that should be eliminated through taxation, from true value. Or something like that.

Although Parker Brothers would have it that the game of "Monopoly" was invented by Charles Darrow, it has striking resemblances to an earlier game, "The Landlord's Game," which was intended to teach the theory of the Single Tax.
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.

shelanman
Posts: 508
Joined: Tue Feb 27, 2007 8:35 pm

Post by shelanman » Mon Nov 03, 2008 3:44 pm

wab wrote: Earnings, dividends, and stock prices should grow at roughly the same rate as GDP (less a factor for equity dilution). It would be interesting to compare GDP growth to Nikkei growth over the last 25 years. I suspect that their stock market is growing at a significantly lower rate than GDP, but their recent GDP growth is probably low relative to most other countries.
This is true only if all companies are publicly traded.
daryll40 wrote: In the back of my mind it sort of makes me wonder if equities are actually "real" assets, or it this whole thing just a bad game? I don't mean to be totally negative, but it does make me wonder. Anyone else share my concerns?
My limited research on the subject shows that there are several broad reasons for this, from interest-rate policy (when you can borrow money at less than 1%, why bother with that whole equity thing) and general government policy implemented during the initial decline (attempting to prop up falling prices), to cultural issues.

Generally speaking, Japanese corporations are not run for the beneficial interest of the shareholders. The purpose of the company genuinely isn't to turn a big profit -- it is to support the management and, to an extent, the employees. Most Japanese corporate managers will freely admit that their goal is not to maximize profits. Naturally, when the company is not run for the benefit of the owners, the owners don't benefit.

This is a broad generalization. I realize that you can't paint an entire country or culture with such a broad brush accurately. But this appears to be an approximation of the trend.

--

In our own society, I'm very unconvinced that public companies are run primarily for the benefit of the owners. It's the trouble with public equity. The sheer number of shareholders, the fact that they have extreme minority stakes for the most part, and the byzantine system of regulations and controls on the markets tend separate the ownership interest of the shareholders with the operations of the company.

Private equity can often be much different, where most of the owners hold a more significant stake, and even the minority shareholders often have some actual control of the operation of the company.

User avatar
wab
Posts: 559
Joined: Fri Feb 23, 2007 6:51 pm

Post by wab » Mon Nov 03, 2008 5:14 pm

shelanman wrote:This is true only if all companies are publicly traded.
It should also be true as long as the publicly traded companies are a representative sample of the economy. Is there any reason to believe this isn't true for Japan?

In another thread, somebody cited the Dimson study that shows Japan's market returned 4.5% real annualized over the last century. That's comparable to other nations (I think Europe is closer to 5%).

So is this "broken Japan" thing a new phenomenon, or has the market just been wandering away from the fundamentals recently?

yobria
Posts: 5978
Joined: Mon Feb 19, 2007 11:58 pm
Location: SF CA USA

Post by yobria » Mon Nov 03, 2008 5:39 pm

Rodc wrote:I see Japan much like the Nasdaq. Japan had P/E of about 100. Not sure of nasdaq but it was crazy.
Yeah, exactly. In both cases the market was trying to value something that appeared very positive, but had an unknowable future. Just like if a wildcat oil drilling company with a $10M market cap strikes an oil deposit. How much oil is there? 100 barrels or 100 million? So how much is the company worth?
Rodc wrote:My take away is simply not to buy stocks at a P/E of about 100. :)
I doubt that will be the next bubble, since we're all so prepared for it. In my experience the next bubble is the one nobody thinks to avoid.

Nick

Karamatsu
Posts: 1348
Joined: Mon Oct 27, 2008 2:42 am

Post by Karamatsu » Mon Nov 03, 2008 9:22 pm

Ah, so easy to say in hindsight. But you know what will happen. Next time it will be <i>different</i>. The stocks will keep going up. All around you, coworkers will be quitting work to do nothing but nurse their portfolios while traveling the world. The financial press will trumpet the new innovations that finally bring prosperity and stability to all... Can you stay out? Do you want to be left behind? The market is efficient after all... rational... the prices must be justified!

Maybe it's happening right now, you know, and the big jump last week was just another blip in the loooong slide down... Did I buy stocks? Yes. Ha!

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Post by Rodc » Tue Nov 04, 2008 2:22 pm

yobria wrote:
Rodc wrote:My take away is simply not to buy stocks at a P/E of about 100. :)
I doubt that will be the next bubble, since we're all so prepared for it. In my experience the next bubble is the one nobody thinks to avoid.

Nick
Unfortunately you are probably correct.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

User avatar
cflannagan
Posts: 949
Joined: Sun Oct 21, 2007 11:44 am
Location: Palm Harbor, Florida

Post by cflannagan » Thu Nov 06, 2008 11:16 pm

Rodc wrote:
yobria wrote:
Rodc wrote:My take away is simply not to buy stocks at a P/E of about 100. :)
I doubt that will be the next bubble, since we're all so prepared for it. In my experience the next bubble is the one nobody thinks to avoid.

Nick
Unfortunately you are probably correct.
The TIPS Bubble! ;)

cmarino
Posts: 228
Joined: Sun Oct 12, 2008 1:19 pm

Post by cmarino » Fri Nov 07, 2008 1:43 am

shelanman wrote:
wab wrote: Generally speaking, Japanese corporations are not run for the beneficial interest of the shareholders. The purpose of the company genuinely isn't to turn a big profit -- it is to support the management and, to an extent, the employees. Most Japanese corporate managers will freely admit that their goal is not to maximize profits. Naturally, when the company is not run for the benefit of the owners, the owners don't benefit.
...

In our own society, I'm very unconvinced that public companies are run primarily for the benefit of the owners. It's the trouble with public equity. The sheer number of shareholders, the fact that they have extreme minority stakes for the most part, and the byzantine system of regulations and controls on the markets tend separate the ownership interest of the shareholders with the operations of the company..
I wonder if anyone has plotted mutual fund ownership and executive compensation on the same axes. I bet they are strongly correlated. The "set it and forget it" approach of most people to investing is nice but one drawback is that owners are extremely detached are unwilling or incapable of holding management accountable.

I believe we will one day read in the history books an epilogue to this era that looks surprisingly like Japan's: "In the early 21st century, American companies were not run with a focus on earnings or creating value for shareholders. Rather, they were run with the goal of creating the appearance of earnings growth in order to justify increased salaries for management."

User avatar
PiperWarrior
Posts: 4068
Joined: Fri Dec 21, 2007 4:55 am
Location: right on course

Post by PiperWarrior » Fri Nov 07, 2008 4:13 am

jegallup wrote:Japanese have always been big savers anyway, have they not?
Yes, but that doesn't necessarily mean that all the money is flowing into stocks and bonds. I don't have specific numbers right in front of me, but as far as I know, mutual funds (of stocks and bonds) have become common only in the last 10 years or so in Japan. The word "stocks" in Japanese almost immediately implies "playing with stocks" or some sort of speculation. Defined contributions are still very new (2001?) compared to the U.S (1978?).

So, it's kind of interesting when somebody on this forum says "Japanese investors lost a lot of retirement money in 1990 if they didn't diversify internationally". Sure, there were some that actually invested in Japanese stocks, but for most people, the government takes care of the basic retirement needs, so it's just that discretionary money was lost. (Maybe that's too much simplification, but it shouldn't be too far from the truth.)

Valuethinker
Posts: 39071
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Fri Nov 07, 2008 8:43 am

wab wrote:
shelanman wrote:This is true only if all companies are publicly traded.
It should also be true as long as the publicly traded companies are a representative sample of the economy. Is there any reason to believe this isn't true for Japan?

In another thread, somebody cited the Dimson study that shows Japan's market returned 4.5% real annualized over the last century. That's comparable to other nations (I think Europe is closer to 5%).
If you had known, in 1900, that Tokyo would be destroyed twice, once by earthquake and once by American B29 (over 90% of the structures in Tokyo had been destroyed by Aug 1945) and that Japan would be the first subject of an atomic attack, would you have invested in Japanese stocks?

I mean it's a wonderful story of the power of American generosity, and of the transforming powers of Japanese-style capitalism (step forward W. Edwards Demming, a man as responsible for the success of postwar Japan as anyone) but.....

Japan could so easily have wound up looking like North Korea.

There was a hell of an event risk in getting that 4.5% real return.
So is this "broken Japan" thing a new phenomenon, or has the market just been wandering away from the fundamentals recently?
Japanese capitalism has never looked like Western capitalism. Just as Tokyo is a crazy-quilt eastern version of New York or London or Chicago.

User avatar
wab
Posts: 559
Joined: Fri Feb 23, 2007 6:51 pm

Post by wab » Fri Nov 07, 2008 4:51 pm

Valuethinker wrote:If you had known, in 1900, that Tokyo would be destroyed twice, once by earthquake and once by American B29 (over 90% of the structures in Tokyo had been destroyed by Aug 1945) and that Japan would be the first subject of an atomic attack, would you have invested in Japanese stocks?
Good point. The long-term averages don't provide a good picture of the path to get those returns.

In fact, Bernstein argues that these sorts of upheavals are responsible for returns deviating from GDP growth. When countries need to start from scratch, the recapitalization dilutes shareholders.

Looks like this effect has been strongest for Japan:

http://www.efficientfrontier.com/ef/702/2percent.htm

aaaxl
Posts: 8
Joined: Wed Aug 29, 2007 7:17 am

Post by aaaxl » Sat Nov 08, 2008 10:32 am

Valuethinker wrote:
If you had known, in 1900, that Tokyo would be destroyed twice, once by earthquake and once by American B29 (over 90% of the structures in Tokyo had been destroyed by Aug 1945)
"After the war, the Japanese government claimed that American bombers had destroyed 40 percent of Osaka and Nagoya, 50 percent of Tokyo, Kobe and Yokohama, 90 of the prefectural capital of Aomori, and almost 100 percent of Hiroshima."

From "Five Days in August". Unfortunately I can't post a tinyurl, but it's "6nnnbd"

Valuethinker
Posts: 39071
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Sat Nov 08, 2008 10:35 am

aaaxl wrote:
Valuethinker wrote:
If you had known, in 1900, that Tokyo would be destroyed twice, once by earthquake and once by American B29 (over 90% of the structures in Tokyo had been destroyed by Aug 1945)
"After the war, the Japanese government claimed that American bombers had destroyed 40 percent of Osaka and Nagoya, 50 percent of Tokyo, Kobe and Yokohama, 90 of the prefectural capital of Aomori, and almost 100 percent of Hiroshima."

From "Five Days in August". Unfortunately I can't post a tinyurl, but it's "6nnnbd"
Hi

Thank you for the correction.

I had read more I believe. Certainly LeMay planned on more. Tokyo was mostly wood, so it burned.

thank you again for the correction.

Post Reply