What do Bogleheads think of what happen to Japan?

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Nicolas
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Re: What do Bogleheads think of what happen to Japan?

Post by Nicolas »

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Last edited by Nicolas on Tue Sep 29, 2020 10:22 pm, edited 1 time in total.
bigskyguy
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Re: What do Bogleheads think of what happen to Japan?

Post by bigskyguy »

asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).
Always passive
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Re: What do Bogleheads think of what happen to Japan?

Post by Always passive »

The impact of the 1991 crush has been that the Japanese household holds about 50% in cash, and only 15% in equities (2018).
See https://www.frbsf.org/banking/asia-prog ... much-cash/
This is an excellent example of the importance of diversification. Hard to understand those that only invest in the US stock market.
In addition, never rebalance by selling bonds and buying stocks.
Last edited by Always passive on Tue Sep 29, 2020 1:03 pm, edited 1 time in total.
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zetsui
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Re: What do Bogleheads think of what happen to Japan?

Post by zetsui »

bigskyguy wrote: Tue Sep 29, 2020 12:08 pm
asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).


Ok but what's actionable that you're suggesting? Gold commodities? Suggest a portfolio off portfoliocharts or the like
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AerialWombat
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Re: What do Bogleheads think of what happen to Japan?

Post by AerialWombat »

bigskyguy wrote: Tue Sep 29, 2020 12:08 pm I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).
If you have risk tolerance of X, shouldn’t your portfolio always reflect that and thus have an equity allocation of Y?

I’m one of the more conservative people here. Very low risk tolerance, thus my 30/70 AA. Let’s me fire and forget.
asif408
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Re: What do Bogleheads think of what happen to Japan?

Post by asif408 »

zetsui wrote: Tue Sep 29, 2020 1:03 pm
bigskyguy wrote: Tue Sep 29, 2020 12:08 pm
asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).


Ok but what's actionable that you're suggesting? Gold commodities? Suggest a portfolio off portfoliocharts or the like
Seems pretty simple, you can periodically adjust your stock allocation by country valuation. To keep it at a very high level, you could look at US, developed ex-US, and emerging market stock valuations (might be somewhat complicated to do it by individual country or sector, but you could go this route). So if you were a global investor the last 30 years, you could have underweighted developed ex-US stocks in the late 80s (which was dominated by Japan) relative to the US and EM, US and developed markets in the late 1990s (most developed markets had very high valuations then, only EM and small value stocks worldwide were reasonably valued), and emerging markets in the late 2000s (EM valuations were higher than the US in the late 2000s). And arguably in the last few years you could have underweighted US stocks relative to foreign stocks, and tilt to small value stocks in the US and developed ex-US, since both foreign developed and EM stocks have significantly lower valuations than the US and the spreads between growth and value worldwide are at or have exceeded those during the tech bubble of 2000. That's been a losing trade so far, but if you are a longer term investor a few years of underperformance shouldn't bother you.

For example, my currently portfolio is as follows:

55% EM Value
15% US small value
10% Developed ex-US value
10% Developed ex-US small value
10% global energy

This would be considered extreme by most Bogleheads standards, so it is not a recommendation, just an illustration. And it's been a pitiful performer the last decade: https://www.portfoliovisualizer.com/bac ... tion6_1=15 compared to the US stock market . But was great the previous decade: https://www.portfoliovisualizer.com/bac ... tion6_1=15

You could certainly start with a 3 fund portfolio and just add more developed and emerging markets to start. You'd have to decide for yourself how much you want to tilt and where. You definitely want to pick a strategy for how you make adjustments before you commit to it, and be willing to give it a decade or two to play out. Otherwise you might as well stick with a static allocation.
Always passive
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Re: What do Bogleheads think of what happen to Japan?

Post by Always passive »

Or you can diversify globally. If you believe that the world will not end tomorrow, and since you do not know where the value will come tomorrow, play it safe and invest in the entire world: VT or ACWI could be two excellent possibilities.
teelainen
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Re: What do Bogleheads think of what happen to Japan?

Post by teelainen »

CyclingDuo wrote: Tue Sep 29, 2020 7:51 am
teelainen wrote: Tue Sep 29, 2020 7:33 am Anything is possible. 30 years into the future, the DOW could be at 20,000

Or it could be at 200,000
And people will still be referencing Japan's stock market peak of 1991... :mrgreen:
If 30 years from now the DOW is at 20,000 then I don't think people will still be referencing Japan's stock market peak of 1991.

I think they will be referencing USA 2020.
gougou
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Re: What do Bogleheads think of what happen to Japan?

Post by gougou »

Lesson is don't chase growth. Buy value.

Another lesson is that index fund might not be a very good investment even for a very long horizon like 30 years. And the US index could be an exception not the norm.
Lynx310650
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Re: What do Bogleheads think of what happen to Japan?

Post by Lynx310650 »

jdamo wrote: Mon Sep 28, 2020 9:17 pm This has been an interesting thread. I was wondering if the US could go like Japan also recently.....
I don't think so. Japan's population is actually shrinking and I believe the median age is almost 10 years older than the USA. Our birthrate is slightly higher and we have more immigration.

Also a much larger land mass, larger economy, much more natural resources, a diverse population ethnically/culturally, etc.

There are some factors that could help us avoid the malaise that Japan has suffered economically, but also some that could make things worse. But I have a hard time seeing us going the way Japan has.
Lynx310650
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Re: What do Bogleheads think of what happen to Japan?

Post by Lynx310650 »

Also FWIW, the country most likely to repeat the experience of Japan appears to be its close neighbor South Korea. Probably irrelevant for most posters here, but if I was reading this thread and was living/investing in South Korea, I'd probably take a harder look at the experience of Japan.
EnjoyIt
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Re: What do Bogleheads think of what happen to Japan?

Post by EnjoyIt »

bigskyguy wrote: Tue Sep 29, 2020 12:08 pm
asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).
Ok. Sounds reasonable on paper. How do you accomplish this in a regimented manner or do you use your gut to decide when to pull out of the market. If you do pull out, where do you go? Cash, bonds, gold, fools gold (bitcoin?)
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
teelainen
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Re: What do Bogleheads think of what happen to Japan?

Post by teelainen »

bigskyguy wrote: Tue Sep 29, 2020 12:08 pm
asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).
Did you make adjustments this year around the February-April timeframe?
Robot Monster
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Re: What do Bogleheads think of what happen to Japan?

Post by Robot Monster »

teelainen wrote: Tue Sep 29, 2020 4:31 pm
bigskyguy wrote: Tue Sep 29, 2020 12:08 pm
asif408 wrote: Mon Sep 28, 2020 2:53 pm Two big takeaways to me:

1) Valuations matter; high valuations tend to mean lower future returns. If valuations are high enough, that can mean negative or zero returns for decades, so best not to own a lot of countries with very high valuations.

2) High valuations can last for many years or continue going higher. So if you use a valuation based investing approach, you have to be patient and willing to miss out on some big gains and deal with FOMO. Japan had high valuations in the early 1980s compared to almost every other country, yet went to extreme valuations by 1990 and was pretty much the best performing country of the 1980s, after being one of the best performing countries of the 1970s. Wonder how many investors here would have had a Japan overweight if the past 2 decades of stock market performance was like the 1970s & 1980s?
Well stated. The big takeaway for me is that the Boglehead philosophy of staying the course with portfolio allocation is misguided. For me personally, stying the course with my "risk tolerance" supersedes staying the course with my portfolio asset allocation. At times like Japan in 1990, when valuations reach extremes, to not adjust one's portfolio exposes an investor to risk that one might well find unacceptable. For me, staying the course with my predetermined risk tolerance trumps my preselected portfolio allocation. I do not disagree with the concept of having a guiding principle when it comes to investing. I have chosen an alternative guiding principle (my level of risk tolerance) to that which is prominently espoused on this blog (portfolio allocation).
Did you make adjustments this year around the February-April timeframe?
Not in that exact time period, but some named Clive Crook assessed the risk levels present, and decided to make a slight portfolio adjustment.

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UpperNwGuy
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Re: What do Bogleheads think of what happen to Japan?

Post by UpperNwGuy »

Ha! Another beat-the-dead-horse thread about Japan. It's one of the boglehead obsessions, along with the high US inflation of the 1970s.
Mr-et-Mrs-R
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Re: What do Bogleheads think of what happen to Japan?

Post by Mr-et-Mrs-R »

Japan has always been an interesting country to me, in as much that I studied and earned my undergraduate degree in Japanese Political Science and was in Japan following interviewing politicians around in the 1992 election (first election that the LDP lost it's majority in the Diet since forever).

To me the issues that Japan has and currently faces are more sociological than economic in nature (although where that line is, is a debate for those with PhDs).
Japan's population wave is about 10 years ahead of America (that is, the Japanese baby boom happened 10 years earlier than America's). The key difference is that Japan really does not allow for immigration into the country, and the flight from the country side to urban areas is even more pronounced. This is why I believe Japan will continue to decline and I think America will be fine (fingers crossed).
The Japanese are not getting married, or having families, which in turn constrict the economy even more, which feeds back to growing the population. (It is odd to think that Economics is a Ponzi scheme based on people.)

So basically, Japan Inc. (and The Japan That Can Say No) from the 80s, really does not exist anymore, and perhaps never actually did.
Kaktus
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Re: What do Bogleheads think of what happen to Japan?

Post by Kaktus »

People in Japan were mainly hit by the real estate crash, not so much the stock crash. Many people moved to the metropolitan areas to get jobs in the 70s and 80s. Many bought at very high prices and those loans have not been inflated away.
In 1991 the banks had about 1 trillion USD in bad debt.
GDP of Japan has not developed that badly actually, if seen in relation to number of people in the workforce, which is decreasing.
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