Would buy and hold work if Japan's lost decade happens?

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arcticpineapplecorp.
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Re: Would buy and hold work if Japan's lost decade happens?

Post by arcticpineapplecorp. » Wed Aug 08, 2018 8:39 pm

InvestInPasta wrote:
Wed Aug 08, 2018 6:37 pm
Beware of what you take for the truth. :beer

The article is absolute nonsense, for the following reasons:


1) Dow returns including dividends are freely available online here
Anyone can see that from 1929 the Dow took to recover:
  • 25 years (until 1954) - price only not counting inflation (nominal return)
  • 21 years (until 1950) - dividend included and counting inflation (real return)
By no means the market recovered in 4-5 years (mid 1934) as Mr Hulbert seem to think.


2) According to Hulbert the market recovered in 4-5 years because the Dow did not represent well the market and investors should have bought IBM.
LOL!
The Dow started in 1896, it exists for real, it's unbelievable to find someone who writes that an investor should have bought a bit of IBM, in order to justify his ridicolous ideas.
Yeah with the benefit of hindsight I would have bought more Amazon in 2009 to quadruple the returns of my S&P500 portfolio.


3) Even pretending for a while that the Dow did not represent well Wall Street, we could use the S&P500 (reconstrucred data, the S&P500 started only in 1957).
But from 1929, even the S&P500 took to recover 16 years (until 1945) - dividend included and counting inflation (real return).
And by no means it recovered after 4-5 years.
Hulbert didn't write "1934 "as you did. He wrote:
An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

source: https://www.nytimes.com/2009/04/26/your ... 6stra.html
So it wasn't that the market recovered in 4-5 years (as you wrote), it recovered in 7 years (by late 1936). The 4-5 years was from the bottom in 1932.

And if you look at the Dow Jones return site you linked and plug in the dates Mr. Hulbert provided (can't do exact dates which could account for the slight discrepancy) using Aug 1929 - Nov 1936 shows an annualized DJIA return (with dividends reinvested) of just -1.651%. See image from the site you provided:

Image

Not bad for 7 years considering the Dow lost 79%% between Aug 1929 - May 1932. The recovery was in fact by Nov 1936:

Image

Did the Dow drop again? Yes. We're not talking about that. There was a lengthy excellent post by nisiprius that discussed how there were two very bad recessions so the entire period including both recessions was brutal. And the second chart I provided in fact shows the second recession from Feb 1937- March 1938 in which the Dow fell by another 49.93% and did not recover until Feb 1945. (see image below). And this second recession (and more longer lasting obviously since the recovery was another 8 years makes the entire period bleak because the second fall in 1937 came shortly after the recovery in Nov 1936. But it's important to understand it wasn't one long period. It was two brutal recessions that were back to back and that's why the second recovery was in 1945. But the first recovery from 1929 was in fact in Nov 1936:

Image

Beware of what you take for the truth. It's the full truth, not half-truths, that matter.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

InvestInPasta
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Re: Would buy and hold work if Japan's lost decade happens?

Post by InvestInPasta » Thu Aug 09, 2018 4:01 am

arcticpineapplecorp. wrote:
Wed Aug 08, 2018 8:39 pm
InvestInPasta wrote:
Wed Aug 08, 2018 6:37 pm
Beware of what you take for the truth. :beer

The article is absolute nonsense, for the following reasons:


1) Dow returns including dividends are freely available online here
Anyone can see that from 1929 the Dow took to recover:
  • 25 years (until 1954) - price only not counting inflation (nominal return)
  • 21 years (until 1950) - dividend included and counting inflation (real return)
By no means the market recovered in 4-5 years (mid 1934) as Mr Hulbert seem to think.


2) According to Hulbert the market recovered in 4-5 years because the Dow did not represent well the market and investors should have bought IBM.
LOL!
The Dow started in 1896, it exists for real, it's unbelievable to find someone who writes that an investor should have bought a bit of IBM, in order to justify his ridicolous ideas.
Yeah with the benefit of hindsight I would have bought more Amazon in 2009 to quadruple the returns of my S&P500 portfolio.


3) Even pretending for a while that the Dow did not represent well Wall Street, we could use the S&P500 (reconstrucred data, the S&P500 started only in 1957).
But from 1929, even the S&P500 took to recover 16 years (until 1945) - dividend included and counting inflation (real return).
And by no means it recovered after 4-5 years.
Hulbert didn't write "1934 "as you did. He wrote:
An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

source: https://www.nytimes.com/2009/04/26/your ... 6stra.html
So it wasn't that the market recovered in 4-5 years (as you wrote), it recovered in 7 years (by late 1936). The 4-5 years was from the bottom in 1932.

And if you look at the Dow Jones return site you linked and plug in the dates Mr. Hulbert provided (can't do exact dates which could account for the slight discrepancy) using Aug 1929 - Nov 1936 shows an annualized DJIA return (with dividends reinvested) of just -1.651%. See image from the site you provided:

Image

Not bad for 7 years considering the Dow lost 79%% between Aug 1929 - May 1932. The recovery was in fact by Nov 1936:

Image

Did the Dow drop again? Yes. We're not talking about that. There was a lengthy excellent post by nisiprius that discussed how there were two very bad recessions so the entire period including both recessions was brutal. And the second chart I provided in fact shows the second recession from Feb 1937- March 1938 in which the Dow fell by another 49.93% and did not recover until Feb 1945. (see image below). And this second recession (and more longer lasting obviously since the recovery was another 8 years makes the entire period bleak because the second fall in 1937 came shortly after the recovery in Nov 1936. But it's important to understand it wasn't one long period. It was two brutal recessions that were back to back and that's why the second recovery was in 1945. But the first recovery from 1929 was in fact in Nov 1936:

Image

Beware of what you take for the truth. It's the full truth, not half-truths, that matter.
The full truth is that 1934 or 1936 does not make any difference, the DOW from 1929 did not recover until:
  • 25 years (until 1954) - price only not counting inflation (nominal return)
  • 21 years (until 1950) - dividend included and counting inflation (real return)
Data freely available for anyone: DJI return calculator
That's all folks!

If you prefer to believe in fake ideas like the ones of Mr Hulbert it's your choice.
I doubt your great-great-grandfather told you he bought IBM and he recovered in 1932-1936. :beer
When studying English I am lazier than my portfolio. Feel free to correct my english and investing mistakes.

ryman554
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Re: Would buy and hold work if Japan's lost decade happens?

Post by ryman554 » Thu Aug 09, 2018 10:28 am

financeperchance wrote:
Mon Aug 06, 2018 4:51 pm
TN Bogle wrote:
Sun Aug 05, 2018 9:06 pm
I'm fairly new to investing. Would this situation be alleviated anyway by holding bonds?
Correct, that's the point of bonds. When stocks are crashing, bonds go up, historically.
Incorrect. Corporate bonds track their underlying equities quite well. Which is why, even though they have a higher yield than treasuries, they are not recommended. They grow more slowly than equities, but they crash at the same time.

For treasuries (not corporates), the correlation is low with equities. So, when stocks are crashing, bonds may or may not be, so on average, you have ballast for rebalancing and to buy low.

Bonds also have low volatility, and if held to maturity, give you a guaranteed (for treasuries, not so much for corporates) rate of return. It is less than equities, but can form a floor. Typically the investor like you and me would be better of with CDs instead of bonds due to better security and slightly better rate of return, but we're now quibbling.

Indeed, if bonds go up when stocks crash, then the converse must be true. Bonds go down when stocks go up. Do you really want an retro-thruster on your portfolio? Since bonds are more of an anchor/friction in either direction around 0% or so real (so always growing on average kinda no matter what <very simplistic>), this statement cannot be true.

Bonds are good for guaranteed cash -- an income floor -- and function as new money to spend during crashes because of low correlation. That's what they are for.

Valuethinker
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Re: Would buy and hold work if Japan's lost decade happens?

Post by Valuethinker » Thu Aug 09, 2018 11:30 am

Be careful of stereotypes. We look a little closer and these are not all true by any means.
AlphaLess wrote:
Sun Aug 05, 2018 6:25 pm
While looking at Japan's history is sad, consider the factors that have caused it:
- lack of culture of innovation,
Yet Japanese companies are highly innovative. It's just they do it differently. What the Japanese are good at is continuous improvements in processes and products. In fact they invented that game -- or rather W Edwards Demming invented Total Quality Management, and the Japanese adopted it.

Western companies are product innovative. Japanese companies are process innovative.

There are sectors like solar where the Japanese are way ahead. What has really hurt the Japanese is that the Chinese could make anything, cheaper. They are not there yet in cars (in international markets) but a lot of things that are manufactured, they are there. This was less of a problem for Germany, that tends to focus on capital goods, than for Japan which was more consumer oriented.

What we are really catching here is that USA (and UK) have moved further away from manufacturing (as a percentage of the economy) than Japan and Germany and thus were less directly exposed to Chinese competition (and South Korean - easy to overlook but serious player).
- lack of immigration,
Japan apparently has quite a bit of illegal and quasi illegal (work permits of fixed period). So that's not so clear.

For America I would say this era of mass immigration (that began in the early 1970s) is now over. It's not politically acceptable any longer.

What one is really catching with Japan is that the labour force is shrinking. That's a function of when the birth rate fell in the 1960s. Japan was an Emerging Market until the 1970s, basically. Now it's at the forefront of where the rest of us are going.
- workers beholden to corporation (loyalty: #1 enemy of capitalism),
Really? What makes companies work is the people who have been there for a few years, who know how to make things work. And have huge firm or industry specific skills. Yes Americans are good at lots of noise startups with young hipsters with beards and free running coffee (since we are deploying stereotypes freely ;-). But if you want really high quality engineering work, the Germans or the Japanese are really good. That Apple phone? The manufacturing value add is significantly in German and Japanese made chips, screens etc. not in Chinese assembly.
- overly high savings-rate mentality,
- cultural tilt against spending,
Savings rate has come down with a thump. It really is not so amazing any more. It was always terribly rational given the limited Japanese state retirement system. What has basically happened is the State spends more as the population ages, and the consumer sector gets smaller. That will happen in every country in the developed world - healthcare and social care over age 65 is largely or wholly the rubric of the state, whereas the sorts of expenditures we make for a younger population are personal consumption driven.
- low birthrate.

For better or worse, the USA is still leading in many of those aspects (although China is pushing very hard).
Since 2008 the US birthrate has dropped - I don't remember the numbers, but a lot.

You are going to have a lot less immigration going forward, and you have this drop in birth rate. Millennials have gone on a baby strike, it appears.

China actually now has a worse demographic problem than USA, such has been the speed of its transition. And the rural to urban transition has slowed, and may stop. China also looks like it has a horrific debt-valuation bubble. It has been called the largest bubble in all of human history (in absolute scale) and it will be interesting to see how it plays out.

But Japan. On a per capita income basis Japan looks pretty close to the USA. The combined effects of a falling population and deflation are what makes the headline GDP numbers so poor.

So Japan is not actually a basket case. It's actually done rather well, given the headwinds.

We shall find out if we are any better placed (my bet, for post Brexit Britain, is no).

And on the Japanese stock market, this is what happens if you get a massive valuation bubble. Ben Bernanke, Chairman of the Federal Reserve system, was a leading expert on the Japanese post bubble problems. Thus the Fed's response to the Crisis was all the things that the Japanese one was not post 1990 (but they were in uncharted territory)-- fast, huge in scale (Quantitative Easing), persistent. Interest rates basically did not rise again for 9 years-- unprecedented.

So if we ever get to a similar level of valuation bubble. PE of the market at 100x, then we are quite likely to get to the same place as to equity market returns.

WanderingDoc
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Re: Would buy and hold work if Japan's lost decade happens?

Post by WanderingDoc » Fri Aug 10, 2018 3:00 pm

aaja wrote:
Sun Aug 05, 2018 11:39 am
I follow the bogleheads philosophy of buy and hold long term. The beauty is it takes the worrying about the day to day prices out of the picture, which I love. The market always goes up.

I was reading about Japan's lost decade, and looking at its current stock market prices, it seems like the market has still not recovered to its peak. Would that mean someone who was half way into his career would have lost most of the gains after crash and never recovered those?

I was trying or find a portfolio visualizer equivalent to check the returns for the worst market timer for Japan but could not. I read somewhere that due to the policy changes, deflation etc in the end for long term investors it was not that bad. Is that right?

I was just wondering if this is a case where buy and hold would not have worked. I know a lot of people here think this could not happen to the US but I was mainly looking at this data to decide on how much international. I am currently thinking 20% but if a scenario like Japan can take US stocks down long term, cap weigitng the international market would be better I think, no?

Thanks.
No, it wouldn't. I sleep well with a 55% U.S./45% International allocation. :)
Last edited by WanderingDoc on Fri Aug 10, 2018 6:08 pm, edited 1 time in total.
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magneto
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Re: Would buy and hold work if Japan's lost decade happens?

Post by magneto » Fri Aug 10, 2018 4:03 pm

Often observed that when buying we generally take note of price.
Why should Stocks be any different.
Prices at the Japan peak had careful investors running for the hills albeit probably early.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

icetrap
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Re: Would buy and hold work if Japan's lost decade happens?

Post by icetrap » Fri Aug 10, 2018 8:58 pm

InvestInPasta wrote:
Thu Aug 09, 2018 4:01 am

The full truth is that 1934 or 1936 does not make any difference, the DOW from 1929 did not recover until:
  • 25 years (until 1954) - price only not counting inflation (nominal return)
  • 21 years (until 1950) - dividend included and counting inflation (real return)
Data freely available for anyone: DJI return calculator
That's all folks!
If I use Dqydj (Dow Jones), I get that August 1929 to May 1945 is positive (nominal return) - 16 years
If I use Dqydj (Dow Jones), I get that August 1929 to September1945 is positive (real return)- 16 years

To be fair the Dow Jones crash just after and gone back to positive I believe near your stated years.

Anyway, that's a lot of cherry picking :) investing from August 1924 to August 1929 would produce a whooping 33%. Say you were going for retirement in 5 years and you had 250k fund. I would take the 1 million I got at August 1929 with a grain of salt. I would rather have projected a 7% return and expect a 350k fund at retirement. The extra 3xfunds seems bad planning if you actually require a 33% return to retire.

1924 investment still 1930 produces nearly 19-20% annual return regardless of that epic crash.

Going for a single point estimate of the market is crazy talks. I rather go for the 5 years smoothed average for any decisions, including the decision to buy & hold. From what I've read on the 2008 crisis, the people on this blog were more or less panicking. The best strategy seems to do nothing when in crisis with a well diversified international portfolio. I also got some disbelief that such a crash as the Japan's lost decade would happen without an exuberent increase in market value as it did in all such spectacular crash.

jalbert
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Re: Would buy and hold work if Japan's lost decade happens?

Post by jalbert » Fri Aug 10, 2018 10:24 pm

“So when did the overall stock market really make it back to its pre-crash peak?” Hulbert asks. “Just four years and five months after its mid-1932 low, according to data provided … by Ibbotson Associates, a division of Morningstar.
source: http://blog.validea.com/the-great-depre ... very-myth/
That is also a bit misleading because that rally did not sustain. The market promptly crashed again after hitting the pre-depression peak for only a short time.
Risk is not a guarantor of return.

AlphaLess
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Re: Would buy and hold work if Japan's lost decade happens?

Post by AlphaLess » Sat Aug 11, 2018 1:24 pm

Valuethinker wrote:
Thu Aug 09, 2018 11:30 am
Be careful of stereotypes. We look a little closer and these are not all true by any means.
AlphaLess wrote:
Sun Aug 05, 2018 6:25 pm
While looking at Japan's history is sad, consider the factors that have caused it:
- lack of culture of innovation,
Yet Japanese companies are highly innovative. It's just they do it differently. What the Japanese are good at is continuous improvements in processes and products. In fact they invented that game -- or rather W Edwards Demming invented Total Quality Management, and the Japanese adopted it.

Western companies are product innovative. Japanese companies are process innovative.

There are sectors like solar where the Japanese are way ahead. What has really hurt the Japanese is that the Chinese could make anything, cheaper. They are not there yet in cars (in international markets) but a lot of things that are manufactured, they are there. This was less of a problem for Germany, that tends to focus on capital goods, than for Japan which was more consumer oriented.

What we are really catching here is that USA (and UK) have moved further away from manufacturing (as a percentage of the economy) than Japan and Germany and thus were less directly exposed to Chinese competition (and South Korean - easy to overlook but serious player).
So you are basically saying that:
- Japan is good in solar,
- but Chinese are beating them at it.

I have a much simpler explanation:
- Japan is NOT good at solar,
- Chinese are eating their lunch.

So thank you for making my point.
Numbers don't lie.
Japan's process improvements are not worth a squat if it is not reflected in the final numbers (sales, market share, etc).
Also, Japan's process improvements are not worth a squat if Chinese can copy them cheaper (and better).

Also, the so called 'process improvement' 'innovations' are not innovations at all. They are a road to get lower valuations for entire industries.

Long time ago flour was as coveted a good as an iPhone is today, and Pillsbury was a very highly valued company.
Process improvements have made margins on flour basically zero. Pillsbury these days: not much of a valued company.
Margins are in iPhones.
If all that the Japanese do are process improvements, but no real innovation, it is going to show in their earnings, stock prices and valuations.
Last edited by AlphaLess on Sat Aug 11, 2018 1:43 pm, edited 1 time in total.

AlphaLess
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Re: Would buy and hold work if Japan's lost decade happens?

Post by AlphaLess » Sat Aug 11, 2018 1:28 pm

Valuethinker wrote:
Thu Aug 09, 2018 11:30 am
Be careful of stereotypes. We look a little closer and these are not all true by any means.
- lack of immigration,
Japan apparently has quite a bit of illegal and quasi illegal (work permits of fixed period). So that's not so clear.

For America I would say this era of mass immigration (that began in the early 1970s) is now over. It's not politically acceptable any longer.

What one is really catching with Japan is that the labour force is shrinking. That's a function of when the birth rate fell in the 1960s. Japan was an Emerging Market until the 1970s, basically. Now it's at the forefront of where the rest of us are going.
HAS and HAD show very different results.

And immigration is not getting 'guest workers'.

Immigration policy has to do with:
- attracting the best,
- welcoming them,
- integrating them.

You want immigrants feeling as part of the team, not some mercenaries asked to do work here and there to patch a poor economic system.

I don't know what the immigration would look like in USA in the next 20 years.
But in the last 100+ years it surely looked good.
'For America I would say this era of mass immigration (that began in the early 1970s) is now over. It's not politically acceptable any longer.'
Are you familiar with the era of mass migration in the early 1900s?
US population was much smaller, the percentage of immigration was much higher, and the ability of the country to integrate immigrants was much lower.

But these cycles repeat.

Meanwhile, the only history of mass migration that I recall from Japanese history is importing sex workers from Korea.
Hardly a nobel or society / economic enhancing activity.
Unfortunately, I can't even credit the Japanese with the invention of that. They were merely doing 'process improvements' in that respect too.

AlphaLess
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Re: Would buy and hold work if Japan's lost decade happens?

Post by AlphaLess » Sat Aug 11, 2018 1:40 pm

Valuethinker wrote:
Thu Aug 09, 2018 11:30 am
Be careful of stereotypes. We look a little closer and these are not all true by any means.

- workers beholden to corporation (loyalty: #1 enemy of capitalism),
Really? What makes companies work is the people who have been there for a few years, who know how to make things work. And have huge firm or industry specific skills. Yes Americans are good at lots of noise startups with young hipsters with beards and free running coffee (since we are deploying stereotypes freely ;-). But if you want really high quality engineering work, the Germans or the Japanese are really good. That Apple phone? The manufacturing value add is significantly in German and Japanese made chips, screens etc. not in Chinese assembly.
Yes, but I was not talking about 'noise startups' and 'exit strategy' con men and women.

Typical career path of a Japan office worker:
- finish college at 22 (or whatever),
- get a job,
- work for the same company until 65 (or whatever),
- be depressed after a few years (and maybe commit suicide).

The engineering and research ecosystem in original Silicon Valley companies like Intel, Xerox, DEC, HP have a tradition of cross-semination. You work at one for a respectable amount of time (5, 10, 15 years), then you move to a competitor. That changes your perspective and allows the new company get new perspective. You have ideas, and apply those ideas with new co-workers to create drastically better solutions. You innovate.

You don't feel beholden to your original employer as a slave.

USA: A
Japan: F

You keep brining up the manufacturing value add, and how Japan got stuck in it.
Don't you think that the HIGHER level idea / question:
- US did not get stuck in that marsh,
- Japan got stuck in that marsh.

Has to do with:
- (A) lack of innovation in Japan, and high rate of innovation in USA, AND
- (B) the much dreaded process improvements in Japan.

If USA has overall higher percentage of strategic, innovative thinkers, then USA is going to operate in ways that is less prone to getting China-ed out of the game.

Make no mistake: Japanese are 100% responsible for getting arbitraged away by the Chinese by basically lacking what it takes.

USA, on the other hand, is importing the creme of the crop from China in terms of immigration, slowing down China bigly from catching up with USA.

WanderingDoc
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Re: Would buy and hold work if Japan's lost decade happens?

Post by WanderingDoc » Sat Aug 11, 2018 1:45 pm

If Apple (U.S.) was so good in "tech" and "innovation" they wouldn't have relied on (mostly) Japanese microchips and microprocessors. Apple is a great plastic design and marketing company, for sure. Stock price doesn't mean anything. There are multi-billion dollar stock evaluations on USA companies which stink and burn through hundreds of million of dollars/negative cash flow every year.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

AlphaLess
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Re: Would buy and hold work if Japan's lost decade happens?

Post by AlphaLess » Sat Aug 11, 2018 1:55 pm

Valuethinker wrote:
Thu Aug 09, 2018 11:30 am
Be careful of stereotypes. We look a little closer and these are not all true by any means.

And on the Japanese stock market, this is what happens if you get a massive valuation bubble. Ben Bernanke, Chairman of the Federal Reserve system, was a leading expert on the Japanese post bubble problems. Thus the Fed's response to the Crisis was all the things that the Japanese one was not post 1990 (but they were in uncharted territory)-- fast, huge in scale (Quantitative Easing), persistent. Interest rates basically did not rise again for 9 years-- unprecedented.

So if we ever get to a similar level of valuation bubble. PE of the market at 100x, then we are quite likely to get to the same place as to equity market returns.
Valuation is important: I agree. If you have PE ratios of 100, you are not going to see much positive returns in stocks for decades.
We are nowhere near that level (yet). Shiller PE is around 32. If earnings growth continues, and 2008+2009 will drop out of the lagging-10 Earnings computation, we will see a fairly large drop in Shiller PE. Volatility is low, and there are not major economic issues on the horizon. World economy is more integrated and globalized today, which is good. So we are facing positive tail-winds.

Also, it might be healthy for the market to take a 20-30% drop, with a short accompanied recession. I feel like things are too overheated now, and giving investors and population some dose of reality might be helpful in the long term.

Brexit: time will show, but it is not looking good. In the past, countries / regions were annexed using war, and independence also usually required a war. This is a massive step forward for the humankind to negotiate a country-level divorce from a broad economic collaboration area using peaceful means. But the outcome could get ugly. I would say there is still value in it: a data point from which future populations can draw. The smarter ones will learn and use that lesson in future decisions. The less smart ones won't.

But fundamentally, Great Britain is much more like the USA in all of those respects I mentioned, including:
- culture of innovation,
- immigration,
- and more.

JBTX
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Re: Would buy and hold work if Japan's lost decade happens?

Post by JBTX » Sat Aug 11, 2018 9:56 pm

AlohaJoe wrote:
Mon Aug 06, 2018 9:07 am
alfaspider wrote:
Mon Aug 06, 2018 8:29 am
The problem is that the U.S. is such a dominant market, that if it falters, the rest of the world is likely to falter as well. Japan is a much smaller market on a relative basis.
Er? This shows a lack of understanding of what Japan was like in the 1980s. By 1989 Japan made up 45% of the global market capitalization. (More than the US at that time.) Today the US makes up around 53%. Unless the argument is that there's some magic line where 45% is "too small to affect much" but the extra 8% means "the rest of the world is likely to falter as well"?

At the time the Osaka stock exchange had displaced the London stock exchange for 3rd place (behind Tokyo and New York).

Japanese banks supplied 20% of all credit in the state of California.

Japanese investors determined the price of US bond auctions. (The Brady presidential task force on the October 1987 crash found that Japanese dumping of treasures on October 14th drove yields on 30-year bonds over 10%.)

Japan was the largest source of capital in the world (especially after the 1985 currency adjustments in the US, Japan, and Germany.) Japan provided 65% of all financing to Asia.

Today, the US-China trade imbalance is around $360 billion dollars and (some) people are concerned about it. In the 1980s the US-Japan trade imbalance was $750 billion (in 2016 dollars, to make it an apples-to-apples comparison).

Nomura Securities had enough capital to buy every single Wall Street bank you know the name of.

In 1989, 8 of the top 10 companies in the world were Japanese. Only 1 American company was in the top 10. (ExxonMobile.) A single Japanese company -- NTT -- was worth more than the six biggest US companies combined.

In 1989, the top 3 companies for US patents were all Japanese companies. That's right, Japanese companies got (vastly) more US patents than American companies.

Japan was not a smaller market on a relative basis and it definitely wasn't a "much smaller market". It was approximately the same size as the US is today. When I read about Japan in the 1980s I am reminded of two things:

1. Japan was dominant economically in the same way the US is today. We may try to downplay it and pretend the US today is vastly more outsized than Japan was in the 1980s but it just isn't true. We always want to assume our current lived experience is more unique than it is.

2. Yes, Japan had many problems. And basically no one saw them. They are clear in hindsight, sure. Can you name a single famous investor who made billions (or trillions) whose reputation was made by making the right call on a Japanese equity bubble? History is often like that -- what seems obvious in retrospect is completely invisible to people at the time. We are not really capable of seeing where the seeds of our downfall lay.
Great post.

There are some commonalities between 1989 Japan and 2018 us. But there are differences also. My main takeaway is that sometimes the mighty will fall and international diversification may ease the pain.

InvestInPasta
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Re: Would buy and hold work if Japan's lost decade happens?

Post by InvestInPasta » Mon Aug 13, 2018 7:00 pm

JBTX wrote:
Sat Aug 11, 2018 9:56 pm
My main takeaway is that sometimes the mighty will fall and international diversification may ease the pain.
+1
When studying English I am lazier than my portfolio. Feel free to correct my english and investing mistakes.

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