TBT - Nikkei



 What I want to do today, is throw it back to a true story that may make you think not twice, but quite a few times before using “America’s Sweetheart” of an investment strategy. We’re going to look at the World’s third largest economy. Japan’s economy went through a very similar situation to what we are experiencing here in America as we speak.

Double salute to Patrick Kelly for also researching and using parts of this true story for his book, Retirement Miracle. Very knowledgeable guy, who I have learned a lot from. Also, shout out to Yahoo Finance, Investopedia, and MacroTrends. For arming me with facts so that I can break down this epic story for all these nice people.


America’s Sweetheart strategy made famous by Professional Rich Guy, Warren Buffett. No disrespect to the man, I just don’t know if I would tell everyone walking into a casino to play Black Jack EXACTLY like the dealer. Since, I already went down this road, I might as well just connect the dots. [It] Would make sense because ‘The House Always Wins’. However, if any of you are like me, you have already tried playing like this and failed. “How could I lose if I do the exact same system as the house?! The house ALWAYS wins!!!” The reason the house can use their strategy and still always win is because casinos have what seems like an endless supply of money and an endless supply of time. Billions and billions of dollars in casinos all over America, all open 24 hours a day, seven days a week. In a perfect world, we all would have unlimited money and unlimited time. But for now, luxuries of that magnitude are reserved for the Pro Rich Guys like Uncle Warren.

 I’m going to share a true story with you about a casino in Japan, called the Nikkei 225, which is very similar to our S&P 500 (one of our best representations of the U.S. Stock Market)

IT's The Climb

The story starts at the end of 1979. The Nikkei is valued at 6,569.47. Over the course of the next decade, Japan experienced rapid, excited, and confident growth. By the end of
1989, The Nikkei was valued at a whopping 37,724.06


“Fundamentals of the Japanese economy provide no unambiguous reason for the crash”.   - Robert J. Shiller, Nobel laureate and renowned economist.

Now I'm free. Free Fallin'

With the blink of an eye, the money is no esta. By 1992, the Nikkei had fallen all the way to 14,820.25. To this day, in 2018, the closest it has been to ever recovering is a measly 23,808.06, which took place in a global high (obviously short lived) earlier this year.


All of this can get a little complicated, so let’s step back and look at this. Let’s say it is the end of 1987. You have $100,000 invested in the Nikkei 225. From December 1987 to December 1989, the return was 65%. After those couple of years your account grew from $100,000 to $165,000.

“The Nikkei crash must have taken the form of a change in expectations or attitudes” Shiller continued.

It is now 1992 and you’ve realized that the clock struck midnight about 2 1/2 years ago and you are now effectively shit out of luck. Your portfolio went from $165,000 to $64,350. Now, before you go getting crazy on me, checking my math, let’s simplify. If you have $100 in the market and the market goes down 50% you are left with $50. Assuming the market goes up 50% the next year, how much money do you have? If you said $100, you are super close. After the first year’s loss you had $50. The market then went up 50%. 50% of $50 is $25. When the market went up, you made $25 to add to your $50. Thus, giving you a total of $75. This financial opponent is called ‘The Power of Loss’.


Anyways, back to you. It is 1992, you’ve got $64,350 and because you’re young, your financial advisor tells you to hold on and get excited, “because of the crash, the market is going to come back! BIG!! It ALWAYS does!!!” Is probably what he is saying. And that may be, but I certainly don’t have a crystal ball to say when it’s going to bounce back but I digress. (always wanted to say that) Assuming you listen, don’t touch your money and let it ride. The most you would have ever had would be $103,000. 30 years to break even. EEEEEEEKS. I don’t know what the average rate of inflation is in Japan, but in America, inflation has averaged about 3% for the last 100 years. For your money to have been in line with inflation, your account would actually need to be worth $250,008.03. $103K is a far far cry from the $250.1K needed to beat inflation. Forget about keeping up with the Jones’ if you can’t even keep up with inflation.

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