For something to be true, it has to be true in all circumstances. Especially the popular notion that in long term stock market investment is very profitable. Is it really always true? Also, how long is "long term"?
Here, when it is not true. Below is chart of Japanese Nikkei index since early 80s to 2014. Japan was a booming economy in 60s to 80s except during a brief period in 70s during the world Oil crisis. Suppose an imaginary person, lets call him 'Nobita', born in post world war Japan in 1960s enjoyed the boom time economy of Japan and followed the usual "long term go to equities" mantra.
Lets say he joined the labor force in early 80s and ended up enjoying a great stock market boom all the way till 90s. Since early 90s when Japanese stock market peaked, it's been going down for 25 years now. That is a long time. Does this qualify as long term?
Now our Mr. Nobita has been investing in equities for 35 years now and has been losing money for 25 years. He is now 55 years old and ready to retire and has very little money saved for retirement.
Did our Mr Nobita knew that this is how it would turn out when he started in 80s? No!
So, there goes the "equity good in long term" mantra.
For those who think Real Estate is great, know that before the peak of 90s, Japanese imperial palace was worth more than the entire country of Canada! It has collapsed just like stocks since then.
Japan is a very specific situation. Different countries have different circumstances. India is not Japan. But the "long term equities is good" notion that is peddled everywhere is definitely not true. Mostly you will have time to make only one long term mistake, because if you do, you will not have time to recover or correct that mistake in your rest of productive life time. So be careful in whatever you do with your money. This does not mean that stocks are a bad place to invest. Understanding the circumstances and the risks is very important in anything.
As Mark Twain said, " It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
Here, when it is not true. Below is chart of Japanese Nikkei index since early 80s to 2014. Japan was a booming economy in 60s to 80s except during a brief period in 70s during the world Oil crisis. Suppose an imaginary person, lets call him 'Nobita', born in post world war Japan in 1960s enjoyed the boom time economy of Japan and followed the usual "long term go to equities" mantra.
Lets say he joined the labor force in early 80s and ended up enjoying a great stock market boom all the way till 90s. Since early 90s when Japanese stock market peaked, it's been going down for 25 years now. That is a long time. Does this qualify as long term?
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| NIKKEI |
Now our Mr. Nobita has been investing in equities for 35 years now and has been losing money for 25 years. He is now 55 years old and ready to retire and has very little money saved for retirement.
Did our Mr Nobita knew that this is how it would turn out when he started in 80s? No!
So, there goes the "equity good in long term" mantra.
For those who think Real Estate is great, know that before the peak of 90s, Japanese imperial palace was worth more than the entire country of Canada! It has collapsed just like stocks since then.
Japan is a very specific situation. Different countries have different circumstances. India is not Japan. But the "long term equities is good" notion that is peddled everywhere is definitely not true. Mostly you will have time to make only one long term mistake, because if you do, you will not have time to recover or correct that mistake in your rest of productive life time. So be careful in whatever you do with your money. This does not mean that stocks are a bad place to invest. Understanding the circumstances and the risks is very important in anything.
As Mark Twain said, " It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
Very informative, keep posting such good articles, it really helps to know about things.
ReplyDeleteGreat article, Thanks for your great information, the content is quiet interesting. I will be waiting for your next post.
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