Posted by: Bruce Einhorn on October 29, 2008
Many investors in the U.S. brave enough to look at their latest 401k statements are telling themselves not to worry, since in the long run investing in equities is the best way to go. Let’s hope so. But blogger Matt Yglesias at ThinkProgress, a D.C. think tank, points to a piece in the Atlantic by Megan McArdle about the troubling example of post-bubble Japan. “For years, it’s been a watchword warning to people who say ‘in the long run, stocks always go up,’” she writes. Japan’s Nikkei index peaked at 38915 in December 1989. “In the past two decades, it has struggled back towards 20,000 several times, but never anywhere near its former peak.”
The same holds true for Taiwan. Like Japan, Taiwan enjoyed a gigantic bull market in the late 1980s. And like Japan, post-bubble Taiwan has never come close to recovering. The Taiwan Weighted Index peaked at 12495 on Feb 10, 1990. It then collapsed in a race to zero, falling to 2560 by the beginning of October that same year. In the years after, the best the index could do was during the dot-com craze in 2000; Taiwan and its tech-heavy stock index got a lift, closing above 10,000. But then that bubble popped and the market sank again. Today, the Taiex trades at about 4400, almost two-thirds off its all-time high from 18 years ago.
Luckily, the same thing that Yglesias notices with Japan is true for Taiwan. Yes, the stock market’s boom days are long gone and likely never to return. But people are OK. “The weird thing about it is that though one knows Japan has had some rough economic times, the situation hardly seems as cataclysmic as the stock trends make it out to be. It’s not as if the country’s been bombed into smithereens or suffered wars and revolution. People aren’t starving in the streets. Japan’s citizens continue to enjoy some of the highest living standards in the world. They’re number eight on the UN Human Development Index. They’re ahead of France, Germany, Italy, and Spain in per capita GDP. They have the longest life expectancy in the world. In the greater scheme of things they’re doing fine. And yet the stock market — not so much.”
Likewise, Taiwan today is a far better place than it was back in 1990, when the KMT still enjoyed effective one-party rule, the environment was awful and Taipei a dump. Today, Taiwan has a thriving democracy. Heavily polluting factories have mostly shipped out to China. Taipei is still not about to get confused for Paris but its new parks and subways and shopping districts make it a much more pleasant city. And Taiwanese have some of the best health care in the world.
Something to think about when considering the ups and downs of the Dow and the S&P.