Lessons from Japan's 34 Years of Stock Market Underperformance
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Walking the money for the rest of us. This is a personal financial on money, how IT works, how to invest IT and how to live without worrying about IT and your host David stein. Today is episode four sixty eight. It's title lessons from japan thirty four years stock bar market.

Last week, the nicky to twenty five index in japan broke through its peak after earty four years IT reached its high in december one thousand nine hundred and eighty nine, and since then, the Price return of the index has been essentially zero. There have been some dividends over that thirty four year period. Through the end of january, the msci japan index returned one point one percent.

Analyst, all that returned was from dividends. We can compare that to the U. S. Stock market, which returned nine point six percent annual zed over that same thirty four year period.

Ruse kirk, who is chief japan equity strategies at government sexes is an incredibly important barrier for japan to have finally broken through at the last thirty plus years. Japan has been persistently framed in relation to that december one thousand nine hundred eighty nine bubbles era niki, all time high. No matter how well IT has done since the market finally bottomed, their narrative has always been tempered with an element of skepticism that references the high water mark.

We look at japan back in thousand nine hundred and eighty nine, the stock market made up thirty seven and a half percent of global stock market capitalization, but by the end of twenty twenty two, IT was six point three percent. Compare that the U. S.

Now makes up fifty eight percent of the global stock market. There are some things that we can learn from this. Thirty four years, we got a bar mark, but a bear market is an extended downtown od.

And the japanese stock market is is definitely an upturn. It's up seventeen and a half percent this year alone. But if we think about this just extended thirty four year of under performance, never exceeding that one thousand nine hundred eighty nine high, that is an incredibly long wait.

And there are some reasons for that. And there are some things that we can learn. And in this episode, we're going to play a portion of four different episode.

This is a super epsom on japan. I have covered japan numerous times on the show. I have visited the country four times. I'm going back in may for the first time since late twenty eighteen, early twenty nineteen.

But we want to share what IT is about japan that's unique but also has LED to this chAllenging market environment for thirty four years. First, let's deconstruct these long term returns for japan. Compared to the U.

S, japan return, one point one percent analyzed the U. S. Stock market returned nine point six percent analyzed the divided yield contribution over that time frame is around one point two percent to one point five percent for both japan and U.

S. Earnings in U. S. Have grown faster over that thirty four year period compared to japan.

On the earnings pressure basis, the earnings pressure are growth rate for the U. S. Talk market is measured by the msi.

U. S. A, N, X has been six point two percent analyzed versus three point one percent for the msci japan index.

Earnings have grown twice fast in the U. S, and that due to Better demographics, more of growth in the U. S.

Workforce and productivity improvements, greater use of technology to produce more with less, over that thirty four year period, the japanese stock market would have earned over four percent annualized, including earnings. And through the individual stepped for the bubble. And IT clearly was a bubble in ninety eighty nine.

The priest earnings, what investors were willing to pay for a dollars worth of stocks back in one thousand nine hundred and ninety nine was fifty one point nine. Now it's seventeen times earnings that costs the japanese stock market three point one percent a three point one percent drag due to the valuations being very high and then slowly over the years declining. If we compare that to the U.

S. Stock market back in one thousand nine hundred and eighty nine and had a Price to earnings ratio of fourteen point one, much, much cheaper than japan. Now the U.

S. Stock market is measured by the M A C. I U, S. A index, which is comparable to the S M P.

Five hundred is twenty five point four, so more expensive than average. And that increase in the P, E. Ratio contributed one point seven percent annualized to that point six percent.

Analysts return for the s. Stock market. Without that, the U. S. Stock market would return closer to eight percent analyzed. So now where a position where japan stock are relatively inexpensive, the signally adjusted Price to earning ratio, which is the P.

E, based on inflation adjusted earnings over the past decade, its fifteen point nine in japan versus thirty point two for the U. S. doctor.

Will the U. S. Continue to outperform the japanese stock market going forward? Well, we will see in this up.

So there's definitely some things in U. S. As favor in terms of productivity, terms of demographics, but that is the main.

Japan can change. They could bring in more immigrants. The culture could change. And IT is changing for women to stay in the workforce for longer, more productivity improvements, greater use of technology and innovation. Those things can help japan and any other can.

Well, let me share with you some remained red segment of episodes from money for the rest of us and our premium podcast money for the rest of plus. First episode share is plus episode thirty eight from january twenty fifteen, followed by plus episode seventy three september twenty fifteen, episode one seventy eight from october twenty seventeen and then episode thirty five from january twenty nineteen. And these episodes share chAllenges in japan, my experiences in visiting japan, what unique about IT.

And after listening to that, i'll follow up with some some lessons that we can take away from those four episodes about japan and what we can learn from a thirty four year bear market. So with that, let's go ahead and i'll start with those two plus s episodes from twenty fifteen. If we continue, let me pause and share some words for one of these weak sponsors, monarch money.

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I've been pretty fascinated with japan the past, really three or four years. Japan was throughout my college and graduate school. This was sort of eighties to early ninety. Japan was sort of held out as the model of corporate efficiency and how to grow an economy.

And you know, afterward, war two in beginning in the four of sixties to the eighties and some of the highest growth rates in the world, IT was effectively like china is today, at least china was five years ago, celerity growth, export LED growth. And so they were always sort of pointed out as a very high quality products. And I think the term is curry to the all the sort of the corporate relationships between the different companies.

And in japan was the model up until about nineteen and ninety. And I remember living and working had a tempt job at a high tech firm. And one of the programmer there was really into buying call options on japanese stocks.

Call options are basic, Adrian ative security and you benefit when the stock Price goes up. And he'd put a lot of money because he had made a lot of money and he kept doubling down. And essentially early ninety ninety that year, nineteen ninety ninety, the stock market in japan fell by half that year.

And I just remember the first time, discouraged and frustrated he was because he had lost all this money in options. And I don't know how much he was investing in that, but that was sort of the beginning of what is known as the lost decades. And yet, when you use a turma lost decade, it's a label and it's hard to just but you just can't put labels on something like that.

I remember having, and i've mention this before I believe, dinner with a friend, a german expat who lives and work in japan. And I had mention the whole concept of lost decade and in potential suffering. And he said, if we were supposed to have a lost decade or nobody, somebody forgot to tell us in the words, it's hard to see suffering.

And my friend in japan didn't necessarily see that. He thought the per capital, the economy, japan has done OK in. In fact, I think per capital the past twenty years, IT has pretty much parallel.

The U. S. Overall, japanese economy has not grown as high.

But because the population is shrinking in japan, the economic output, or the measure of what was produced per person, has actually stayed fairly even with the us. But japan is a paradox. IT really is.

And because there's a number of things which japan and i've been there twice, so most recently in twenty thirteen, I was there in twenty ten and totally blown away by at least my westernize looking at what appeared to be a very harmonious culture, a sense of reference. Tokyo has got to be the quietest big city i've ever been in. No cars honking, very, very little that I heard.

And is not like new york, where you essentially communicate by hacking your hand with the tax drivers. You didn't see that in japan, taxi drivers wear White gloves at dories on the back of the seats. And those are some of the things I remembered, but just completely loan away by by how different IT was.

And ever since then, i've tried to try to understand japan because one of the things that fascinates me about IT is the quality of some of their essentially their hand made good or their their their text styles. They're es, they're fashion and certainly their electronics, but it's the the work wear the focal at and just how some of these things have been passed down and how the japanese people is what I saw. Really appreciate great classman ship and value that.

And so that was something that a toys fascinating, as I found, kind of these small motels. Es, in fact, it's amazing how many american or us heritage brands sell to japan and do special releases simply to japan. And you can only get the items in japan because is a demand for that, that high, very high quality and have fascination with with some american made goods. But then I contrast that with other things in japan, which gets back to this whole concept of mobile wealth, and or just time wealth.

really life time in in japan .

is very much overworked.

Thirty three person .

of japanese workers use up all their vacation compared to eighty nine percent in france, fifty seven percent us. And sixty to eighty hour work weeks is common. There is such a the desire, the cultural expectation that you don't leave your job and to your boss lives.

And Mandatory overtime is the norm where you generally don't leave your job to eight, nine o'clock. And that's starting sort of eight, nine the morning. And so these two of our days are common.

And there there's a phenomenon in japan e called two words. One is caro josette, which is suicide by overwork, and kroc I, which is death from overwork. And when graduate score and undergo, there's always this concept of lifetime employment. But the japanese workplace, at least as I understand IT for salary man is very high, archie. And so the essentially you're rewarded for perseverance and endurance, not necessarily creativity.

Now again, that's perhaps as a shares, but i'm basing at least on the research that i've done, I believe is well documented and number of other things, which pens, if you worked that you work many hours and a target time well and mobile wealth when there's level of expectation. And it's one reason the at leases, I see that the demographics are not japan's favor in terms of the population drinking because the men, particularly the men, work so many hours and women, journal speaking, are still not given the level or the the career opportunities that men are in japan. And so this is a lifetime workers.

But then you have the non regular workers, those that work temp jobs, which I believe the manufacture sectors up to forty percent. And in japan is really because it's perseverance is rewarded and endurance and rank in terms of how long you've been at a job is so key and respect for alters is so key. They generally only hire life.

My work is very Young. Right after college, you have kind of a window of one or two years. And if you do not have a full time regular employment by the time here in the late twice, it's very, very difficult to get higher.

You just don't 还 怎么办 of workforce that you see in other western nations。 Now I am not going to say that's bad or good. It's just it's a cultural observation.

And the point is mobile wealth, time wealth very much can differ from country to country. But even in japan, if someone wanted to, they could choose an entrepreneur lifestyle or a different lifestyle. And you starting to see some in japan do that.

But the culture expect 10。 The norm is still the sixty to eighty hours works week, lifetime employment, corporate culture. And we've amazing to see how that turns out. Very different from from what i'm used to. And obviously, everyone can kind of create their own life.

Okay, that was lus episode thirty eight. Let's continue with plus episode seventy three from september twenty fifteen.

Today, I want to talk about investing in japan. I got an email from a member who is moving back to japan and must her assets or invested in us dollars through us financial institutions. You're going to transfer back some of her assets back there.

But SHE SHE really is asking at some point he wants to purchase a home and and saw that i'd reduced my allocation to asia slightly. And just kind of one of to know about investing in japan, whether IT was a good market or not. Another one, SHE really asked whether I was defensive in japan.

So I wanted to share a little bit about my thoughts on them. I mean, he mentioned the increase in tourism related to the olympics in twenty twenty is bring some excitement, growth and construction in many retail services. But he doesn't want to lose her investment by the bubble like twenty years ago.

And so let me talk a little bit about japan. IT is not a country that I have significant investment. I'm not allocated to japan specifically.

I have in the past right after quantitative easing was announced in japan. But couple things when you look at the jane's stock market and I pulled up a chart this morning. So as you mentioned, the bubble burst to one one thousand nine hundred eighty nine.

The market has not ever fully recovered another. We've never japan has never hit the height that was achieved back in thousand nine hundred eighty nine m. And as we see here, almost twenty years later, IT never recovered.

The japanese talk market essentially has gone sideways. Now it's gone down. And IT certainly has done very well in the last year or two as quantitative easing economics was announced and you've seen a rebound.

But ultimately, there is a couple things going on in japan that provides some serious, serious long term headwinds. Now you had a debt bubble burst, and so you had A A long period of the leverage, particularly by the corporate sector. And their willingness to barrow was sort of like any any huge event, such as a depression like scenario causes some pause before people do the same thing over again.

I think some in the us. Have that regarding housing and sort of burn once, maybe not been willing to quite do that again. So there has been reluctance among the corporate sector to bar because of the just long delays, aging process.

But the main chAllenge with japan is the demographics, the population. Japan is shrinking its decline in the past year. And if we go back to the basis of investing, when you buy a stock, you essentially buying a discounted cash flow of future profit essentially.

So its future profits vad in today's dollar and that the theory oreos basis of investing in a stock and what drives us future profits collectively as an econic, it's an index attracts the the japanese stock market is the growth of the economy because as the economy grows that it's a very tight connection between economic growth, corporate profit growth and the two things at the core that drive economic growth are productivity increases. Other words, workers becoming more efficient, making things and an increase in population or crease in the number of workers. And so when you have a country where the population is shrinking, then that's a headwind because you don't have in half of the elements that drive the economy and economic growth and ultimately, corporate profit growth isn't there.

You have to be even more productive to compensate for the shrinking population. And that, in my view, is one of the huge risk to japan. And japan is a wonderful place to to live. In fact, the prony we've talked about going and just living for a number of months of japan is because it's such a pleasant place to visit.

But from investing standpoint, when you have that type of head win from a shrinking population, then that really puts a damper on the ability of companies over over the long term to grow the profit least domestically. Now a lot of companies in japan are able to export, and that certainly has provided some growth, particularly as the and has weakened. But that's one of my big concerns with japan.

And I think that does reflect in the stock market, right, if the long term expectation is going to be more difficult for companies to grow the corporate profits because that is chAllenge for the economy to grow because a population is not growing. Perhaps that is waning down on on the stock mark. And why is never surpassed in twenty years? It's still below its high back in one thousand and eighty nine.

And clearly, eighty nine was a bubble. So for this member that's moving back to japan, I personally, if I was moving back to japan, I would continue to heavily diversify my investing to other countries and perhaps you have some exposure. And you know, i'm comfortable having some exposure japan right now for some of the things that, that the very positive market internals, right where you do see you do have this excitement about the olympic and and clearly, if the central bank is buying stocks that has attracted other foreign story in japan. And so those are are sort of short intermediate positives, but the longer term trends are a little disconcerting.

In september, october seventeen, I visited japan for twelve days. This is episode that I recorded right after getting back on my impression of japan, things that I learned on that trip. I recently .

returned from twelve days or so in japan. When I travel there and time, it's plebe overwhelming so many people. And just there, is there a quote by pico e east and author, he lives in japan, and he pretty much sums up how I felt as they travel there is from a peace titled why we travel, he write, but for the rest of us, the sovereign edom of traveling comes in the fact that IT words you around and turn you upside down and stands everything you took for granted on its head.

That's how I felt just completely turned upside down at one point, my son and I were traveling with during rush hour. We're on the train going from esom, ia. To me, this is in north of tokyo.

N and train is crowded. Nobody says anything. Very, very quiet and White kind of looks down.

Nobody stares in japan. And we got off and stop swarm of people caring us. Japan visually stimulating tire, including tokyo, is population of nine million people.

The greater tokyo area, around thirty two million people. I heard only one car or n honk. People don't walk their bikes. The kids ride and walk to school by their cells. Small, small children.

I saw one child, must have been eight, and we in ku and busy, busy intersection, just right through, right, that all the people coming at and cross at the saw the rice harvest for the first time I did see home with people are very, very few. And those that I saw were just under under the underpasses in homes they made out of box is very elaborate homes. No one asks for money the entire week.

We stay at traditional yoka trip hotel and with an on the bath and just to be there to observe and it's hard to it's just anni goes somewhere you really just get anette that can turn you completely around. The cars in japan, we rented a toyota Carola, and I felt like one of the biggest cars on the road because the lanes are very narrow and most cars were smaller than that. And you drive on the left side of the road, which i've done before, but can be very confusing.

The hardest part this time though is because you're driving on the left side of the road. Your steering wheel is on the right side. Car and your turn signal, you do use IT with your right hand.

Instead, you're left and your left of the wiper blades. So for the first few days, I was constantly turning on the wiper blades in order to signal my turn. But then after a week or so, I got used to that.

When I come back to at home, i'm always turning on my wipe blades with my right hand to signal my turn. The thing I noticed is cold in japan alive. They don't often heat. We were using our bnb mostly, often the front rooms with the heaters or space heating, typically and often the kitchen dining area isn't heated. I have no idea why the total room is never heated, is why the japanese is a perfected the art of the heated toilet seat.

But you sit at the table, because you sit on the ground to pick at a very low table, but is usually, often a heating blanket right there run the table to keep you want new heat. But as a result, japan uses about half the energy of U. S.

On a per capital basis. Probably the biggest thing I noticed, especially as you go out in the countryside, is many of the workers really, really old. The security guards, most of them were in their seventies.

The garbage men, many of them were in their seventies, maybe older, because japanese, generally speaking, always Young as they age. So I don't hold clearly. There was a lot of older people continuing to work.

Tokyo seems very, very Young, Young people. But you go out into the countryside and it's mostly older people. A for this is japan's population is shrinking. They peaked in two thousand eight at one hundred and twenty eight million.

Now the population is one hundred and twenty seven million, and the national institute of population and such security research estimates that by twenty sixty five, the population in japan will be only eighty eight million, thirty percent decline in the population. And the Young people are attracted, like in many countries, to the city. Tokyo, greater tokyo area.

I spoke at thirty eight million, and people, tokyo cities for nine point three million. And there's plenty of jobs in tokyo. There are two job openings for every candidate in tokyo uninflected ate to across the country is two point eight percent.

So with a shrinking population, plenty of jobs. And if you're older, you can continue to work, to encourage to work, because who's gonna collect the garbage? If there's no Young people in the village or town to do IT.

We visited the monk where my son cut wood. This is the monk that book monk and pottery. He cut wood for him, split words for two weeks.

About three years ago, we went back small town. Where is this monkey? Nice, nice.

He says, have no money. All I have is wood, and he had piles of IT everywhere. He burns his killing once year.

But in that town they they shut the school down, cause to really there wasn't any more kids in a small little village need to school there. The world population is expected to an increase by twenty eight percent from twenty sixteen to twenty and fifty. There are countries where their population is expected to strike.

Japan is the leader in that value by polin hungry germany. Taiwan are expected to have population declines of greater than ten percent. Russia, portugal, hong kong, n Green, south korea and china will see their populations likely slump ed by over five percent. And one of the the contributions primary deep terminals of economic growth is how many workers are there and is the working age population increasing convenience? David bloom and David canning found that when you increase the growth rate in the working age population as a share, the total population by one percentage point, that result an increase in the rate in per capital GDP of one point four percent.

And why is that? Well, economic growth, the function of workers, long term economic growth, the number of workers and how productive they are as the working age population or the working the working age population grows, they actually that means more economic growth because you do have more workers. We also get higher productivity because those workers have skills that that develop in as longer as we talk about last weeks, long as were investing in their skills to improve them in keeping up the day.

But just when you start a new job, you gradually get Better just naturally over time, hopefully. And so as you have a youth move into the working age, you get this productivity increase as you get this these grounds while the workers getting more productive. And as there are less youth dependence, have freeze up capital that can be put to use in capital expenditure and productivity enhancing project.

And as a result, as the working age population increases, you see higher economic growth and you see Better performance for the stock market, because the faster the the growth, the greater the corporate profits, and long term stock returns are higher in countries that are experiencing economic growth and experiencing an increase in the working age population as a percent of the total population. Today around the world, sixty six percent of the world's population is working age, and by twenty fifty is expected to fault a sixty three percent. But in japan, they're going have a small list share of the world's working age population.

By twenty fifty, only forty nine percent and forty percent of their population will be seniors, the elderly. Japan's working age pulag, as a percent of its total population peak in nineteen ninety two. So the population is shrinking, but it's also getting older.

The dependency ratio of the seniors to the working population is is getting more severe. So right now, there are roughly two people of working age per senior, but it's expected to grow to two retirees for every three workers by the year twenty fifty. So going to have fewer people supporting each tire.

And that also has an impact on the budget, right? entrepreneurs'. About sixteen point six percent of GDP on benefits to the elderly is expected to grow to twenty point nine percent by twenty four or to U.

S. Spends about thirteen point six percent of GDP and benefits for the elderly expected to to eighteen point five percent. But there are some countries that are even worse.

Italy in french, both spent about twenty percent of GDP currently on the elderly and is expected growth the twenty four to twenty six percent by the year twenty forty. So that that's a chAllenge. But the chAllenge is it's not so much of this accounting issues.

One percent of GDP is being spent on the elderly whose spending the money? How much is the government spending? The mental issue is will there be enough workers to produce the goods and services that the aging population needs?

If there's not enough workers and not able to to somehow, then you're gonna a get inflation because you get constrained capacity. Now japan is not suffering any type of of inflation at present. really.

They have been fighting against deflation. A friend that we met up with in tokyo looking to buy their first home, and he wrote me the other day he wanted to know shei. Go with a variable rate loan or a fixed rate loan.

Check out these interest rates, variable rate loan interest ate was zero point six five percent, and the fix rate was zero point nine seven percent. Imagine have a mortgage rate with under one percent, that's what you get in japan. Plus they get a subsidy of up to one percent at the purchase Price of their home from the government to buy this home.

And that's for a thirty five year mortgage, very, very long mortgage. So what can japan and other countries do to make sure there's enough workers that they are able to produce the goods and service they need to support an aging and a shrinking population? But the first thing they can do is they could increase the female labor force participation rate.

New s about fifty seven percent of women are working, only forty eight percent often times when a woman, they have a child that they stopped working. And there's something within the japanese culture that discourages that the women continuing to work as they get older. That's probably something that's gonna to change.

I saw they were in the mist of the the election for the lower house of parliament and SHE drive around japan in the rural areas. There is his sign. There's his wooden sign boards.

And people put their candidates for parliament, put up the picture, and their name mostly men. York times reports. Only nine percent of seats in the lower house of parliament are held by women.

Hot ranks, a hundred and sixty five out of a hundred and ninety three countries that not not real diverse in terms of the parliament, and fewer than one in five candidate's running in sunday's election is past sunday. Or women. And in that also is you see that in the workforce.

So you need a higher female participation rate in the workforce to sort of have the workforce to produce the goods services of an aging population. Another option is immigration. Japan has not been particularly open to immigration.

As you as you go around tokyo and around the country, most japanese, when there was in norway, you go around and you see a large number of immigrants. Japan's expected lose six million people, ages fifteen to fifty four, as the country ages over the next decade. And so to replace, said you would need up to six hundred thousand immigrants per year.

And the governments tried to put into place some programs, column internships, to attract mainly cheap labor to work on the farm. Since some of the factories, a lot of lot of, I guess, from china, but IT IT needs to be, I mean, if you can use immigration, it's gona be hundreds and hundreds of thousands of new immigrants per year. The other option is automation.

robots. Here's a country of automation, is not going to take jobs away from workers in the sense that the workers won't have jobs and the unsupplied arise because of a shrinking population. They really can benefit from motivation and robotics.

So more women in the workforce, more immigrants and more automation will help japan offset a shrinking population and is enough good and services to meet the needs of seniors. Now, whatever we talk about drinking population have talked about this in earlier episodes. What about the debt? Pan has the highest independent of any country in the world.

In terms of government debt, will they default? Well, interesting peace by noah Smith of bloomberg from last month. He write, since the vast bug of japan's government debt is owned by japanese people, the question isn't about paying back external creditors.

The matter of distribution of economic resources among the japanese people, the government defaulted on its debt tomorrow IT would certainly hurt the financial system and cause a recession. The most, most lasting effect would be to let japanese taxpayers of the look. While japanese bondholders would find themselves less wealthy, the country wouldn't have a fundamentally weaker economy.

All the factories and land and people, and know how would still be there, but the promises about who gets to receive the fruits of that economy would be shifted. That's the point. I've made, an enumeration episode. The wealth of a nation is its ability to produce. It's its workers IT, its land, its factory, its people.

And if japan decides to default on its debt because IT would be a decision, then its distribution strip tion in terms potentially in that the elderly who old most of those bonds as a retirement service and IT would be disruptive counting and they will work IT out your pain. Population is aging, but in adapt all APP they were seeing. Now, when you see seventy five old garbage men, that apt, when you see the automation just share number of vending machines everywhere, doesn't take as many workers if you're buying food from a vending machine is opposed to a restaurant, more automation adapt.

When you look at the title impact on the jette's stock market long term, they're not a country where the working age population is going to be growing. It's gna peak in twenty twenty, but then it's gonna be a demographic headwind, which is wise investors is often good to overweight areas that have a demographic dividend where you see the working age population increasing. And by a large, those a Younger, less developed countries emerging markets have demographic tewin.

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Right now. Download next sweets, popular KPI checklist designed to give you consistently excEllent performance, absolutely free at net sweet dot. Come slash David, that's net sweet dot.

Come slash David to get your own KPI checklist. Next sweet outcome, slash David. This episode is ephod two thirty five, recorded in japan january twenty nineteen, about the japanese housing market and how different IT is. I hope you enjoy the segment of that episode. But what's .

interesting, over the last three weeks, we've been traveling in japan, currently recording this in tokyo. It's a very different housing market in many ways. It's an anti bubble japan land Prices.

And I pulled this up from an angle study on japanese home Prices are link to IT in the show attack, I forget the name of the bank, the japanese bank that compiles the data. But nationally, since nineteen ninety one, I was the peak of the japanese housing market. Home Prices have fAllen or access is just land.

This is just land, the valuable part of a house or a residential area. IT has fAllen twenty three out of the past twenty eight years, and land values, specially in japan, have fAllen fifty percent since nineteen ninety one. And they've declined one and a height percent.

Analyze the past decade. Twenty eighteen was the first year in many years that japanese plan Prices were positive of zero point three percent. Toko s done a little Better.

They have tokyo area land Prices have fAllen twenty out of the past twenty nine years. Land Prices have declined seventy percent since nineteen ninety one. There was a bigger bubble there. The average decline has been one percent per year over the past decade. So it's not fAllen quite as much as naturally, which fell one and a half percent annually.

But over the past five years, it's actually been positive, zero point seven average appreciation for land Prices in the toko area over the last five years, and there are up one percent and twenty eighteen. But the trend has been down every year, particularly if you get outside of the toko area. And partly why? Because as we talked about other episodes, the demographics, the population with the japan is shrinking.

There are less people to own land. And as a result, land has been in a downward Price spiral. What about houses? I mean, that's land.

Maybe houses are actually doing Better than land, and you can, you can get appreciation. No, this is from the guardian. This is an article.

And november twenty sixteen, it's titled raise, rebuild, repeat. Why japan knocked down its houses after thirty years. The court is unlike in other countries, japanese homes gradually appreciate over time, becoming completely values. Within twenty or thirty years, when someone moves out of a home or dies, the house, unlike the land IT sits on, has no real value and is typically demolished.

This scraped and build approach is a cork of the japanese housing market that can be explained variously by low quality construction to quickly be demand up to the second worldwind, repeated building code revisions to improve earthquake resilience, and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale. So if the house is are gonna appreciate anyway, how much do you put into the house and how much quality do you put into IT? We're staying in a duplex in tokyo in the a goral area and the owner lives upstairs and we're downstairs twenty seven year old house.

After how long she's liked her, he says he was born here. SHE is found sixty, and she's lived in the same spot. But they tore the house down twenty seven years ago and build a new one.

And when I ask that Normal, SHE seemed surprised by the question, of course it's Normal. What else would you do? How's good old come down? In fact, as I record this, they're building a house about thirty feet away.

It's really noisy. I waited till they went to lunch. Hopefully they're gone to lunch. But when the workers come back, you're you hear hammering and song because they are rebuilding a house that was torn down. My friend lives out in the tokyo area out by nina airport.

They bought a house in the last year, and it's a tough decision to buy a house. Mortgage rates are really attractive. You can get a twenty one and thirty five year old, thirty five year mortgage for zero point nine percent as a january twenty nineteen, less than one percent for a mortgage.

They bought a house. It's ninety seven square meters, about two hundred and ninety one square feet. It's very small, he says.

And they pay two hundred thousand dollars for said that was an inexpensive for the area. They were originally asking three hundred thousand, but they lowered IT because they weren't sure it's gonna ll fast enough. And after a few months, IT wasn't considered new do anymore even though no one had ever lived in IT.

And you've actually done that. He and my son, they've i've seen home builders tired down a brand new house that no one ever bought into. Rebuild a new one because IT was old.

And that that's a cork. But something has been calling on for generations in japan. There's another cork about japanese houses.

We've stayed in five different airbnb s on this trip, kyoto ka a, the godmother preference in tokyo. And defining characteristic is each one of those houses, some are new, some are older. They are absolutely freezing.

The entry ways, the house ways, the bathroom, no heat at all. Temperatures here in forty, in in the forties, going down into the thirties, fair height at night, you'd want some heat in the bathroom. And the japanese were innovative. They have heated toilet seats, yet the bathrooms have no heat. Several, the homes we stated and had no heat even in the kitchen, very little installation in japanese homes.

Why is IT? Why are japanese houses so so cold? The first reason I thought that japanese houses were so cold is because if you're buying a appreciating asset, why put that to IT if you know it's gonna fall in Price? But that turns out not to be the case.

Here's an article from the financial times. They write that japanese houses traditionally prioritize air flow over insulation with paper screens, bamboo shutters and permeable walls, saving the house from more. And that continued to today, and that they hit one of room at a time.

And IT saves energy. Japan uses a quarter of the energy for heating, as germany does. Your article points out. And here's a quote from alistair townson. He cofounder about coco is a tokyo architectural practice.

He writes, the attitude to the thermal environment is different in japan is getting snug under a coats which they hit the table, rather than walking through the house in A T shirt. And the article says, unlike most other developed countries, japan has never graduated from local eight sources such as heart to a thermostat system. Now people rely on air conditioners, gas or caring heart, or simply attending ate soaked in a scalding hot bath to get them through, actually, evening so IT.

Because they're cheap, they'd like that connection to the outdoors, which being called, I saw this in gooda, which is north about eighty months north of tokyo, surrounded by mountain, really pretty areas that it's the area that my auto son is teaching at. And we went and visited the home of one of the art teachers in the elementary school where he works. And we met with the teacher, we met with her parents who were in there are seventies, and and we tucked into this house, in this room with the Tommy math, and we were under one of these katou.

These heated tables stuck our feet under there. There was a heater under there, and we had to be under there because the rum is called, but he was probably forty eight degrees outside. There was not.

The heater was not on the head. The screen sliding doors opened to a sun room or a cat with bathing in the sun or just taking in the sunlight. And we were overlooking a beautiful ly manicured garden.

And I asked the ha, how long had SHE lived there forty one years? So this was a house they hadn't torn down when he was a child. They lived in the apartment, and then they moved in this house next to her grandparent.

When the grandparent die, they put the two houses together. The old man than the seventies was, were in a hat. Fingerless c loves was cold. And eventually we are a couple hours, and we shut those sliding screen doors. We were tucked in under this table.

We finally turned on the heat, but the game to realize that there's actually econic get used to to that when our son has asked the japanese, why do they do that? Is is sort of, is heat the table. And this kind of what we do, and you realize for generations they've done, they like that connection to the outdoors to have more, to have some airflow in the house and be able to look out onto the gardens.

And then gardens are some of these, these much older temples are situated that way. Should that be what we do? If we know if we're in a living in area where we know a house that we buy is gonna fall in pressure, we build as cheaply and as small as possible.

I don't think so. When you buy a car, you know the cars gona fall in value. But we don't buy the cheapest car.

Some do. And I can tell you they're in japan. They have called k cars. In k cars actually get a special, they get a yellow license ate because in in japan, pay taxes each year on your car.

And if you have A K car, are very small microphone car that doesn't go very fast, you don't have to pay as many taxes, but as the car gets order, taxes should go up on the car and to have newer cars, just like this incentive, or least the desire to earn a newer house. But some people are willing to take to buy a nicer car, even though the dollars they will lose in terms of depreciation is greater. And why they, why they want, they do that.

What's lifestyle? We want certain things, and we willings long as you recognize. And there's no guarantee if you buy a house in the U. S, where you buy a house in area where there is a bubble or this house that we are buying in phoenix is not going to fall in value.

And so when when you think about what should I buy, you can rent and and be absolutely assured you'll be out of that money or you can buy and you'll know what the insurance cost to be in the taxes. But you won't know whether the houseful fall in value. You will in japan, gonna fall in value because the population is shrinking and even other starting to refurbish older homes.

That is not part of the culture. They want newer homes and they want homes without central heating. Different in other places in in asia, in korea, the houses in south korea, the houses have central heating.

They have heated by water flowing through underneath the floors. Damian plan again wrote in japan times. He bought a house in japan, knowing IT would fall in Price.

And he kind of describe the housing dynamics that we have. Many in this episode black can write, my house is the physical manifestation of my lifelong commitment to japan. And even at one point in the future, the houses destroyed.

What will always in door is the land that that connection to a very specific place in a tiny piece of japanese soil is, for me, an almost spiritual by. And I could see this with the the woman whose whose house were we're living in right now. She's been on this spot of land her entire life, even though it's the second house that's been there.

Planning continues. If you wish to invest in such a japanese home, be prepared for the way that the building itself will assume a place in your heart. Your return on that investment is best measured in terms of the pleasure IT will yield and the door way to the intimacies of community and the japanese mind IT will lure you into.

We should always go, and I think, to a house that you buy for the life stories, considering that I could fall in value, maybe not as guarantee as IT would be in japan, when you have a shrinking population, you just have a culture of new house are worth more than older ones and that they're torn down, often after thirty years. But even if you live somewhere else, don't go in hoping. IT will appreciate that we've done episodes on that often times what people believe is the again, they are getting from the houses as the leverage they have been deployed when they borrow ed eighty, the eighty percent of the value and IT goes up a little bit by inflation that magnifies your gain.

But many learned in two thousand six, two thousand seven the dangers of leverage and how that equity, if there wasn't IT, can be eaten up very quickly when home Prices fall. So when you buy, don't use, try to use as little leverage as possible. And your choice, based on lives I don't reach to get the biggest house. You can just choose to live somewhere where you can have a connection to community and establish those routes and decide how much potential depreciation you ready to take .

if home Prices for those that are excerpts from four episodes, what can we learn from them and from what's going on with japan? But the first is bubbles can take a really long time to work through if you're buying stocks at the P E fifty two and they disappoint on the earnings front, IT can take a long time before they exceed that prior high. Now a second lesson is demographics and productivity are a huge driver of those long term returns.

And in japanese, companies have begun to to be more patient, seeing more women in the workforce, seeing Better management of baLance sheet, with the japanese stock market being inexpensive. That that's one reason I have around sixteen percent of my stock allocation in japanese stocks. We also have around sixteen percent allocated to japanese stocks in the money for the restless plus adaptive motor portfolio, ample es.

And so we'll see how things play out in the future. The third lesson, and hopefully was conveyed in this episode as the stock market doesn't equal quality of life. That's just one aspect of life.

Japan is a pleasant place to live. Fourth lesson is market dominance can change over time. The japan being really the largest stock market in the world, back in one thousand nine hundred and eighty.

At nine, thirty seven percent of the overall stock market. Now at six, the U. S.

Is at fifty eight percent of the global stock market as measured by size or market capitalization is IT gonna keep getting bigger, probably not more likely it'll become a smaller portion, but we don't know by how much. That's why we want global diversity. And finally, the fifth musson is all countries have their chAllenges.

They are unique, and ultimately, they have to figure this out as they move through. They have financial chAllenges, economic chAllenges, political chAllenges. And things can change over time. Money for the rest of us.

In the asia camp, we're focused on the stock market long term drivers, the impact of cash low, the growth in that cash low, what investors are paying for that cash low. But that's really just one aspect of any country. Everything else going on can influence that.

And that's what we've seen in japan over the past thirty four years. Only return one point one percent analyze because of the political, the financial, the economic chAllenges and the fact that had started at a bubble with the p ratio of over fifty back in one nine hundred. And I hope you've enjoy this extended episode of money for the rest.

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