I will never forget (this is a completely true story) riding in business class someplace 10 years ago, reading a Business Week article about the Japanese stock market, which had just reached 40,000 on the “Nikkei Dow.” Even at 20,000 a year or two earlier, people were marveling at it and looking for ways to short it. (Happily, I didn’t find a way until it had doubled.) At 20,000, it seemed awfully rich. And now, as I flew out to the West Coast, it was 40,000.

Not to deny that the Japanese had the rest of the world way beat in consumer technology and production methods and management and the harmony of their work force. They did. No matter how high the yen got (or how high the price of oil some years earlier, of which they produce none), they found ways to produce more efficiently and keep their quality products competitively priced. And their kids spent more time in school than ours, and there was no crime, and their cholesterol levels were half mine, and — while there is no shame in being the number two economic power in the world — it was obviously going to take the U.S. a lot of getting used to. Yet it was a real possibility. So maybe 20,000 was justified — but 40,000? One of the Japanese money managers in the article was quoted saying the market, at 40,000, was a clear buy. I circled that quote.

Meanwhile, I kept looking over at my seatmate, wondering whether I should ask him about this, because, truth to tell, he appeared to be Japanese himself. We got into a little general conversation — it turned out he was a financial whiz — and I asked him what he thought of the Japanese market. Could it go any higher? Was it poised to fall?

He fielded the question with youthful enthusiasm, saying that he thought the Nikkei was in a long-term upswing, all signals go . . . digging into his briefcase as he spoke and pulling out the same issue of Business Week I had been reading and pointing — THIS IS A COMPLETELY TRUE STORY — to the quote I had just circled. “Look,” he said a little flushed by the headiness of it all. “They quoted me.”

Next to my Elaine May story (you’ll just have to wait for that one), or possibly Karel Urbanek (that one, too), this was surely the spookiest thing that has ever happened to me.

Even so, I was sure this young financial whiz was wrong, and a decade later the Nikkei Dow, having gotten down into the 13,000s and 14,000s for quite a while, is finally showing signs of life.

So is now the time to buy? I long since lost that fellow’s business card, and he’s probably switched jobs by now, so we will just have to dope this out by ourselves.

Doug Aker writes: “Your brief reference in your column a few days ago about investing in Japan got me wondering perhaps you were thinking the same thing I was. To those who may NOT be thinking along these lines, an exercise: go to http://quote.yahoo.com and compare 10 year charts for ^DJI (Dow) vs. ^N225 (Nikkei). Then ask yourself: Over the next five years, what’s more likely: Dow 20,000 or Nikkei 32,000 (or even 40,000)? If Japan (STILL the world’s #2 economy) is now truly poised for a rebound, the Nikkei’s got a lot of catching up to do. To those who feel BURNED about not getting into the US stock market in the early 90’s, Japan’s your chance to take a trip in a time machine.”

So I was all set to run out and add to my position in a stock called Tokyo Marine (TKIOY), which I had bought at 51 and was already up to 59, when I opened this, from Malcolm Bersohn:

“I’m the guy who went to Horace Mann 20-30 years before you and yet a couple of our teachers were the same. I also recommended Merck to you when it was about 45. [It’s 80 or so today.] Anyway, those are my two claims to fame. I strongly advise you not to hint to anybody that they should buy Japanese stocks. You are probably thinking that matters are like a pendulum, the Japanese economy swings up then down, soon up again, then much later down again etc. etc. Actually and sadly for the hardworking Japanese ordinary people, the pendulum is now broken. It might take half a century to fix.”

And when you think about it in really simplistic terms (when have I ever not?), if Japan’s index seemed very high at 20,000 ten years ago, why should it seem a bargain at 16,000 today? Is its economy in nearly as strong a competitive position as it was ten years ago? No. Has it grown since then? Not much. Have we and the Europeans gotten leaner and meaner? Yes. Have other Asian countries with much lower labor costs gotten more technologically proficient? Yes. So is there much reason to see the Nikkei run back to 40,000 any time soon? None.


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