I've been looking at stocks since I was in high school, back in the late 1970s. I eventually chose to turn my fascination with investments into a career. I figured stocks represented the single-best path to wealth creation, thanks to one simple statistic: If you hold an investment for an extended period, then history shows that riskier investments will generate better returns. This means during any 20-year period going back to the Great Depression, stocks always outperformed bonds
, and bonds always outperformed cash. Because I was planning on a 50-year career, I was well prepared for short-term plunges, with the expectation that stocks would make up lost ground -- and then some -- during the subsequent decade.
That axiom still applies here in the United States. The S&P 500 has more than doubled in value since 1990, even with the gut-wrenching past few years.
But for Japan, that axiom is no longer true...
Home to the world's second-largest economy, Japan has seen its main stock index, the Nikkei, tumble, tumble again and tumble some more during the past 20 years. Take a look...
Frankly, it's hard to see how Japan's Nikkei index will ever revisit the 37,000 mark it reached in 1990 -- at least in our lifetime. It would take an unimaginable 350% upward move. Sure, small but fast-growing markets can generate this kind of gain within a few decades, but Japan is a mature economy with far too many demographic and fiscal headwinds. And yet, for contrarian investors, this market holds some tremendous bargains. These bargains involve companies that are thriving in the global economy, even if their home country's too-strong currency makes life difficult for exporters.
Focus on banks
While most global banks were making loans to debt-addled governments in Europe, Japanese banks steered clear and will not likely need to take write-downs if Europe goes into a deep funk.