It’s easy to see how sustained success can cause overconfidence. Let’s say you live in a country where the stock market index has trounced the rest of the world for two decades. I’m talking left everything in the dust, destroyed the competition, gave no mercy performance. Your country’s stock market index is up 17% per year for 20 years. The rest of the world is up a measly 7% per year.
You’d be hearing all sorts of articles of how your economy is more conducive to growth, your companies innovate better than anyone else, your management philosophy and corporate governance are superior. Your stocks dominate emerging industries. It doesn’t look like anything can stop you.
If you lived in Japan in 1989, it would be easy to see how you might throw caution to the wind and go all in on Japanese stocks. 20 years of superior performance is enough to prove sustained success, right?
Wrong. The party ended shortly thereafter. The Nikkei (Japanese) stock index lost 38% of its value in 1990. It didn’t hit a new high again until 2024. Meanwhile the rest of the world’s stocks earned 9% per year for those 24 years (MSCI World ex-Japan Index (JPY) 1/1/1990-2/1/2024).
History doesn’t repeat itself, but it often rhymes. We’re living in a world where U.S. stocks have destroyed the rest of the world for 15-20 years. Our tech companies have clobbered the competition. Our capital markets are the envy of the world.
Where do we go from here? I’m not going to say it can’t continue. I will say we’re not likely to see a repeat of the last 15-20 years. Size your investments appropriately. Global diversification is your friend.
About the Author: John O’Connor
John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2024. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.