NikkeiShizuo Kambayashi
It's very easy to ignore Japan. Despite a few bounces here and there, the stock market's performance has been dismal over the past two decades. The benchmark Nikkei 225 hit a record high in 1989, and then slid an astonishing 82 per cent by March, 2009, when it touched a 28-year low.
Yes, you read those numbers correctly. Despite a slight rise in the stock market over the past four months, the corporate profit picture in the country remains so ugly that the Nikkei 225 no longer has a price-to-earnings ratio. That's because the collective earnings of all the companies in the index have turned negative.
If you're like many investors, you now stay clear of Japan, looking at it only as a series of misadventures to avoid elsewhere. Its boom in the 1980s was the ultimate stock market bubble, the aftermath was the ultimate stock market crash, the declining population is the ultimate demographics nightmare, and the past decade of recessions and deflation is upheld as the ultimate in bad economic policy that should not be repeated (we hope).
Brave souls have taken a chance on Japan many times over the past 10 or so years, most recently after the end of the previous U.S. recession earlier this decade, when Japan's economy showed signs of posting reasonably upbeat growth and the Nikkei 225 jumped 90 per cent between 2006 and 2007.
But before anyone could scream "Japan is back!", these investors were proved wrong. Disappointment returned, and with it capitulation.
You remember capitulation: The term was used a lot in 2008 and earlier this year, anticipated by anyone with a little cash in their pockets.
It meant that all the money that would ever be on the sidelines was now on the sidelines - and when it moved back into the market, stocks would soar.
In short, capitulation signalled the stock market had hit rock bottom. Even though capitulation is never officially declared, the thought of it marked a buying opportunity.
The trouble with Japan is that, after 20 years of profound disappointment, no one has any confidence that stocks have actually hit their lowest levels and are now poised for a meaningful - and long-lasting - rebound. That is what true capitulation looks like. It's terrible, and it provides every reason you need to avoid an investment in Japan.
But wait a minute: If capitulation is a good thing, and if investors have indeed capitulated on Japan, then is Japan a worthwhile investment - say, through an index fund that tracks the Nikkei 225?
Answering no, never, forget-about-it means there might be some upside here.
David Berman