I have recently become a regular reader of John Mauldin's Weekly E-Letter (free subscription) and wanted to pass along something very interesting that I read:
A true secular bear market has not really taken place in the US, but one has occurred across the pond in Japan. The market decline caused by the Great Depression, though referred to as the greatest decline in US stocks in the 20th century, only lasted three years and thus doesn't really fit the traditional "secular" requirement of lasting more than five years. Japan's Nikkei 225 suffered (see Exhibit 5) through a true secular bear market: stock prices declined over 80 percent from their 1989-1991 highs until they bottomed in 2003 (the market seems to be coming back now).Sound vaguely familiar?
For more than a decade the country struggled with deflation caused by its banking system coming to a near halt on the heels of a collapsing real estate market and the bad loans that came with it. Of course, all this took place on the heels of a huge bull market, and thus very high valuations.
So, what's a person to do? Looks like it's time to do one of two things, depending on how you think this might play out. The passive way, if you think this is a US issue (most other countries are not in a recession right now and may not be in one for a few years), is to invest in foreign mutual funds (like an index fund). The active way, which can work in any market, is to invest in quality companies that will not only ride out any storm but which can prosper in trying times.
Who might these companies be? I'd look to history to see. What companies not only survived but thrived our last real bear market? What companies have prospered in Japan's horrible investment environment the last 18 years?
I think this is where we'll find answers.