Similarity between China and Japan Stock Market Story

The Japanese market's experience in the late 1980s serves as a cautionary tale. After peaking at 38,294, the market suffered a severe correction, taking 40 years to recover. Similarly, the Chinese stock market has been experiencing a downturn since 2018, with eerie parallels to Japan's trajectory. Although Shanghai's data is limited, the FXI (China's equivalent of the S&P 500) and KWEB (China's equivalent of the Nasdaq) track the Hong Kong Stock Exchange and exhibit similar patterns.

In the late 1980s, Japan's stock market plummeted 60% within three years, bottoming out at 15,497. However, it took two decades to find its true bottom, sinking further to 8,190 in 2003 and eventually hitting 7,229.72 in February 2009 - an 81% decline over 20 years. Yet, after finding its bottom, the market staged a remarkable recovery, surging 554% to a recent high of 40,063.79, outpacing the S&P 500's 517% gain since 2009.

Fast-forward to China: the Hong Kong market peaked at 32,887 in January 2018 and has since corrected by 14,863 (around 55%) in just four years. This mirrors Japan's initial decline, followed by a further 50% drop over the next decade. This unsettling similarity has led many to label China's market as "uninvestable." While history doesn't repeat itself, it often rhymes, and the parallels between Japan's and China's market trajectories are striking.

Building Stock Portfolio

 If I have to start my life again - and construct a stock portfolio from scratch, following are the steps I would take: 

1. From each and every paycheck - I will divide it in 2 separate accounts. 80% of the money goes to my regular account from where I have to pay my bills, and the basic needs and wants of day to day life. Other 20% goes to the investment account. This way, I ensure from every paycheck, I am putting down 20% for my future. 

2. From the investment account - I will have a direct deposit to my investing portfolio - I set up a recurring buy to 20 stocks so that 1% of my paycheck goes to that particular stock buying. 

3. As of today - August 13, 2023 - my favorite 20 stocks are: NVDA, UBER, PLTR, DKNG, CRWD, DECK, MELI, CMG, Z, OKTA, NFLX, META, COST, AXP, AMZN, MAR, QCOM, BKNG, HD, ERJ. 

4. Now, assuming, your salary after tax (take home cash) is around 120K, which means, each month you get cash of 10K, if you get bi-monthly paycheck that would be 5K, 20% of that would be 1K, so from each paycheck, you would be buying $50 worth of each of the above mention stocks. Now, there are plenty of trading platforms which allows fraction stock buying, so all you have to do is spend perhaps 30 minutes of your time, once and set up the account (say Robin Hood or M1 Finance), that from each paycheck, you are buying total of $1,000 stocks, distributed equally to 20 stocks. 

5. You do not have to pick the same 20 stocks (that I suggested), you can be innovative and pick something else. Perhaps you like AMD (compare to NVDA) or you like (AVGO compare to QCOM), or you like ONON or NKE or SKX or CROX in shoes compare to Hoka Shoes company (DECK), or you like Tesla compare to DKNG or you like Boeing compare to ERJ or you like Hyatt or Hilton brand compare to Marriott or you like Expedia or AirBnB compare to BKNG or Capital One compare to American Express and so on, You can change the stocks or companies based on your likes and dislikes. But make sure the list is of minimum 20 stocks (so that you are not putting more than 5% of your money in a single stock). Ideal Portfolio for most successful traders include 20-28 stocks, so do not be afraid to have more stocks. 

6. Let the set up run for 6 months or a year and you find that there is a stock which is down more than 20%. Do not Sell that stock. Let whatever you have bought be it in the portfolio. But replace that from buying list with something else. This way, you are not averaging down on your losers at the same time you are giving them a chance to come back to life in future. 

7. Keep updating portfolio with new technology, new things that keeps coming every year and keep buying it. 

8. This method is based on 3 core principles: 1) Buy Daily (well, per each paycheck), 2) Buy Small (just 20% of your paycheck) 3) Never Sell. 

9. Do this for the 10-15 years, and you will see a magical return. If you have put in say 400K in 10-15 years, your portfolio will be grown to 1 Million Dollars and above and This is just a start. This 10-15 year was your "Accumulation Phase", where you have accumulated stocks and it has given you above average return. but the exponential growth will start after the accumulation phase. If you keep that 1 million dollar portfolio as is for next 10 years, you will see it has grown to 3-5 Million Dollars. You keep it for another 10 years, it will be 10 Million and so on. 

10. Now, the obvious question that will be asked is when do you sell and enjoy the profit? Well - certainly not during the accumulation phase. But after that, you have given 10-15 years and say, you have 70-80 stocks in it, not everyone is giving you profit. There are going to be some losers. Sell them first. Also, how much you have to sell? Well, 4% in each year, you can sell. So once your portfolio has grown to a million dollars, each year, you can sell 40,000$ worth of portfolio and still be able to enjoy the similar growth for next 10-20 years.