There are so many potential topics to address these days but I found two particularly compelling. Perhaps what made them interesting to me is that they are nearly diametrically opposed. One is a story of persistent success and the other is a story of a seemingly endless struggle.

Tom Brady and the Japanese stock market.

As bizarre as it might seem, these disparate subjects can illustrate similar and important messages. Perhaps first and foremost is that while nothing lasts forever, some things can truly surprise us for how long they actually do last. In the case of Tom Brady, his longevity at the highest levels is staggering. In the case of the Japanese stock market, its lengthy sentence in the doldrums is more heartbreaking.

The Japanese economic model and, thereby, their stock market was heralded as the Greatest of All Time (G.O.A.T.) a few decades ago. Nowadays, “Tom Terrific” is making his case for the same status.

Let’s look at the Tom Brady story first. There are so many lessons that could be crafted around the tales of his career, both good and not-so-good, and I’ll touch on a few here through the lens of the investment world.

One lesson is that things simply aren’t always easy to predict.

According to Pro Football Reference:

6 college quarterbacks were selected ahead of Tom Brady in the 1999 NFL draft;
3 of the 6 never played in a single NFL playoff game;
the other 3 played in a grand total of 11 playoff games;
and Tom Brady has played in 45 playoff games, including 10 Super Bowls.

So, what about the insights of all those highly paid scouts? These are the people who are supposed to be able to spot talent and encourage their team to grab the right guy. In investment parlance, they are the analysts who are supposed to research and identify the best companies they think their investment firms should be recommending to their clients.

Were these people just not good at their job? Or did they have Brady sized-up correctly at that moment in time, only to see the facts change as he continued to develop? Whatever the story, it is a parallel to the selection of investments. How often do scouts push for the obvious top choice only to see that person drastically under-perform at the NFL level? Conversely, think of all those 2^nd and 3^rd round draft picks that become Hall of Fame inductees. Similarly, notice how leadership regularly rotates between sectors of the markets. Stocks and sectors that recently finished at the top of the heap are in no way assured to repeat. In fact, this natural rotation is normally healthy and welcomed.

In sports and finance, things simply aren’t as easy to predict as we’d like to think.

What really stopped me in my tracks and made me want to talk about Tom Brady this way was when I saw the list of companies that were big advertisers during Brady’s first Super Bowl. I thought this was a particularly useful lesson and reminder for us investors.

Brady won his first Super Bowl in 2002. George W. Bush was President and the iPod was the brand new “it” thing. Bloomberg News anchor Jon Erlichman pointed out this following list of advertisers that dominated the Super Bowl ads back in ’02. Have a look at this list:

AOL
Blockbuster
Radio Shack
Circuit City
CompUSA
Sears
HotJobs
Yahoo
Gateway Computers

That’s quite a list……..of has-beens! It’s a clear reminder that while some brands endure, many more get broad-sided as they fail to innovate or keep in close connection with the desires of consumers.

This list is a simple way to remember how much things change. Clearly it shows you can’t fall in love with any holding and that you always need to have a plan for when to take your leave. Complacency kills companies and investors alike.

Congratulations to Tom Brady on beating the odds and out-lasting industry titans of a bygone era. If

you’re a Patriots fan, I hope this little trip down memory lane wasn’t too painful.

So what about Japan?

Last week Refinitive reported that Japan’s Nikkei 225 Index crossed over the 30,000 level for the first time in more than three decades.

This is another example of how things are both difficult to predict and ever-changing.

If you can mentally travel back to the 1980’s you’ll surely remember the love affair with nearly all things Japanese. They seemingly had control of both the current day and the future as far as the eye could see. Investors clamored to get their share of the perceived economic miracle.

This pushed shares to unsustainable levels and ultimately led to a bear market of historic proportion. This isn’t something isolated to Japan, of course. We’ve seen the US and other global markets swoon for extended periods as well. But Japan was always the story to point to for the shock value of how long things can stay in the cellar.

Rather than dissect the economics lessons from Japan and get into things like demographic challenges and the futility of negative real interest rates, I want to comment on this from a personal finance perspective.

One of the many lessons would be to fight as hard as possible against our innate recency bias. Recency bias is a cognitive bias that places greater importance on recent events than historic ones. It’s the root source of the thought that whatever is happening in the moment is likely to continue happening.

It’s this thinking pattern that pushes investment capital into certain spaces at excessive rates from time to time. Bubbles can form in regions of the world, specific sectors, or a general market overall; we’ve seen them in virtually all assets at one time or another if you look back over history – even tulips!

This isn’t to suggest that current momentum is a sure-fire danger sign or a false indicator per se. But it is to say that it is extremely dangerous to extrapolate current success into assumptions about the future. This risk is mitigated through the time tested virtues of diversification and discipline. Between not having too many eggs in one basket and having a legitimate action plan for when to move away from any sub-par investment, mistakes that look like brilliance at the onset can bruise but never permanently damage a portfolio.

If you were nearing retirement in the late 1980’s and allocated a hefty bit of your assets into the Japanese can’t-miss market, well, you know how that would have turned out. Just as if you did that same thing in the late 1990’s with the dot-com stocks in the US. And on that point, the broad markets of the US aren’t immune from the pain of the Japanese market. Have a look at this table of total returns reported annually by Callan and you’ll be reminded of the “lost decade” for the S&P 500 as it produced a total return less than zero for the first decade of this millennium. This ten year stretch pales in comparison to the 30 year stretch for Japan, but it still could inflict great harm on a portfolio that was concentrated there. Thankfully this chart will also illustrate the earlier point about the value of diversification as you can clearly see how some asset classes performed quite well during that same period.

The takeaways:

The stories of Tom Brady and the Nikkei each have valuable application to investors. They teach similar lessons from opposite perspectives.

As the saying goes: all good things must come to an end. While an end hasn’t come to Tom Brady’s career just yet, his longevity serves to remind us of the ends in other eras during his journey to being the NFL’s G.O.A.T. And while Tom can hold off the inevitable for a while, Father Time is still the only truly undefeated champion.

The Japanese market is finally back to 30,000, but three decades is a lot longer than most investor’s goals can wait. So if you’re looking at the recent strength in the US market and using this unusually strong period as a source of expectations for the future, think of all those folks doing that 30+ years ago when Japan had its turn as the G.O.A.T.

Incidentally, this is not to be interpreted as a prediction that the US market resembles Japan and that I fear a generational drought of growth. I do not hold that view. I am merely using Japan’s past and present relationship with the 30,000 level as another illustration that nothing lasts forever – good things or bad. And every so often we’re taken aback by just how long these periods can last.

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The Tale Of Two G.O.A.T.s

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