Nikkei 225 Has Been a Long-Term Loser

The long-term chart of daily closes for the Nikkei 225 (^N225), the major average for the Japanese stock market, shows the upside to 40,000 in 1989 and the subsequent prolonged downside. Most of the prices on the chart are well below the peak prices. So you would expect than most investors lost money during the post-peak downside.

The chart also shows the volatility of prices after 1992 when prices took on a cyclical pattern. During these periods investors who bought at the beginning of the cycle upside made money.

Prices bottomed in April 2003 and then moved to the upside. Most investors who bought since the bottom have made money.

The analysis of the buy and sell combinations tells the story of how investors have fared buying and selling the Nikkei 225. Based on 5,162 daily closes from January 4, 1985 through December 28, 2005 there have been 13,320,541 possible buy and sell combinations. Only 3,503,747 (26.30%) buy and sell combinations made money and 9,816,794 (73.70%) lost money. The profitable returns are shown in green and the unprofitable ones are in red in the percent returns chart.

The green uplifted ridges show the relative amount of gain for the buy and sell combinations - the higher the ridge the more the gain. The long green area along the back of the chart includes gains made for 1985 through 1987 purchases. Even when prices went to the downside these low-cost purchases resulted in profitable investments. The highest green peak is the return for the buy at the lowest price in 1985 and the sell at the peak price in 1989. Almost all the buy and sell combinations for the upside from 1985 through the 1989 peak are profitable.

The intermittent green areas in the front middle of the chart are profitable buy and sell combinations associated with the upsides of the four cycles from 1992 through 2003.

The small green area in the front right of the chart includes the returns for the current upside that began with the April 2003 price bottom.

The sea of red shows the preponderance of losing buy and sell combinations. These unprofitable buy and sell combinations resulted from buying at high prices on the upside just prior to the peak and buying at high prices on the downside after the peak. Investors who paid too much generally sell for a loss or have paper losses for a long time as prices continue to fall.

The winners and losers map shows all buy and sell combinations without any relief. Profitable buy and sell combinations are shown in green and unprofitable ones in red. The map highlights the very large area of red, which represents the 73.70% losing investments.

The large green area at the top of the map represents the profitable buy and sell combinations resulting from purchases made from 1985 through 1987. The gains made from buy and selling on the cyclical upsides are shown in the middle of the map. And the current upside profitable investments are in green in the lower right hand corner of the map.