NEW TECHNOLOGY

By HIROKO TABUCHI

TOKYO — When Japan’s stock market took a nose dive in 1990, analysts told Shizuko Kitamura to take the long view, just invest consistently and stoically and wait for share prices to recover.

Almost two decades later, she is still waiting.

For those seeking solace in the conventional wisdom that stocks rise in the long run, consider this: 20 years after Japan’s stock market peaked, share prices are still less than 25 percent of their top values.

“I can’t tell you how many times analysts said: ‘We won’t go any lower than this. This is the absolute bottom,’ ” said Ms. Kitamura, a retired researcher in Tokyo who started investing just three years before the bottom fell out. She lost a year’s worth of pay in the fall.

“Soon, I just stopped believing the analysts,” she said. “I think investing in stocks is like gambling. You’ll probably lose.”

As they say in the investment business, past results are no predictor of future performance — thank goodness — and comparing countries and periods can be tricky. But Japan’s long languid stock market offers a scary example to challenge the belief that over the long run, stocks are always the best investment.

Over the last three or four decades, that premise became the guiding principle of millions of ordinary Americans’ savings and retirement planning. It revolutionized America’s relationship to stocks, making them no longer the province of millionaires and traders.

But now that belief is being called increasingly into question. The Dow Jones industrial average has tumbled faster than the Nikkei, Japan’s benchmark 225 stock average, losing 50 percent of its value between its peak in October 2007 and late February. It took the Nikkei 10 months longer to halve its value in the early 1990s.

The good news for investors is that Japan’s nearly two-decade slump is an anomaly among major stock markets. After the 1987 crash, global investors recouped their losses in two years, according to the Credit Suisse Global Investment Returns Yearbook. After the 1973-74 bear market, London shares, which had fallen 73 percent in real terms, regained their previous highs in less than three years.

The longest bear market in a major economy occurred after the Wall Street crash of 1929. Stocks did not reach their pre-Depression levels until 1954. American stocks also stagnated in the 1970s when the oil crisis, recession and financial instability caused global share prices to fall.

The bad news for investors, and everyone else, is that the real economy shows no sign of improving. In surveys, corporate managers around the world are predicting increasing unemployment. And many economists say that in a global downturn like the current one, no market seems able to rescue the others, for example, by buying their exports. Everyone is hanging together.

To be sure, Japan’s stock market has many problems that are particular to Japan. To name two: Japan took a decade to rid its banks of bad loans, hurting confidence in the market; and Japanese companies performed poorly on return on equity, a measure of how effectively shareholders’ money is used to develop a company or increase its profits.

Specialists say Japanese companies also disdain concentrating on maximizing shareholder value. Japanese managers have tended to focus on pleasing employees, or staying true to corporate values rather than seeking aggressively to increase profits or pay dividends.

Nonetheless, Japan’s experience explains how a modern stock market can atrophy. And many of the mistakes that the Japanese made could befall markets in New York, London and Frankfurt. For instance, Japan’s stimulus plans proved too timid to break its prolonged economic slump, which led households to hoard cash and invest less, in stocks or anything else.

The Japanese had reason to be risk-averse. By 2002, 1.5 quadrillion yen of wealth had been destroyed, between the stock market and falling land prices, the rough equivalent of three times the country’s gross domestic product, according to the Nomura Research Institute.

“The Japanese household developed a remarkable preference for cash,” said Richard Jerram, chief economist at Macquarie Securities in Tokyo. And when Japanese households park their money in safe, low-yielding bank accounts, it does not reach the stock market.

“That’s happening in the States to a certain extent,” Mr. Jerram said, with wary investors fleeing equity markets for safer investments, like Treasuries and gold.

In Japan, modest gains in share prices since 2003 were largely driven by overseas investors. But even those investors have been leaving the market in droves during the global credit crisis. Shares on Tokyo’s broader Topix index now trade below their book value, meaning prices are less than what the companies would fetch if they were dissolved and their parts sold.

“Most Japanese no longer see the stock market as an investment option,” said Kiyoshi Kimura, president of the Japan Association for Individual Investors and a longtime investor. “All you have left are a handful of people with a get-rich-quick mentality and courage to play a declining market.”

Hisao Oku, a retired Tokyo business owner who has invested in Japanese stocks for four decades, said the last 20 years were “a roller-coaster ride.” His advice during severe bear markets: Sit out the market for a while. Keep cash handy. And most of all, adjust expectations.

“I’ve learned in my 40 years that it’s the lucky few who manage to find happiness in the stock market,” Mr. Oku said. “For the rest of us, it’s like chasing a mirage.”