The key is the courage to take risks (buy where it’s cheap). [From Tomio Sugimura's newsletter]
From the investment newsletter “Sugimura Tomo Investment Salon” by Tomio Sugimura, provided by GogoJungle, here is a small excerpt from what was distributed today.
Understand the characteristics of the market and act on them. This is the basic (theory) of stock investing. The Japanese stock market is a market with extremely high volatility (stock price fluctuation rate).
No, recently the New York market is like that too. On August 5th, the Dow fell by 767 points, and on the 14th it fell by 800 points. On August 16th and 19th there was a sharp rebound. We are being driven by the words and actions of President Trump (Twitter). However, the main cause is believed to lie in systematic trading.
In particular, the plunge on the 14th was interpreted as a “recession signal” due to the inversion (reverse yield curve) of the 10-year and 2-year U.S. Treasury yields.
However, the truth is that the model used to calculate investment weights for asset allocation (the long-short interest rate spread assumes “positive”) collapsed, causing positions to be liquidated all at once. It was a big wave of selling.
Recently, investors are mainly short-term and trend-following. When the technical level is breached downward, they sell en masse. After all, algorithmic trading using AI (artificial intelligence), high-frequency trading, etc., produces mechanical selling. When risk indicators like the VIX (fear index) rise, risk parity (compressing risk assets) is triggered. Why did it drop so sharply? Because it went down. It may sound irresponsible, but isn’t that the truth?
Therefore, in stock investing, you must not be swayed by short-term price movements. If you listen to voices claiming to be experts, you end up buying high (at peak) and selling low (at trough). They tend to be ultra bullish at high levels and morose at low levels. In short, what matters is to read the trend. This market isn’t so weak. After all, the Nikkei Average's P/E is around the low teens, and the price-to-book ratio is just over 1.
Still, isn’t it a market that has been oversold? As repeatedly noted, President Trump’s action pattern has a significant impact on the Dow and his approval rating. The fourth tranche of sanctions against China, scheduled to take effect on September 1st (10% tariffs on $300 billion of imported goods), is judged to be highly likely to be “postponed altogether” (some products have already been put on hold).
In any case, it is a one-way market. It is also a seesaw game. When it goes down, it goes up, and when it goes up, it goes down. Short-term and trend-following aside, long-term and contrarian investing asks how you can “go against people.” Yes, what matters is the courage to take risk.
“Sugimura Tomo Investment Salon” (Tomio Sugimura)quoted.
The market is said to be oversold. For long-term contrarian investing, being able to go against others requires the courage to take risks. In the current ultra-pessimistic market, that courage may be a clue to profits. (Editorial Department)
