Three tips to avoid misjudging the proper price of a stock
Hello, this is Koyama.
The intense heat continues, doesn’t it?
Every morning I open the curtains and when I see the sunlight
I think many people feel like going outside becomes a hassle, but…
For me, I basically don’t need to go out
So especially in this hot season,
I deeply feel
that I’m glad I earned money through trading.
Occasionally there are times when I have to go outside for seminars at the Stock Academy, but
basically,
if I don’t want to go out,
I can stay in a cool house all the time,
and I feel grateful for my current life.
“Yes, yes, is this showing off? That’s not good at all.”
That’s the feeling for those who get irritated listening to this story
perhaps, but…
If that is jealousy-driven emotion,
in fact, you are showing that you secretly desire such a lifestyle.
Jealousy is the flip side of “I want that.”
By the way, I have no interest in bragging.
“However, if I can help you obtain what you want, I’d like to assist.”
That’s what I think.
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Japan’s first major championship in 42 years
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Now today, I’ll start with a news item that caught my attention recently.
Recently there was news that overturned the norms of the golf world.
Nippon’s 20-year-old Hinako Shibuno, who only barely passed the pro test last year,
won the Women’s Open at Royal Troon.
For a professional, it’s a dream to win at least once
at the Women’s Open, and she won in the blink of an eye since turning pro…
It’s astonishing.
In the immediate post-win interview,
Shibuno responded like this.
‘ — The 18th putt was quite strong.
I thought either I would make it here or I would three-putt, so I hit it with confidence.
I went all out.
When I struck it, I thought maybe it was a bit strong,
but I wanted to make it, so I said “Go in!”’
（Quoted from ‘ALBA’
https://www.alba.co.jp/tour/news/article/no=131501?page=1）
The 18th-hole putt described here required a strong stroke downhill to reach the cup,
but,
if struck too strongly it would roll past the hole,
and that was a tense moment.
If you were in this situation, what would you think?
Probably you would factor in insurance for a miss and
hit with less power.
Over-hitting and watching it roll endlessly
would be something you want to avoid,
you would think.
The same goes for professionals.
Being mindful of power and,
anticipating what happens if you miss,playing carefully is normal.
However, Shibuno was different.
With the mindset of “I will definitely make it,” she struck powerfully.
If she had slightly wandered off the course,
the ball would have rolled away from the cup with force,
but Shibuno didn’t even think about such a possibility.
She hit without hesitation,
and, as aimed, she spectacularly made it,and won.
From that moment,
Shibuno’s life dramatically changed.
It’s almost like a comic book plot that truly happened.
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Three tips to grasp the fair value of stock prices
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But…
Traders should never imitate Shibuno’s method (laugh).
Indeed, in the world of markets
you can plunge all your funds at once
into a full-scale buy and make a lot of money quickly.
That world is possible.
When you wake up, you could become wealthy overnight
and that’s a real possibility.
But market movements are like golf balls and you cannot control them by applying force,
and becoming rich overnight also means
you could lose everything overnight.
I have never heard of anyone surviving in the market by ignoring consequences and trading forcefully.
In particular, in the world of markets
a crash occurs regularly, so
at some point you will surely incur substantial losses.
Recently, Hong Kong’s situation
has been pointed out as a possible trigger for a stock market crash,
and nearby Korea’s
won’s sharp fall and stock decline are causing concern, but
if you trade, you must, at all times,
be prepared for sudden movements.
And when a crash actually happens,
it is crucial to respond calmly.
For example,
to determine whether it’s a momentary drop
or the start of a downtrend,
it is important to discern calmly.
As a market principle, stock prices eventually converge to
their fair value,
so it is necessary to identify that fair value.
That said, it’s extremely difficult
to determine with certainty.
Even for those called professionals, it’s a tough problem.
However, there are hints.
For example, here is one line of thinking.
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Is it a dangerous bubble,
or a natural development of the economy?
Is there a standard by which to judge?
This is extremely difficult.
If forced to name three points, they would be:
① Overly optimistic economic outlook
② Expansion of margin trading
③ New entrants with little investing experience
Akira Yanagita
“Mathematics to See Through World Traps”
Seven & I Publishing, February 26, 2013, 1st edition
P.150-151
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Summarizing the above three points in one line,
it could be described as “overheating.”
The more overheated it is,
the more the stock price diverges from fair value.
When you hear “overheating,” the immediate example that comes to mind
is the Bitcoin bubble. Investors with the mindset that it would be profitable to just buy
were heavily participating.
The result, as you know, was
as you know.
Also, the Turkish lira crash that happened around this time last year
saw many Japanese individual investors
buying excessively due to high interest rates.
So what about now?
Overall, there may not be as much of an
“overheating” feeling.
But one thing remains: the BOJ is still buying ETFs aggressively.
Stocks are being bought regardless of corporate performance.
In that sense, the current Nikkei average price
cannot be said to be at a fair value, so this is something you should keep in mind.
In any case, August is a vacation season with fewer market participants.
That tends to make the market more volatile.
Please avoid reckless trading, and be careful.
Well then, today as well,
thank you for watching until the end.
Keizo Shimoyama
