“Finance management reconsidered after the Takata bankruptcy” featured in a column onToyokeizai ONLINE

Good morning, this is Matsushita.

Yesterday's Dow Jones declined again,

the adjustment is deepening.

The Shanghai Composite Index rose again.

USD/JPY continued to rise, reaching the low 112 yen range.

NY Gold is moving in the parity area.

Recently, Takata filed for civil rehabilitation,

and the shareholders meeting was held yesterday.

A company that has been shaken by a recall issue

has decided to go bankrupt with the largest debt since the war,

delivering a large shock to the market.

Takata's shares will be delisted on July 27,

and will effectively become worthless.

In the market, as long as trading is possible,

investors rushing to dispose of shares are piling up,

and the collapse continues.

From this issue, I would like to reexamine the importance of capital management

again.

Takata's stock price was above 3,000 yen in January 2014,

and even this year in January it reached a high of over 1,200 yen,

and so on.

Naturally, during this period, many individual investors

held the company's stock and hoped for a resolution of the problem.

However, at the time of writing this newsletter,

the stock price had fallen below 40 yen, down about 99% from 3,000 yen,

and about 97% from 1,200 yen.

In other words, most of the funds invested in the company

would be lost.

The issue is, at that time, how much of one's investment funds were poured into the company's stock?

For Japanese individual investors, awareness of capital and loss management is薄薄, and there are many cases where

they invest half or more of their funds in a single company.

In such cases, when faced with this bankruptcy, one may lose one-third to one-half of their investment funds,

and be driven psychologically and financially into a very tight corner.

Recovering the original funds is hardly possible,

and a sense of regret would linger.

However, in this case, if the funds invested in the company were limited to one-tenth,

if there was some drop in price along the way, and if one recognized the continuing downtrend,

and if losses were locked in at a limited amount,

one would not have lost so much capital.

The greatest risk in stock investing is

the company you invested in going bankrupt,

and capital management in stock investing must always keep this in mind.

There are two simple concrete methods.

1) Limit the funds invested in a single company's stock to a fixed percentage of total investment funds (e.g., 1/10 or less).

2) If you recognize that the stock is failing to hold a low and continues to decline,

perform a stop-loss and lock in the limited loss.

These capital and loss management practices are essential as you continue investing,

so please do not forget to implement them.

I sincerely hope that awareness and actions of capital management will spread

to as many individual investors as possible.