Truth About U.S. Stock Investing by Shigenobu Kawada: "American Stock Investment Course Trained by Media" [Vol.15] Distributed September 20, 2021
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Translating the Truth of U.S. Stock Investment
Shigenobu Kawada's “American Stock Investment Course Trained by the Media”
［Vol.15］Distributed September 20, 2021
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*** Table of Contents ***
Market Recap
This Week's Straight Talk!
This Week's Picked Articles 【Neal Ferguson】【Reduction in the Number of Investment Trusts】【Nikkei Valoritas Fujita Ben】
Investment Tips: What the Young Economist Ryutaro Komiya Thinks About “America”
Kawada's Walking Activity Info: The Elegant Free Spirit K
Activity Info
Q&A Corner: Is this September's Volatile Market?
Achieving 20 Million Yen Pace-Maker
Source: Financial Services Agency; Portfolio management simulation prepared by Exe Trust Co., Ltd.
*The numbers above are for simulation purposes only and do not guarantee future investment results. Fees and taxes are not considered.
Reading: Assumed Returns and Target Year
3–4%: 30+ years for wrap funds or balanced funds
5–7%: about 25 years for non-U.S. stock funds
8–10%: about 20 years for a modest scenario of S&P 500 gains
S&P 500 Performance (Dividends Reinvested 1970-2021)
Aim to reach 20,000,000 yen early with proper risk-taking
Kawada's message is remarkably simple. To achieve 20,000,000 yen, have as much of your free funds work as efficiently as possible. For that, participants must correctly understand the meaning of risk and reward. Before reading the weekly newsletter, glance at this table and confirm your correct investment posture.
Now, start the countdown to 20,000,000 yen right away!
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1. Market Recap (September 13–September 17)
Major Indices
・Dow Jones -0.1%
・S&P 500 -0.6%
・Nasdaq Composite -0.5%
＝Snapshot Version＝
The Consumer Price Index came in below expectations, reducing uncertainty around monetary policy. Meanwhile, retail sales exceeded market expectations, but the University of Michigan Consumer Confidence Index fell short, leaving a cautious view of the economy. Investors remained cautious, with little clear buy signal for either cyclicals or growth stocks; activity stayed driven by individual stocks.
Past Year: S&P 500
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2. This Week's Straight Talk!
A column delivering essential information you should know.
No Volatility
Last Friday, options and futures for individual stocks and stock indices were all set for expiration on a Quadruple Witching Day, but no major波乱 was observed. In the past, this period often coincided with IMF/World Bank meetings, fueling market moves on monetary policy expectations. Recently, this timing has shifted (this year in October, some virtual), and policymakers’ communications are more varied, making surprises less likely.
Monetary Policy
With equities trading at high valuations and September seasonality, investors are naturally cautious. The broader policy path remains a tightening stance, with a focus on a gradual tightening without jolting markets. In such a scenario, policy cannot by itself drive a sustained market uptrend. A surprise tightening could trigger about a 10% correction.
This week's FOMC meeting is unlikely to decide on tapering, but statements or Powell's Q&A could lay groundwork for year-end actions. If Powell can again reassure markets by distinguishing tapering from rate hikes, and provide clear specifics on tapering (amount, duration, eligible purchases), that would be a successful outcome.
Tax Increases
Looking ahead, the congressional actions related to infrastructure funding as a driver for markets will also hinge on tax policy. Tax increases, such as corporate tax hikes or capital gains taxes, could weigh on equities depending on details. Goldman Sachs recently estimated that corporate tax rising from 21% to 25% with a reduced tax on overseas earnings would shave about 5% off earnings. The market appears to have priced in a moderate increase, but a more aggressive tax package could be a negative factor.
Worrisome Technical Indicators
From a technical perspective, the S&P 500 fell below its 50-day moving average. In this year's rally, approaching the 50-day line often triggered a rebound. If no positive catalysts appear and it remains below the line, the first resistance could turn into a hurdle. This is a short-term focal point.
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3. This Week's Featured Articles
A corner that selects, ranks, and comments on information useful for wealth formation from what I found, with a highly personal perspective.
【1】 Nikkei News US-China Cold War: Taiwan as a flashpoint9/16
Ferguson's basic stance is that “the United States sits atop the world.” His urgent concern is the rise and threat of China. If you map where Huawei’s products are accepted or rejected across countries in the high-speed communication standard 5G, you get a state of cold war. If the first Cold War ended in 1989, he says we are in a Second Cold War.
I felt a strong sense of urgency about a potential Taiwan crisis. He takes the stance that the US would respond if China suddenly invades Taiwan.
If that’s the case, how do we understand the stock market’s seemingly carefree rise?
Of course, during the eight years before the end of the Cold War, the S&P 500 rose quite a bit (see the top-table in the newsletter). At the end of the article, it says, “If the United States can attract talented people from all over the world as immigrants, China—depending on only its domestic talent—will clearly lose.” If a Second Cold War becomes a hot war, is that the end of the end?
Now I recall Ferguson’s book. Here are my reading notes from that time.
“Civilization”: Why Western Dominance Occurred6 factors Hardcover –2012/7/6 Neil Ferguson(Author), Ninomiya Noriyuki(Translator)
Why did the West rise to the top? 6 factors
①Competition②Scientific Revolution③Rule of Law and representative government④Modern Medicine⑤Consumer Society⑥Work Ethic
The modern dawn began in Japan under Emperor Meiji (1868–1912); during this period, six applications began to be downloaded in other regions as well. However, things did not go smoothly. In Japan, because it could not determine which aspects of Western culture and institutions were most important, everything was copied. Clothes and hairstyles were imitated, and Japan also pursued colonial endeavors. Unfortunately, it coincided with a period when empire-building costs were rising and profits were no longer rising. (p485))
→ They merely copied without thinking for themselves.
The United States and the UK, especially the United States, showed absolute confidence in their superiority in Ferguson’s 2012 book. In his view, the current Afghanistan issue for the US pales in comparison to perceived threats from China.
Taiwan contingency is perceived as highly tense. If China were to invade Taiwan suddenly, the US would respond.
Then, why are there so many publicly offered funds in Japan? What makes the industry keep launching new funds even before the existing ones are grown?
① Regarding redemptions being costly and cumbersome in Japan, the system makes it very hard. Laws were reformed from an investor protection perspective, and redemption is unusually burdensome. Companies are working hard to reduce the number of funds, but they still can’t keep up.
② This is due to the management goals of the fund companies. Japanese asset managers are often subsidiaries of securities firms or banks. Senior management frequently comes from the parent company, and staff mobility and transfers are used to maintain group employment and act as a buffer for the group. For a fund company to be customer-centric, it would need to be an independent for-profit organization, which is difficult in Japan.
Therefore, investors must protect themselves. What we need are index funds with zero front-end fees and low management fees. That’s what we should aim for.
【3】 Nikkei Valitas Life at 100: The Way of Global Stocks: “Money in the world flows toward US stocks” by Makoto Fujita9/19
Previously, he avoided US stock concentration by presenting growth stocks as “global stocks.” This time, he clearly states that investment funds are heading toward US stocks. The table in the article ranks the 100 largest global companies by stock price gains in the 2020s. Top stock is Moderna (19x), second is Tesla (8.5x). Of the 10 stocks, five are US, three are from Singapore (SE), two are from China, others include Canada's Shopify (SHOP) at 6th and the Netherlands' ASML (ASML) at 8th.
Bonus 1
A few pages later (p52), Jun Ishigaki of Mitsubishi UFJ Asset Management writes “Japan lagging, a counterattack” and notes that the yen’s export-friendly environment has a positive effect on Japanese stocks. If it were me, I’d bet on the risk-root US equities.
Bonus 2
p53: Investment advisory services are popular, but concerns remain about high costs and disclosure. This refers to fund wraps and SMA (separate managed accounts). Even with these clearly stated drawbacks, their assets have grown to 10 trillion yen. Given risk tolerance, not all funds should be S&P 500-oriented, but some bond-centric wraps offer only 1–2% annual fluctuations. Why do such products exist? If even half of that money were in the S&P 500, Japan would be a bit wealthier.
Bonus 3
This week's cover is “Green transformation in materials stocks.” The subheading “Carbon Zero: The next main theme” makes for a good article.
Carbon Zero is unquestionably the next major market theme. The sections cover “Plant-based,” “EV revolution,” “Carbon power,”
【4】 Monex, Securties US stock domestic trading service launched! – US stock trading becomes available in Japan and China
“Monex Securities will start domestic in-person trading services for US stocks on 9/21 (Tue, scheduled). This is a breakthrough; in-person securities pricing in Japan is exorbitant, and this will break that. Go Monex!
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4. Investment Tips
A corner that not only covers “investment methods” and “stock picks,” but also writes about “indicators and remarks that caught my eye” and “social and political movements.”
What I think about America, as seen by young economist Ryutaro Komiya
Ryutaro Komiya is a renowned Japanese economist. He debates across all fields of economics, and his seminars have produced many bright stars.
Who said, “The essence of Japanese business is not profit pursuit”?
“The purpose of Japanese companies is not profit seeking.” It was once proclaimed by Ryutaro Komiya; I searched the net for the source. I think this book is it: “Japanese Companies,” edited by Kenichi Imai and Ryutaro Komiya, University of Tokyo Press. I also found on the same site “American Life,” Iwanami Shoten, 1961. Professor Komiya studied at Harvard for three years starting in 1956, and he wrote essays about that experience. I wonder how he viewed America sixty years ago. I bought it; Iwanami Shoten is 1 yen for used copies, so essentially just the shipping.
Born in 1928, Komiya was around 28 when he was in the US; his eldest daughter was four months, the second daughter was born in the United States. In the preface, he writes,
Komiya deliberately tried to mingle with Americans and avoid Japanese students abroad as much as possible. That is not easy. My own study abroad was for two years starting at age 28. The first four months I was alone, then I brought my family. My two daughters were two and nine months old.
Now, his perspective focused on the essence of America. Even though it was written sixty years ago, its implications for us today are not diminished. I’ll start with that caveat.
■ The United States: A bastion of the world
In the US, there are many people who are kind and who want to give others unconditional love. Their fundamental value is unconditional neighborly love rooted in Christianity. The love for those who face national hardship or persecution is especially warm and deep. For generations, many ancestors must have faced similar circumstances. Living there, you understand that “America” serves as a bastion for people around the world for various reasons.
For Japanese (especially expatriates), staying in the US conditions is relatively favorable. Therefore one can get by without interacting with Americans; perhaps Americans don’t feel the need either.
This book’s chapters are: I. The Commercial Revolution – America’s Shopping, II. Parties, III. Date, IV. American Society and the Upper Class, V. Racial Discrimination.
What is depicted is a 28-year-old’s view of late 1950s America, who would later become a leading economist in Japan. My study abroad was in the 1980s, about another thirty years later than his observations.
■ Class and Race
The latter half of the book, “IV American Society and the Upper Class” and “V Racial Discrimination,” is especially interesting.
In 1987 I bought a house in the suburbs of New Jersey. Until not long before, I heard that Asians could not buy houses in this area. Yet, I never felt any discrimination while living here.
A Class-based America
Now, a society in which class, race, and religion split up the United States is truly complex. I am impressed that a young man around thirty observes this complex social structure with calm depth.
As he emphasizes, the United States hasa clear class structure. This class is entangled with race, origin, and religion, but as a class, there is an up-and-down order. Equality between different classes is not the case.
Some people may be satisfied with the same class for life. Others may not even realize their relative class position, and many may have given up that nothing will change.
Nevertheless, there must be people who are not satisfied with their current class. But race and origin cannot be changed, and religion is hard to change. Yet there are ways to break through class barriers with one’s own will and effort. That is money.
Can class be bought with money?
During my time in New York, I had opportunities to interact with a Japanese woman who achieved great success in the investment business. Her husband is a Stanford MBA, a white man. They are wealthy from investment ventures, and their curiosity and talent are extraordinary.
She sometimes discussed how US society works. “In the United States, having a lot of money earns you respect,” she would say, which feels odd from a Japanese middle-class viewpoint even today.
If you feel that way, you are ignorant about American society’s real class structure. To escape a repressed class, you must change something about yourself. “Japanese origin” and “being a woman” cannot be changed. One guess is that one factor is ① “a White male husband” and another is ② “the amount of money.” However, I have not heard her mention ① from her own lips.
Face reality to understand US stock markets
Many Japanese avoid such topics. But Komiya’s book devotes extensive space to “Boston Irish” (p185) and “Jewish problems” (p194). For a person studying economics, that these topics left such a strong impression is important. It shows that race, culture, history, and religion are important factors in studying economics.
The United States is a microcosm of global class, race, and religious issues. Moreover, coming to America to escape one’s homeland history, one may still carry those remnants and form new hierarchies.
If money is the antidote to these entanglements, it would be wrong to deny those who work hard and invest to improve their lives. Working hard to give your children good education, living frugally, and investing that money to seek a more satisfying life is a proper path.
Meanwhile, many tech entrepreneurs are not from traditional establishments. For them, self-fulfillment and proving themselves through business success is key, so their success in public markets is measured by market capitalization. The wealth they obtain could be a passport to a new class or social group. The stories of success in the stock market thus sound like this.
The ending (p.206) of “American Life” concludes as follows
As for tech founders, many come from not traditional establishments. For them, self-fulfillment and proving themselves through business success matters. Their success’s value is measured by market capitalization if publicly traded. The wealth they gain could be seen as a passport to a new class or social group. The stories of their success in the stock market sound like this.
However, consider that the stock market has been rewarding both entrepreneurs and investors for a long time. Their energy, transformed into capital, drives enormous effort, expansion, and social contributions.
In Japan too, many founders used wartime experiences as business springboards. Yet how many people today can truly prove their worth through their existence?
US companies have many reasons to prove their correctness, while Japanese companies have fewer. Looking at both stock markets, one ponders the motive to compete. The primary reason I invest in US stocks is the amount of energy behind this legitimate motive to compete.
The stock market treats all investors equally
But how should an investor think? Tom Piketty, in “Capital in the Twenty-First Century” with山形浩生ins, 守岡桜, 森本正史, showed that returns from investment income always exceed wages or business income. This is the law of capitalism. Americans naturally feel this. Hence, those who notice this strive to become capitalists and invest with their surplus.
Piketty, Capital in the Twenty-First Century: A note on why wealth concentrates to the top 1%
And here is another important point: “The stock market treats all investors equally.” Once you become an investor, you are equal regardless of origin, race, or religion. If your timing is right, large institutions or individual investors can share the same returns. The stock market is a passport that can move you away from your current circumstances.
The US stock market has long rewarded both entrepreneurs and investors. Their intentions convert into capital, which works extremely hard, grows, and returns wealth to them. They worked hard with purpose and invested in the stock market with willingness to take risks. If there were no stock market as a “passport dispenser,” many people would not have the chance to escape despair.
Recreating wealth creation is a mission
What will Americans think and do next, using the wealth they created to improve the lives of those in similar situations? They think their success should be repaid with opportunities through investments and charitable contributions, which then fosters the next generation of success and creates a cycle that powers the US economy.
By the way, the Japanese woman who is a prominent mega-wealthy philanthropist has established a large-scale scholarship program, opening the doors to top US colleges for many exceptionally talented Japanese students.
In short, the stock market provides those who have risked their lives to prove their existence with a platform to demonstrate it. The long-term performance of US stocks is a testament to their success. For those who win, US stocks are destined to rise. There are very legitimate reasons for this upward trend. If I may say so, it confirms what I have observed over many years.
Then and now, Americans have a destiny to prove their existence and continue to fight. How should we, as Japanese, understand that Republic of Ideas and connect it to our asset-building? I will continue to offer my personal hints. The Republic of Ideas — Trends in American Thought (Chuko Publishing)
S&P 500 Index: Past 90 years chart
For your reference
For reference: What can be learned from 130 years of long-term stock price charts in Japan
130-year Japanese stock chart
(Based on the Nikkei Average, to create continuity for the pre-war period when the Nikkei did not exist, a composite of several stock price indices is plotted on a logarithmic scale. In the Meiji era, stock price indices did not exist, so the Tokyo Stock Exchange stock price was treated as the stock index in this chart as well.)
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5. Kawada's Walk
◇◇ A Pause◇◇
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6. Upcoming Activities
◇October 6 (Wed) 11:00 AMStock Voice
◇October 20 (Wed) 11:00 AMStock Voice
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7. Q&A Session
Questions (Summary)
This year, even in September the market has been quiet. Please tell us more about the recent fluctuations this year.
Answer
Verifying the Autumn Market with Prices and Charts
Historically, autumn markets tend to be volatile. As I’ve noted, September is the worst month in monthly performance, and the worst three months are September to November (actually August–October historically).
But that does not mean it happens every year; this year, so far, it has been quiet.
We will review last year 2020 and 2018, which were volatile, to gain future insight.
■ After September 2021
Since September this year, both the S&P 500 and Nasdaq 100 have shown small daily fluctuations. The Nasdaq 100 had only one day with more than 1% move last Friday, and days with more than 0.5% moves are few.
The market already has ample information about tapering (the gradual reduction of bond purchases) and its timing. Discussion about rate hikes is ongoing, but for now the impact on the market seems small. Attention will likely focus on large infrastructure bills and potential tax increases, along with renewed COVID concerns, US-China tensions, and semiconductor shortages.
Morgan Stanley WM and Bank of America's strategists expect a 10–15% pullback. I think some pullback is healthy for a longer-term market, whereas markets without pullbacks can fuel FOMO and overheated prices, which is a concern.
S&P 500 and Nasdaq 100 price movements (dates)
■ September–December 2020
Last year, ahead of the presidential election, there were pronounced moves. Individual investors known as "Robinhood traders" joined high-flying stocks, meme stocks, and options trading in these picks. Investors, SoftBank, and hedge funds all rushed into the market to chase short-term gains.
Two major fluctuations after September: first, September 2–23, about 10% correction; second, October 12–28, a 7.4% decline. The table highlights days with large fluctuations.
S&P 500 and Nasdaq 100 prices (September 1–December 21, 2020)
■ September–December 2018
That period was also volatile. The S&P 500 hit 2930 in September as a high, then drifted within a range until October 10, after which it fell sharply and then plunged from December 4, bottoming at 2351 on December 24, a decline of 19.8%. The highlighted days show the magnitude of the volatility.
Do you remember what happened then? Despite concerns about a slowing economy, the Fed tightened policy. President Trump criticized Powell for not facing the economic reality, but the Fed did not listen, and the market’s decline pressured the stance shift in policy.
S&P 500 and Nasdaq 100 prices (October 10, 2018–December 26, 2018)
Performance of the four major indices from 2005–2020
Summary and mindset
2017 and 2019 rose smoothly without major turmoil. Why did 2018 and 2020 swing so much? It’s easy to critique in hindsight that it was inevitable.
Nevertheless, predicting a calm September to year-end this year and acting on it in investment is a different story.
As noted, moderate price corrections are healthy for price formation. But how should one act when facing a market that does not pull back at all? Should one buy more, expecting higher highs, or anticipate a larger pullback or a bear market of 20% or more?
We cannot know the future. But by analyzing seasonal patterns and past price behavior and simulating, we can maintain a long-term investment stance without getting rattled by unforeseen events.
Believing in past replication is a fallacy, but not learning from the past would be a bigger mistake. The writer Mark Twain is quoted as saying, “History does not repeat itself, but it often rhymes.” That may be helpful here as well. When History Rhymes
Declines since 2009
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