The Truth About U.S. Stock Investing by Shigenobu Kawada – "Training U.S. Stock Investing Through Media" [Vol.19] Delivered October 18, 2021
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Delivering the Truth About U.S. Stock Investing
Shigenobu Kawada's “Training in U.S. Stocks through the Media”
［Vol.19］Distributed on October 18, 2021
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＊＊＊Table of Contents＊＊＊
Market Review
This Week's Sharp Insight!
This Week's Picked Articles
Investment Tips
Kawada's Walk
Activity Information
Q&A Corner
Achieving 20 Million Yen at a Steady Pace
Source: Financial Services Agency, created by ExoTrust Co., Ltd. based on asset management simulations
Note: The figures above are simulations only and do not guarantee future investment results. Fees and taxes are not included.
How to Read: Assumed Returns and Target Years
3–4% for over 30 years: This is typical for wrap funds or balanced funds
5–7% would take about 25 years: Might be the case for non-U.S. stock funds
8–10% would take around 20 years: A modest scenario for S&P 500 growth
S&P 500 Performance (Dividend Reinvestment, 1970-2021)
Achieve 20 Million Yen Early Through Proper Risk-Taking
Kawada's message is exceedingly simple. To reach 20 million yen, let as much of your excess funds work efficiently as possible. For that, readers must understand the meaning of risk and reward. Before reading the weekly newsletter, glance at this table to confirm the correct investment posture.
Now, start the countdown to 20 million yen right away!
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1. Market Review (October 11–October 15)
＜Major Indices＞
・Dow Jones +1.6%
・S&P 500 +1.8%
・Nasdaq Composite +2.2%
＝Snapshot Version＝
The first half of the week was cautious and soft, but long-term yields fell as CPI and PPI were stable, and major companies' earnings announcements after Wednesday were strong, leading to a sharp rise.
＝A Little More Detail＝
With bonds closed on Monday and ahead of price statistics and earnings announcements, the first half of the week was cautious and soft. However, September CPI and PPI were steady, easing inflation concerns, and the release of the September FOMC minutes reduced uncertainty about monetary policy, helping long-term yields fall and support equities. Earnings season starting with banks exceeded expectations, and investors remained confident about the outlook, contributing to a broad rally. Friday's September retail sales rose against market expectations for a month-over-month decline, which also positively influenced investor sentiment.
S&P 500 Chart – Past Year
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2. This Week's Sharp Insight!
A column delivering the information you absolutely need to know.
A Big Rise After a Long Time
Last week rose in the latter half, with the S&P 500 up 1.8%, the largest rise since the week ending July 23. It closed above the 50-day moving average on Friday. Looking back, it is only about 1.4% away from the all-time intraday high set on September 2. The long-term yield at that time was in the 1.2% range, so the current around 1.5% level likely reflects expectations for corporate earnings.
Earnings Surging So Far
Earnings have been strong since last Wednesday. As usual, the first sector was large banks, which reported solid results supported by an economic recovery. A notable contributor to earnings was a large reversal of loan-loss provisions, meaning banks did not need as much loss reserves as anticipated. This supports the view of a healthy macro economy. According to Refinitiv IBES, S&P 500 third-quarter earnings are currently expected to be up 32% year over year. If the final figure reaches into the 40% range, the index could land at a record high.
American Experts' View
In this week's Barron's, there is a feature on the semiannual survey of U.S. fund managers, the “Big Money Survey.” For details, refer to the magazine (in English) or Barron’s Quick Read (in Japanese). Managers' concerns include monetary policy and fiscal policy, with inflation, rising bond yields, tax increases, and economic slowdown also noted. Worries about renewed COVID-19 outbreaks are relatively small, and there was no mention of U.S. debt defaults or issues with Chinese real estate companies in the article. Japanese media often present these concerns in equal emphasis regardless of importance; please read with consideration of relative importance.
Upcoming Announcements
This week's notable releases include macro data: Monday's Industrial Production, Wednesday's Federal Reserve Beige Book, and Friday's IHS Markit Purchasing Managers' Index (PMI) flash. The Beige Book will serve as a draft for November's FOMC discussions, and the PMI will be the earliest October indicator. In earnings, Netflix (Tuesday, streaming), ASML (Wednesday, semiconductor equipment), Tesla (Wednesday, automotive), and Intel (Thursday, semiconductors) are of particular interest for investor sentiment.
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3. This Week's Pick-up Articles
A column that selects and ranks information useful for wealth formation from what I found, commenting with a very personal view.
【1】 Nikkei Newspaper〈Data Questions the Issues in the Lower House Election〉 Japan's annual income stagnant for 30 years; the US up 1.5x; a new administration should first expand the growth to enable distribution10/16
The debate toward the House of Representatives election (polls open on the 31st) has begun in earnest. A key point in economic policy is whether to center on growth or on reducing inequality.
OECD data show Japan's wage growth has been nearly flat for 30 years. On a purchasing power parity basis (20-year US$), Japan's real wages are up 4% to $39,000 (¥4.4 million), while the US is up 48% to $69,000.
Do companies easily raise wages? Not easily. Local overseas subsidiaries' sales have grown 2.2x in 20 years, while domestic sales have grown only 7%. Growth is hard.
Therefore the country must actively promote growth through deregulation and corporate renewal, expanding the economic pie that forms the base of distribution.
The focus on distribution and inequality in the election is not just about current income gaps, but about the difficulty of moving from lower to higher income classes—vertical mobility. Addressing this “rigidifying inequality” is essential.
【Kawata Comment】
Growth is occurring abroad; domestic growth is only marginal. This indeed warrants wage increases. From running a business myself, I see price pressures on goods and services, and profitability requires scale for efficiency. As Mr. David Atkinsen points out,
Small businesses are small and thus prone to many problems, leading to low productivity. Being small itself is an issue for small businesses.
If small and medium enterprises cannot raise productivity, what should they do? They should disappear.
In particular, among small businesses, those who should shrink in number are micro-entrepreneurs. Considering population decline, among small businesses, those who won’t become mid-sized firms or don’t want to, chronic deficit companies are simply parasites and should exit.
From the viewpoint of economic efficiency and productivity, parasites of the small business sector have no place. I see this in my own ventures as well. However, some business areas lack the scale to pursue growth strategies like mine. If a business cannot contribute, I will profit from U.S. equities and use that to contribute to the economy through consumption—so please forgive Atkinsen-san!
【“Distribution” and “Growth”】
“With the House of Representatives election being officially announced on the 19th, leaders from both ruling and opposition camps appeared on NHK's Sunday Discussion to debate measures against COVID-19 and efforts to revitalize the economy.”
【Kawata Comment】
I watched the 9 a.m. Sunday program for 80 minutes. On economic policy, the debate converges on two notions: “distribute first to enable growth” or “growth first enables distribution.” But if you distribute, what should that money be used for to become a growth engine? Or should it be saved for the future as dead money?
What Japan currently needs is to unleash the fighting spirit that human beings naturally possess, which has been carefully suppressed in modern times.
What will be unleashed? Each person’s own “Pride.” Today’s Japanese education seems to prevent that pride from manifesting (dangerous!).
In my circle, large corporate employees are the typical case, unfortunately. A potential solution is to temporarily lay off everyone around age 45, giving employees choices, revising recruitment terms, and re-employing under mutually agreed terms.
Otherwise, elite students who graduate at 18 have too few trials. If they lack trial by fire, their fighting spirit declines and the vitality of the nation declines; pride matters for competition, but fair conditions are necessary to sustain organizational energy. However, there can never be a perfectly fair competition environment. Do we still have a reason to fight in Japan today?
Today’s program suggests that among party leaders, the Liberal Democratic Party is the most encouraging of the Japanese to strive harder. Yet Mr. Akira Amari, who spoke today, is from a political dynasty as well.
I thought Japan Innovation Party has good points too. Other parties’ arguments may discourage those who are trying hard. There may be no paradise in this world as envisioned by opposition parties... Should we bow out before it flares up?
■（Famed for “Creative Destruction”） Schumpeter
By the way, the Democratic Party of Japan’s Acting Secretary-General Ohta mentioned the following book.
The original edition was 1942, with a Japanese translation in 1995, but it still costs nearly ¥5,000. Mr. Ohta explains that “capitalism = growth, socialism = distribution, democracy = consensus of the people?” which I thought was a clever point.
【Behavioral Psychology】
【3】 Nikkei NewspaperDoes hard work guarantee dreams? The educational value of sports10/13
Athletes are praised as role models proving that “hard work can make dreams come true.” Yet behind every winner are many losers. Was the dream achieved because of lack of effort? Not so.
Even when you work hard you may not achieve your goal. It’s a chance to study differences arising from innate ability and environment, imagine the other person’s situation, and deepen thoughts about your own limits and possibilities. .
From the works of Fumio Ohtake, Osaka University Special Professor. “Once, elementary schools had races where no one kept score and everyone finished together, and people who were educated like that tend to dislike competition, have low altruism, and are prone to retaliatory attitudes; they may be pessimistic about redistribution policies for the weak.”
Not competing but finishing together implies a belief that everyone can be equal regardless of innate ability or upbringing; sports clash with this view.
【4】 Nikkei Newspaper. “Competition Society – Former FTC Commissioner Kazuyuki Sugimoto” 6/17
I recalled another piece with a similar theme. This discussion is helpful for considering today’s Japanese society and economy.
People who were educated to deny competition tend to have low altruism, be opposed to cooperation, not reciprocal, and respond to being wronged with retaliation.
On this, I interpret that competition fosters incentives to develop personal abilities, which leads to evaluating others’ abilities and recognizing the necessity for people with different talents to collaborate.
This “footrace” was based on Fumio Ohtake’s essay (Fumio Ohtake’s Homepage). It’s been some time since it was published, but it’s very interesting and thought-provoking.
Competition society? We tend to feel it is very bad. If there is competition, producers facing competition cannot afford to let their guard down. In other words, suppliers prefer no competition, but consumers prefer competition.
Equality-centered education: “Most children have the ability to score 100, so with the right method, all can score 100. That is the correct education and must be done.”
Thus the idea of ability equals heredity (determinism) is denied, and ability-based education is criticized for promoting equality—emphasizing that anyone can succeed through effort regardless of birth. ... (omitted) ...
Therefore, there is a push for universal education, leading more people to compete on the same educational stage. While denying competition in education, ironically, the discussion criticizing meritocracy education has guided people toward competition in education.
Anticompetitive education aiming to encourage cooperation, when conveyed as the belief that abilities are the same, may lead to the idea that low-income people are lazy.
If abilities are the same, there is no need to help each other, no need for income redistribution, and education could mislead children with other values. It’s important to convey the value that both competition and cooperation are essential.
【Kawata Comment】
“Denying competition leads to opposition to redistribution for the weak.” Do you understand this logic? If you lack competition experience, you miss chances to discern individual differences, to empathize with others, and to show kindness. Then, does it mean that people who think some are merely lazy deserve the same treatment? The wealth gaps created by the market economy invite many questions. I’ve chosen the next article with the same perspective.
【6】 Nikkei Veritas: Contrarian Views — The Rich “Mengmu’s Three Moves” Could Destroy a Country 10/10
China’s “common prosperity” is tightening control over IT and education industries. Expanding inequality is not unique to China; it applies to many developed countries as well.
Across countries, marriages among high earners are rising, raising concerns about intergenerational transmission of education and inequality. Education gaps are a concern also in Japan. We may need to worry about a society that allows these problems to persist.
For reference
【Kawata Comment】
Mr. Kono says, “In the past, wealthy and non-wealthy families lived in the same area with no great disparity in education, but now when high-income families move out, the local education level declines.”
This article discusses performance as if high-income children were outstanding. In my era, that wasn’t necessarily true. Wealthy doctors’ children didn’t overlap with elementary–middle schools (there weren’t many doctors around). The wealthy were merchants, but their academic performance correlation was uncertain. There were bankers and civil servants too, but I don’t recall their children performing especially well.
Besides, adults around them knew that high-performing children’s parents were themselves high-performing. In other words, perhaps heredity? Yet I don’t think people were that conscious of income correlation.
Then times changed, and Tokyo became a magnet for people nationwide. There must be a strong correlation between income and academic performance. If that’s the case, to become Mengmu is essential for a child’s future, and it would negatively affect emotional education. More importantly, some areas are unsafe.
■ Academic performance is something one inherits from parents
The current premise in Japan is that with effort, individuals can improve their academic performance. Kawata Theory cannot endorse this. Academic performance is largely inherited from parents, plus family environment in early childhood. There are many examples that support this.
Kono also says that among highly educated, high-income people, intermarriage rises and wealth concentrates in “super couples,” leading to the social problem of fixed inequality through the education of their offspring.
■ In short, talent and luck both matter
The gap in academic performance and social inequality is a global issue. A book that’s ideal for those who want to probe this further is “Is Ability a Matter of Fortune? Is Meritocracy Justified?” by Michael Sandel (with Yuki Honda, Shinobu Onizawa, translators).
Like Mr. Kono, I’ve been quite interested in this “education and inequality.” Seeing how this inequality amplifies and fixes itself through the stock market, I have some thoughts.
■ This June’s Kawata Off-line Meeting
In June this year I held an online seminar for our premium members titled“Off-line Meeting: Sandel’s New Book ‘Is Ability a Matter of Fortune’ and the Inequality Fixed Society and Impacts on the Stock Market”.
My long-standing questions are
Why can the U.S. stock market keep rising for a long time? And why is that allowed? From a Japanese perspective, it’s puzzling why the stock market alone should rise.
What patterns exist in the U.S. social system of democracy and capitalism, and what conditions allow stock prices to rise?
If the social system changes, will the stock market’s upward trend falter?
My interest lies in the social system, human instincts, and essence behind long-term U.S. stock market growth. Sandel’s book offers hints. From the table of contents, the highlights include
■ P17 Introduction — Entering the University
· P20 Ethics of University Admissions
■ P29 Chapter 1 Winners and Losers
· P36 The Rhetoric of Promotion
· P39 The Ethics of Meritocracy
Chapter 2 “Great because Good”—A Simple History of Morality of Ability
· P53 Endless Meritocracy
· P62 The Thought of Divine Providence—Then and Now
· P68 Health and Wealth
· P73 Liberal Providentialism
· P76 The Right Side of History
This is clearly a book written by an American scholar. By the way, if Sandel is made to speak about elite arrogance, it would include the following depiction.
P89 “The Rhetoric of Promotion”
“Our views on success are the same as the Puritans who spoke of salvation. That success is not a matter of luck or grace, but something earned through one’s own effort and hard work. This is the core of meritocratic ethics.”
The elites’ argument is that they have earned their status through extraordinary effort, and the wealth they now possess is a natural consequence.
The fairest and most efficient mechanism to create wealth is the stock market. In that market they claim their wealth as a rightful entitlement. For that, the stock market must rise.
Competition itself is not bad!
Sandel takes a tough stance toward today’s U.S. elites and “the winners.” But in the United States, even non-elites can enter the stock market and create wealth. Wealth ensures fixed-inequality conditions.
Should the challenge to be among the winners be rejected? The survival instinct, cognitive desire, and equality desire are innate in every human. If those are denied as engines for self-fulfillment, we end life without recognizing their role—what do you all think?
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4. Investment Tips
A column that not only covers “investment methods” and “stock recommendations,” but also writes about “interesting indicators and statements” and “societal and political movements.”
■ Reading Comparisons of U.S. Stock Investment Books
I tend to buy U.S. stock books whenever they come out. I’ve bought dozens over the years. These books fall into several types and generally aim to promote the attractiveness of U.S. stocks, though some rely on stock picks to boost sales.
Here are a few I’m interested in.
■Starting Today! An Ultra-Beginner’s Guide to U.S. Stock Investment: The Only Reasons Matsumoto Da says you need Matsumoto Daisuke (Author) 2021/10/8 ¥1,650
This book is new, but it’s a revision of 2013’s“The Reason I Recommend U.S. Stocks: I’ve Traveled the Markets of the World” (Hardcover – 2013/11/29, by Matsumoto Daisuke, supervised by Monex Securities).
With this single book, a beginner in U.S. stock investment can reach the point of starting to invest. It doesn’t introduce individual stocks, but Monex’s website provides ample related information, so that’s not a problem.
If you invest, it should be in U.S. stocks, not Japanese stocks. They argue that Japan’s slower growth, population decline, and shareholder neglect are headwinds for investing. The company’s chief foreign stock consultant Okamoto Hachihachi is enthusiastic and precise in his advice. Matsumoto and Okamoto are veterans of U.S. firms, and their views on U.S. stocks align closely with mine. They understand the traps of U.S. stock investing caused by typical Japanese thinking.
■ For reference “Amazon Reviews”
“If you know nothing about U.S. stocks, this might be good. It’s readable in about an hour. Unlike the Japanese market, there aren’t big whales (pensions) or activist funds causing eddies. If you consider the financials and future of individual companies, U.S. stocks tend to rise. The U.S. market is wonderful.”
■ Table of Contents
Prologue: Three Reasons to Recommend U.S. Stocks
Chapter 1: McDonald’s in U.S. Stocks, Not Japanese Stocks
Chapter 2: The Secret of Matsumoto-Style Investing
Chapter 3: Protect Your Assets from Yen Decline
Chapter 4: Five Scenarios for U.S. Stock Investing
Chapter 5: Basic Knowledge of U.S. Stock Investing
Chapter 6: Starting U.S. Stock Investing with Online Brokers
Chapter 7: Useful Tools for U.S. Stock Investing
Chapter 8: Taxes and NISA for U.S. Stock Investing
■ Notable Passages
Chapter 1: Management Focused on Stock Prices
If the U.S. stock market is said to thoroughly embrace capitalism, then the Japanese market must be different. That’s why investment money flows toward the U.S.
In p.36, the term “Administration (the government)” is used to explain the origin of the nation and its development.
Then the statement: “In the United States, every citizen feels a strong sense that they support the country. Therefore, the existence of shareholders who support the companies is also respected.”
【Kawata Note】
The logic of the “therefore” is hard to grasp. My understanding is:
The United States has private property. Corporate property is owned by individuals (shareholders). In other words, shareholders have a strong sense that the company is theirs. The company also strongly acknowledges who its owners are. Thus, the managers entrusted with governance respect and remain loyal to the owners. I interpret it this way.
p37,38Japanese companies have not been mindful of shareholders.
After this subheading, the text notes that “state capitalist investment activities postwar weakened the core of capitalism—namely the consciousness of corporate shareholders.”
In other words, as state capitalist elements strengthen, companies look to the state for life and death more than to shareholders, and thus shareholder neglect becomes entrenched.
【Japanese Corporate Organization Theory】
When analyzing the stock market, I value sociological perspectives in addition to economics and finance. Our economic behavior is strongly influenced by social dynamics that cannot be fully explained by American economic theories. In this sense, saying “Japanese people are weird” using American theories often misses the point.
Now, Japanese companies belong more to “the public good” than to shareholders. Therefore, “the public who sees the company” (the social gaze) demands strong corporate responsibility for employment, taxation, and social stability.
Since Meiji, much of Japan’s societal structure has been Western mimicked. In that mimicry, undesired elements were not adopted. The corporation system is no exception. Japan has corporate structures suitable for Japanese society. And because “societal eyes” sharply monitor corporate behavior, executives cannot be as shareholder-friendly as in the United States. They can’t easily fire workers or sell the company. Society would not permit it! That’s all. So I won’t buy Japanese stocks. Oops, I should stop here!!
【Related Books】 “What is the ‘Public’ (Society)?” (Chuo Koron Shinsho) Shinsho – 1995/7/20; Kenya Abe (Author)
Born 1935. Graduated from Hitotsubashi University Faculty of Economics, completed graduate studies at the university. Specializes in German medieval history. Works include “The Pied Piper of Hamelin” — Heibonsha; later in Chikuma Bunko; “People Traveling Medieval Europe” — Heibonsha; “Love and Personality in Western Medieval Times” — Asahi Shimbunsha; and “The European Medieval Cosmos” — Kodansha Gakujutsu Bunko; etc.
This book review is interesting. Politicians or business people facing scandals often say, “I am innocent, but I apologize to the public and resign.” (Continues…)”
By the way, this book (Monex’s book) consistently guides readers toward U.S. stock investing with a shareholder-supremacy and stock-price supremacy approach, which I find similar to my views.
【Related Videos】
Here are two videos of seminars I gave as a lecturer at Monex Securities for reference (I’m not shy about self-promotion).
【Strengthening the Yen through Dollar Appreciation】
Chapter 3: Previously, a strong yen reduced dollar assets, deterring U.S. stock investment. But recently, with yen weakness, protecting assets now means U.S. stocks. The concern about dollar asset erosion due to a strong yen has flipped.
As the yen has weakened significantly, the yen-dollar rate moved from around 103.20 at the start of the year to about 114, a over 10% depreciation, making the book’s concerns a reality.
Long-term USDJPY chart
■ p91 “Tips for U.S. Stock Investing ②”
“Invest in a company you want to work for” is fine. Which company? The book lists sectors like SNS, finance, medical, space, but doesn’t name specific companies.
However, many applicable stocks are highly overhyped, so stock prices can be extremely overvalued. Stocks of Ark Investment Management (Cathie Wood) are typical, though their stock performance is not always impressive.
Chapter 4 says “Index investing is fine, but individual stocks are interesting” (pp. 104). Yet in Chapter 1 (pp. 44), it also states “Use Core–Satellite for balanced investing.” Monex Securities benefits from frequent trading for fees, but frequent trading tends to degrade investor performance.
■ Investment Scenarios
Five scenarios (p.108)
Scenario 1: Biden infrastructure investment
Scenario 2: Cron Energy
Scenario 3: EV (Electric Vehicles)
Scenario 4: Increase in U.S. domestic manufacturing
Scenario 5: GAFAM系
In the final “Scenario 5: GAFAM系” (pp. 116), GAFAM still hold promise. Yet to maintain competitiveness against China, they argue against over-regulation of platforms and against weakening their strength. This is the American way of thinking, which I often advocate.
■ Conclusion
This one book allows you to debut in U.S. stock investing.
The expressions are clear.
It’s good for dispelling common misunderstandings about U.S. stocks among Japanese.
If you simply want to start investing in U.S. stocks, this is a perfect entry.
I’ve also picked up a few other related books within reach.
■No.1The Strategist’s Guide to Profiting from U.S. Stock Investing and Mindset Masatoshi Kikuchi 2021/1/26
The author is a friend of mine and one of Japan’s top strategists in Japanese stocks. His specialty is investment strategies for Japanese equities. A couple of months ago I held a study session with premium members using this book as the text. A must-have for those with a broker background.
Kikuchi-san sends a daily “Early Morning Comment” newsletter to institutional investors, with wide and deep coverage. This person’s intellect is multi-faceted.
His main line is investment strategy, lectures, professional journals, weekly magazines, and even exploring restaurants and ingredients. He’s also adept at interpreting a wide range of topics—TV, cinema, fashion, and youth issues—into insightful commentary. A true polymath.
That genius explains the U.S. stock market and its stocks with historical context, systems, and U.S.–Japan comparisons. Unlike superficial U.S. stock bloggers, his work is well-supported by facts.
One review claims, “I bought it for interest, but there’s no tell-you-how-to-make-money.” If you want a quick answer, this book may not suit you. But for those seriously studying U.S. stock investing, this is essential.
■Now is the chance! An Introduction to U.S. Stock Investing for Building Wealth Hidemasa OKamoto (Author) 2020/12/3
Okamoto-san’s book is also good. He began at Solomon Brothers Asia Securities (now Citi Group Securities) and has spent his career in U.S. stock sales. Now he promotes U.S. stock investing to individual investors at Monex. This book is filled with his long-standing thoughts.
Being in the same sales background, I feel his way of communicating is quite similar to mine.
■ “The World’s Easiest U.S. Stocks Textbook 1st Year” by Hachiyo 2020/6/2
Following reviews
From chapter 0 to 8, it’s well-structured and thorough. Recommended for beginners up to mid-level investors.
For beginners wanting to learn how to invest in U.S. stocks from scratch, it’s very user-friendly. It guides you from a zero state to starting investing.
Describes a 10-year plan to generate profits, so it isn’t suitable for those aiming to make quick profits in a year. The author is serious, without flashy statements.
A surprisingly serious book, but it doesn’t deepen understanding of the essence of the U.S. stock market.
■Stupid but Profitable: High-Dividend U.S. Stocks
Buffett’s Taro (Author), 2018/4/28
I haven’t read this blogger’s blog, but the content seems similar.
Several reviews say
＊Careful about online personal sites
＊Somewhat harsh
This book has many scathing comments as well.
The title’s “Even a Fool Can Make Money” is reportedly a marketing strategy to widen the reader base.
This book may not be essential for those truly wanting to build wealth in U.S. stocks. Yet it has sold 160,000 copies, suggesting there is a broad audience that finds it useful.
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New Series “Perfect Guide to Asset Formation Using U.S. Stocks”
Introduction
This time we begin a serial covering the fundamental elements necessary for wealth formation. The overall structure is planned as follows:
What era are we living in? Part 1 and Part 2
For Japanese independence, investment activity is indispensable
Is the stock market only in the United States?
Differences between Japanese and American stock cultures
Key features of the U.S. market to know
What is the S&P 500
Why is the U.S. strong
Recommended investment strategies — Core and Satellite investing —
Core investment strategy
Satellite investment strategy
What should I buy
Sources of information and investing
Episode 2: Self-reliant Japanese people and asset formation essential for independence, Part 2
Last time I mentioned that many Japanese fail to protect assets.
Why don’t Japanese individuals take action to realize their own dreams? Because they are not autonomous. Going forward, Japan needs many autonomous individuals to avoid falling behind in global competition.
Now, when thinking of autonomous Japanese individuals, I keep returning to this chart.
■ Why did Japanese people so innocently push up prices?
As discussed in Episode 1, I started my career in finance as a securities sales person.
In this era of change, the lessons from the 1980s bubble may offer guidance for the future. I think there are hints in the patterns of the Japanese during that time.
Nikkei 225 chart for the past 40 years.
Look at that chart. It’s truly disheartening to see.
On December 29, 1989 (Heisei 1), the Nikkei reached a record high of 38,915.87. After that the market collapsed. Everyone—individuals and large corporations moving huge money—joined in a money game, buying as prices rose, and prices reached nearly 40,000.
Many likely thought, “this is wrong,” yet the vast majority bought and kept raging in this market mania. Why were Japanese so compliant?
After peaking, prices plummeted and remained stagnant for 30 years. The stock market, the core of economic activity, failed to function for three decades. Some even say this market behavior reflected Japan’s economic reality.
Since 2012’s Abenomics, prices rose again, but the long downturn persisted. Is the government’s management of the economy implying that the stock market’s function is not essential? This illustrates the position of the stock market in Japan and Japanese attitudes toward market economics.
■ Why there were not autonomous individuals
But why did the market deteriorate so much? If we focus on investors, the reason is that there were too few autonomous individuals—people who could invest with calm, common sense. If more were present, perhaps the bubble would have taken a different shape.
“Autonomous” here does not mean merely contrarian or self-centered. It means people who can act independently for society and the country.
To nurture autonomous individuals, one must also be financially independent. That requires assets backing one’s life.
In other words, to choose a life that does not burden society while living by one’s own will, some assets backing are necessary—this is undeniable.
If you can create those assets from your own earnings, that’s fine. Modern Japan is a system where people, goods, and money are interconnected to generate greater economic value; that is the hallmark of capitalism.
■ Why is investment needed to create assets?
We reviewed this capitalist mechanism previously (October 11 issue). Within this framework, capital and rather than labor, the economy benefits more from capital investing money to earn more money. Therefore investment in stocks or real estate tends to grow assets faster.
The concept that capital earns more than labor was popularized by Thomas Piketty’s “Capital in the Twenty-First Century” (though published in 2014). It’s a significant but dated work. The main insight is that the rate of return on capital (r) exceeds economic growth (g), leading to wealth concentration and increased inequality.
(* Timed note) Thomas Piketty (Paris School of Economics) “Capital in the Twenty-First Century” (2014) Capital in the Twenty-First Century
In the long run, returns on capital outpace economic growth, concentrating wealth in capital owners and widening inequality. This dynamic is argued to persist.
The book indicates that in times of war or crisis, capital returns temporarily slow while labor-driven growth outpaces it, but in the long run the r > g formula remains intact.
Thus, at least for now, capital owners hold the advantage, and unless something changes, will continue to do so. (To be continued)
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5. Kawata’s Walk
◇◇Recent favorite shop◇◇
Mariage - Nishinogisub/ French
Our younger colleagues came over eager to drink, so I went out for the night after a long time. The shop is in Nishinogisub, convenient for returning home. The master runs the place alone; both the food and wine are all excellent!!
The next morning, Saturday, it rained lightly, so normally I would have worn a rain cape and gone to Inokashira Park. I didn’t feel like it—perhaps because I had one more glass than planned. A little return to pre-pandemic normality.
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6. Upcoming Activities
◇Wednesday, October 20, 11:00 AMStock Voice
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7. Q&A Corner
Summary of Questions
I’ve heard Americans often invest their surplus funds in stocks such as the S&P 500 rather than keeping them in deposits. I’ve also heard that tax refunds from the annual filing season prompt investments in stocks. Besides these moments, what other times during the year do individuals typically have surplus funds? Are bonuses paid in June and December like Japan? Is it only once a year? Mr. Kawata, who has experience with expatriate life and even bought a home, please share your insights.
Answer
① “Americans invest surplus funds in stocks like the S&P 500 rather than depositing them.”
→ I think this tendency is strong. Payroll deductions, company contributions, and favorable tax treatment are all much more advantageous than in Japan. They actively encourage taking stock market risk. The key is that Americans have unwavering belief in the stock market’s rise, which is perhaps the biggest difference between the U.S. and Japan.
② “Surplus funds flow into stocks at times like tax refunds in filing season.”
→ Considered a market anomaly. Also, as in this year’s autumn, funds tend to move more. Depending on the year’s performance, fund managers may redeem funds, causing outflows, followed by inflows in October and November. However, I think it’s incorrect to assume this inflow/outflow pattern is universal.
③ “Bonuses: June and December or once a year?”
→ It depends on the business. Many companies pay bonuses once a year. Japan’s two bonuses emphasize living costs over performance pay. In the U.S., bonuses vary by performance and individual contribution. If you’re dissatisfied with the year’s evaluation, it’s a clear signal from your company. In my experience in foreign firms, it’s truly a dry environment—“the money runs out the moment the relationship ends.”
④ Expat experience
→ This is quite dated but that experience (being forced to lay off staff) was important. In the interview room there was a box of tissues; employees could cry, then swiftly find new jobs or use it as an opportunity to upgrade skills. The situation was similar in Hong Kong. People are resilient!
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