Delivering the Truth About U.S. Stock Investing — Shigenobu Kawada's "Training in U.S. Stocks Through the Media" [Vol.27] Distributed December 20, 2021
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The Truth About U.S. Stock Investing
Shigemitsu Kawada's “Training in U.S. Stocks through the Media”
［Vol.27］Distributed December 20, 2021
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*** Table of Contents ***
Market Review
This Week’s Straight Talk!
This Week’s Picked Articles
【Two Geniuses Who Predicted Japan’s Decline: Michio Morishima and Naoki Komuro = Hidetaka Tashiro】【Apple Approaching a $3 Trillion Market Cap】【Economic Standstill Continues】【Is Buyback Evil? Skepticism over Prime Minister’s “Regulation Talk”】
Investment Hints
Kawada’s Walk
Activity Information
Q&A Corner
The 20 Million Yen Benchmark
Source: Financial Services Agency; Asset Management Simulation prepared by Exet Trust Co., Ltd.
Note: The numbers above are simulations and do not guarantee future investment results. Fees and taxes are not included.
Reading Guide: Expected Return and Target Date
3–4% for over 30 years: this is what wrap funds or balanced funds achieve
5–7% would take about 25 years: if investing in non-U.S. stock funds
8–10% would take about 20 years: this is a modest projection for S&P 500 gains
S&P 500 Performance (Dividends Reinvested 1970-2021)
Aim to reach 20 million yen through proper risk taking and early achievement
Kawada’s message is surprisingly simple. To reach 20 million yen, let as much as possible of your surplus funds work efficiently. For that, participants must correctly understand risk and reward. Before reading the weekly newsletter, glance at this table to confirm a proper investment posture.
Now, start the countdown to reaching 20 million yen right away!
Online Salon “Wealth-Building with Dreams”
This is an online salon where you learn together and inspire each other to succeed in asset formation. It offers member-only seminars that go beyond what the popular newsletter “Training in U.S. Stocks through the Media” can convey, letting you experience the appeal of U.S. stock investing.
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1. Market Review (Dec 13–Dec 17)
Major Indices
・Dow Jones Industrial Average -1.7%
・S&P 500 -1.9%
・Nasdaq Composite -2.9%
＝ Quick Take =
In the first half of the week, markets were soft due to caution over the Omicron variant, but they rebounded as the FOMC decision came within expectations. However, worries about tightening in Europe and renewed infection fears led to another decline.
＝ More Details =
Caution around Omicron and higher-than-expected producer price index fueled inflation concerns, causing softness early in the week. The FOMC signaled accelerating tapering to end in March, and three rate hikes are anticipated in 2022, but since this was largely priced in, the market rebounded strongly on relief. Yet the Bank of England and the ECB signaled tightening, leading to a rotation out of growth stocks. Friday’s expiration of index futures and options added to market volatility.
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2. This Week’s Straight Talk
A column delivering essential information you should know.
Kida.
Selling to Reset Positions
Last week, the stock market rose only on Wednesday. Growth stocks fell on Thursday, cyclicals on Friday. Though various explanations exist, the actual cause is likely position unwinding by hedge funds around futures and options expiration. It makes sense to lock in gains on stocks that rose sharply this year ahead of the Christmas break.
Wednesday’s sharp rebound was due to the FOMC decision being within expectations. The taper ending in March and three rate hikes anticipated for 2022 were already priced in, and the bond market stabilized, signaling relief. The reversal on Thursday came as the Bank of England’s rate hike and the ECB PEPP ending heightened concerns. Historically, European hikes affect the U.S., so watch for any unexpected moves from the ECB. Such moves can impact stock flows.
Outlook for next year
With year-end approaching, outlooks for next year are discussed widely. Key factors for next year are: 1) the path of U.S. monetary policy, 2) inflation trends, 3) the COVID-19 situation. Geopolitics with China and the Middle East may matter, but are unlikely to decisively move markets.
For all three factors, optimistic and pessimistic scenarios exist, and betting on only one is risky. While valuations suggest some downside pressure, solid corporate earnings should support the floor. Considering these, next year’s end price may be similar to this year’s, with several swings of about 15% likely. Yet for long-term asset-building, such noise can be treated as noise.
Christmas Holiday
This week may retain some spillover from last weekend at first, but it should gradually calm toward Christmas. U.S. markets will be open only on the 24th this year; with fewer participants, markets are likely to feel like “farewell games” unless something extraordinary occurs.
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3. This Week’s Picked Articles
A section that selects and ranks information useful for asset building from what I found, with my personal commentary.
【1】The Weekly EconomistTwo Geniuses Who Predicted Japan’s Decline: Michio Morishima and Naoki Komuro = Hidetaka Tashiro12/13
Forty-two years ago, sociologist Naoki Komuro (1932–2010) said, “In the future, a mother will kill her infant within months after birth in Japan.”
Reason: “Declaring the Emperor as male and postwar Japan’s growth created anomie (disunity). Durkheim, who described anomie in 1893, argued that anomie denies all morality.”
Komuro’s mentor, economist Michio Morishima (1923–2004), foresaw Japan’s decline. Morishima is considered Japan’s closest to a Nobel in economics. In his 1999 book “Why Japan Will Decline” (Iwanami Shoten), he predicted Japan’s decline by 2050.
Morishima and Komuro shared essentially the same intuition about Japanese society. I call this the “Morishima-Komuro hypothesis.” Postwar Japan’s economy and politics have structurally fundamental contradictions.
Politically, the ethos (habit of the heart) that supports democracy has not formed, and crowds simply following others will not realize democracy, as Morishima and Komuro observed.
Morishima argued that postwar economic growth was largely achieved by generations educated before the war. The postwar generation has not produced anything substantial.
Morishima believed that the root of Japan’s defects lay in the lack of ethos among the managerial class, while Komuro’s trajectory took him to China, where he returned with many math and physics textbooks. He studied mathematics at Kyoto University and claimed that if you see the formulae, you understand the content. He told the author (Tashiro) in 1981 that someday high-tech companies would appear in China.
“Why Japan Will Decline” (Iwanami Shoten)
If things continue as they are, Japan will inevitably decline... Written in the late 1990s with 2050 in view, it surprisingly anticipates Japan’s current situation. It sharply points out Japan’s spiritual mindset and the structural flaws in finance, industry, and education, and proposes the only salvation: the East Asia Community.
Michio Morishima
Born 1923 in Osaka. Graduated from Kyoto University, Faculty of Economics, in 1946. Served as professor at Osaka University, Essex University, and the London School of Economics (LSE). Awarded the Order of Culture in 1976. Died July 2004. Emeritus Professor at Osaka University and LSE. Fellow of the British Academy.
Excerpts from the Review
i) By 2050 isn’t necessary; as of 2020, the prophecies have largely come true!
ii) Several points provoke deep reflection.
・Postwar economic growth was largely achieved by generations educated before the war. The postwar generation has not produced much of value.
・Japan’s grassroots is Confucian; this underpins social selection by academic achievement. Yet Confucian society needs elite leadership, and postwar universal education fails to produce elites.
③ This work broadly, provocatively discusses Japan’s future across education, history, economics, and politics. It offers a refreshing perspective unlike many economists.
In particular, twenty years ago there were already warnings about right-wing historical revision and the possible rise of a unique Japanese dictatorship (precedents include Hideki Tojo). This insight sees one path to Japan’s decline. It seems to have foretold the later emergence of a distinct Japanese-style autocracy under the Koizumi and Abe eras as the 21st century progressed.
【Kawada’s Comment】
I hadn’t owned Morishima’s book, so I ordered this title on Amazon and it arrived promptly.
The Foreword and Table of Contents are highly engaging, so I look forward to reading it.
Morishima and Komuro analyze the economy and society not only through economics but also through sociology and historical perspectives, which is important for us. Conversely, analyzing society and economy solely through economics yields a shallow forecast.
By the way, these two are said to be in a teacher-student relationship; details are in“The Biography of Naoki Komuro (Upper): The Radical Genius Who Loved Scholarship, Wine, and Cats” by Atsunao Murakami. Indeed, on page 145 of the first volume, it states that “Komuro respected Morishima, and Morishima also took care of Komuro.”
【2】“Barron’s Digest”Apple Nears a $3 Trillion Market CapOutperforming the S&P 500 by a wide margin – 12/12
Apple’s market cap is approaching the $3 trillion milestone. Apple, founded in 1976, reached $1 trillion in 2018 and $2 trillion by August 2020, and now is within 15 months of $3 trillion.
Four reasons the stock price keeps hitting new highs
① A haven when markets wobble
② iPhone 13 demand is underappreciated
③ In-app payments may be sustained
④ AR/VR headsets and autonomous cars expected
【Kawada’s Comment】
I once posited the “Five-Trillion-Dollar” thesis for Apple when its market cap was about $1 trillion (roughly ¥100 trillion).
Why $5 trillion? It’s a very rough estimate, but at that time the U.S. S&P 500 market cap was around ¥3000 trillion. Historically, top market-capents of the U.S. have accounted for about 5–7% of the S&P 500’s market cap—examples include AT&T, IBM, GE, and more recently Exxon Mobil and Microsoft.
The Apple $1 trillion moment and the $5 trillion conjecture!
If the global market cap is about 1.2 quadrillion yen and Apple’s share is 7%, that would be about 800 trillion yen. This argument hinges on treating the denominator as global market capitalization rather than just the U.S.
At the time, the global market cap was roughly twice that of the U.S.—about 6,000 trillion yen. 7% would be 420 trillion yen, rounded to 500 trillion.
February 2020 Note
In my February 5, 2020 note, I wrote“Apple, Microsoft market cap of 500 trillion yen? Is that possible? … Yes, it is!!”Then
“Since 1980, when ranking the market-cap leaders by year, IBM was at the top from 1981 to 1985; in 1985 its market cap was $95.6 billion, accounting for 6.4% of the S&P 500 market cap at the time. Apple and Microsoft today rank among the top holders historically, around 9th and 10th.”
Apple Targets the World
My core argument was to replace the denominator with the total market cap of all stocks worldwide.
AT&T, IBM, and GE mainly serve corporate customers, but Apple targets individuals worldwide. If users everywhere recognize Apple’s value, the business expands beyond the U.S. to the entire world.
In other words, if individuals globally recognize Apple’s value by choice, Apple’s business grows. Microsoft has similar aspects. Therefore, American platform companies like Alphabet and Meta (formerly Facebook) appear different from top-cap leaders of the past.
300 trillion yen is a stepping stone
If we push this argument, today’s global market cap is about 1.2 quadrillion yen (12,000 trillion) and 5% would be 600 trillion yen; 7% would be 800 trillion yen. Thus, 300 trillion yen is a stepping stone.
The Tokyo Stock Exchange First Section’s market cap is about 730 trillion yen, so even now two Apple-like companies could equal the total market cap of the entire First Section. If this trend continues, one Apple could absorb the entire First Section.
Apple will eventually peak as a company. But that might not be in the near term—perhaps not even in five years. For now, I’m prepared to hold U.S. platform names like Apple and Microsoft through the Nasdaq-100.
For reference: The closing of the earlier note…
“Well, will this actually happen? In 1989, Exxon Mobil topped the market cap list with about $62.5 billion. Twenty years later, by 2009, it was about five times higher at $323.7 billion.”
In 1989, the second-ranked GE’s market cap also ballooned nearly tenfold over 20 years. So being at the top does not imply a ceiling.
Today’s leading U.S. companies are revolutionizing the world and creating arenas for their own activities. In that sense, there are no borders or limits to their business; the horizon seems endless.
If you’re scared by Apple or Microsoft’s current $150 trillion yen market cap, you might miss investment opportunities. I hope you enjoy such bold projections as you invest in U.S. stocks.”
Apple’s Profit/Loss and Regional Sales
Long-term chart from around 1981, scale is logarithmic
Apple went public on December 12, 1980
Market capitalization: trend over the past five years
【3】 Nikkei Newspaper, NIKKEI The STYLE, 12/12
Netflix corporate culture
Even the losers are treated warmly; it is not a place where anyone feels at home.
A dream team that gathers stars, not a family.
Compensation at the top level.
Work is done with each person’s “freedom and responsibility.” Vacations are free as well.
Do not imitate GE, Microsoft, or Apple.
Mechanically firing the bottom 10% every year or top executives meddling in details undermines teamwork and autonomy, causing great harm.
No need for gym or parties for exercise or socializing.
The joy comes from teaming with talented people and achieving great results.
Netflix (NFLX) went public on May 13, 2002
The scale on the chart below is logarithmic
【Kawata comments】
I don’t watch much television or video. I haven’t used the company’s service. However, my cohabitants use it constantly.
I picked up on this because the company’s corporate culture is a harsh “code” that ordinary people like us cannot easily follow. It’s unlikely Japanese companies could imitate it.
This reminded me of what former Intel CEO Andy Grove said: 『Only paranoia survives』. Intel itself is lagging behind other semiconductor companies. After all, there is no eternal youth.
Intel’s long-term stock price (log scale)
【4】 Nikkei NewspaperEconomic downturn cannot be stopped 12/18
Once, it was evaluated as a first-class economy, supported by unquestionably vigorous companies.
Whether out of complacency or caution, many companies lost enthusiasm and vitality.
“Not saying what should be said; doing only what you’re told.”
The enthusiasm for creating new value faded, forming uniform groups with similar educational backgrounds, and creating comfortable environments, with many companies maintaining the status quo and delaying reforms across Japan.
Outside directors supervising execution increased, but unfortunately they have not substantially contributed to raising corporate value. The stock price clearly reflects this reality.
Companies must return to the founding principles, permeate purpose into the organization, and realize corporate value enhancement. If left as is, Japan’s economic foundation will not stop deteriorating.
【Kawata comments】
Lately, Nikkei has many “self-deprecating” articles. Or perhaps I am intentionally picking self-deprecating pieces…
But lamenting changes nothing. Japan is likely to remain like this for a while. Why? Because the silent majority currently agrees that Japan’s present state is not an ideal, but a practical option. This is the result of Japanese people's choices.
Some may disagree. But would you be willing to leave your large organization and comfortable community to change your situation? What would you like to achieve by leaving?
What Japanese people have lost sight of is a great cause that must be achieved even at a cost. Has that great mission been lost for a long time?
My“great purpose” (＝belief: vocation, calling)
Now, how should we utilize these self-deprecating articles? If Japan is declining and this downturn may continue, and if you judge that you do not have outstanding abilities, then seriously invest in U.S. stocks with your free capital.
Would that become a “great mission”? It might not. But at least it wouldn’t bother others or the country.
In that sense, creating many self-reliant Japanese who do not cause trouble for the country seems to me a “great mission.” To that end, I will show a path to asset formation through U.S. stock investments. For now, this will be my “great mission.”
【5】 Nikkei NewspaperIs share buyback evil? Prime Minister’s “regulatory remark” raises suspicion 12/17
In the House of Representatives Budget Committee on the 14th, when asked whether to go so far as banning share buybacks, Prime Minister Kishida replied, “The point you’ve raised is a very important one.”
This could have a negative market impact comparable to a Kishida Shock 2.0.
“Kishida Shock 1.0” referred to the stock price adjustment after Kishida showed interest in revising the taxation of financial income during the Liberal Democratic Party leadership race.
In the United States, share buybacks are an engine that creates a virtuous cycle of growth and distribution. About 50% of American household financial assets are in stocks and mutual funds, and rising stock prices directly increase household wealth, fueling consumption and corporate earnings. A virtuous cycle.
Strategist: “The solution to correcting the gap between capitalists and workers is to give workers stock.” “Policy should use market forces rather than wage tax changes or share buyback restrictions.”
When asked which politician he respects, Kishida answered Ikeda Hayato, the former prime minister who formed the Kono Taisei (Kibo-kai) faction.
70 years ago, in 1951, then Finance Minister Ikeda Hayato helped pass the Investment Trusts Act. He teamed with Nomura Securities’ former president Okumura Tsunao to persuade GHQ. Through investment trusts, public funds were channeled into industries driving high growth.
Current Prime Minister Kishida appears to be pursuing anti-market policies as well.
【Kawata comments】
Okumura Tsunao: long illness, roan, prison, debauchery
Anyone in the securities world would have heard of Tsunao Okumura (younger folks might not know). He is said to be the founder of Nomura Securities’ revival, becoming president at age 45 in 1948. By organizing the investment-trust system as above, he directed public funds into industries.
In his biography, there is a line: “To become a proper adult, one must go through a long illness, roan, prison, or debauchery; one of these obstacles must be overcome to become a person.”
For example, in the foreword of The Making of a Professional Life (Okumura Tsunao, 1971), there is a passage where a mentor tells him, “A man must go through at least one of roan life, imprisonment, or serious illness to become someone.” The mentor then says, “You do not fit into any of these categories. You are still half a man.”
Times were different
Roan life, imprisonment, serious illness? It might be okay to go through illness, but normally roan and imprisonment would close the path to advancement in today’s large organizations.
What is the takeaway? Achieving great things requires a strong resolve, a shift in values, and exposure to unfairness; that becomes the driving force of business.
In that sense, Japan today rarely offers such experiences. If such talent cannot be produced, will Japan slide down the slope as it is? It would not be feasible to recreate postwar devastation. Where will it stop if it continues to decline?
By the way, when I (Kawata) was assigned to Yamato Securities’ Kyoto branch, the branch manager Yamaguchi (joined around 1954) reportedly became branch manager for Kushiro at age 29 around 1959—a remarkable feat. He once said, “The securities industry then was like a convenience store manager today.”
Okumura became president in 1948, Yamaguchi went to Kushiro as branch manager in 1959, and my assignment to Kyoto happened in 1978. In each period, investing all in Japanese stocks would not have troubled clients; rather, it would have been a meaningful job directing individual funds into the industrial sector.Okumura became president in 1948; Yamaguchi was dispatched to Kushiro as branch manager in 1959; my assignment to Kyoto happened in 1978. In any era, investing all in Japanese stocks would have burdened clients. Rather, directing individual funds toward the industrial sector would have been a meaningful job.
However, in reality there was considerable overtrading during rising markets. Still, there was a reason for the securities industry to exist.However, in reality there was a great deal of overtrading in rising markets. Still, the securities industry had a reason to exist.
Over the last 30 years, it’s dubious whether directing funds from individuals to Japanese companies has social value. More valuable might be directing individuals’ funds into U.S. stocks for national interest.But over the past 30 years, it is questionable whether directing individual funds to Japanese companies has social value. Rather, directing individuals to U.S. stocks might better serve national interests.
History of the Nikkei AverageHistory of the Nikkei 225
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4. Investment tips4. Investment tips
This section covers not only “investment methods” and “stock picks” but also “interesting indicators and statements” and “social and political movements.”This section is about not only “investment methods” and “stock recommendations” but also “interesting indicators and statements” and “social and political movements.”
Core-satellite: is the core the S&P 500 index?Core-satellite’s core: S&P 500 index?
Or the Nasdaq-100 index? Or Nasdaq-100 index?
The core-satellite approach has long recommended either the S&P 500 or Nasdaq-100 ETFs or funds as the core. A common question from YouTube viewers is, “Which is better?”The core-satellite approach consistently recommends the S&P 500 or Nasdaq-100 ETFs or funds as the core. And a frequent question from YouTube viewers is, “Which is better?”
■ Performance■ Performance
① Last 16 years① Last 16 years
Why 16 years? Because my records started in 2005, and 16 years have passed since then. It was around the time when the IT bubble had just burst and a genuine uptrend was about to begin.Why 16 years? Because I started recording and managing in 2005, and it has been 16 years since then. It was the period when the IT bubble had burst and a genuine uptrend was about to begin.
The upper chart covers 2005 to November 2021 (16 years and 11 months)The upper chart covers 2005–2021 (16 years and 11 months)
The lower chart covers 2005 to 2020 (16 years)The lower chart covers 2005–2020 (16 years)
In this period, Nasdaq-100 and Nasdaq Composite outperformedIn this period, Nasdaq-100 and Nasdaq Composite show larger gains.
From this alone, many would want to anchor their core on Nasdaq indexes.If you look at this alone, you would want Nasdaq as your core.
② Yearly returns② Yearly returns
The following are annual returns of major indices since 2005. In the 2008 financial crisis Nasdaq-100 fell sharply, but rebounded strongly the following year (2009).Below are the annual returns of major indices since 2005. In the 2008 financial crisis Nasdaq-100 fell sharply, but rebounded significantly in the following year (2009).
Returns for S&P 500 and Nasdaq-100 and other major indicesReturns of S&P 500, Nasdaq-100, and other major indices
From here, one tends to anchor on Nasdaq-100 as the core.From this, there is a strong inclination to anchor on Nasdaq-100 as the core.
For details on characteristics and differences between S&P 500 and Nasdaq-100, refer to the article below: “Rakuten Securities – Mr. Kagawa: S&P 500 or Nasdaq-100, which to invest in 2022?”For details on the characteristics and differences between S&P 500 and Nasdaq-100, see the article below: “Rakuten Securities – Mr. Kagawa: S&P 500 or Nasdaq-100, which to invest in 2022?”
Nasdaq-100 logarithmic chart from 1991Nasdaq-100 from 1991 onward, logarithmic chart
Over about 30 years, Nasdaq-100 grew about 80-fold. The average annual return, excluding dividends, was about +17.1%.Over about 30 years of market performance, Nasdaq-100 grew roughly 80 times. The average annual return, excluding dividends, was about +17.1%.
Nasdaq-100 is said to be high risk, high return relative to the market average (S&P 500). This is largely due to the drastic declines during the IT bubble in 2000 and the 2008 financial crisis.Nasdaq-100 is said to be high risk, high return compared to the market average (S&P 500). This is due to the drastic declines in the IT bubble of 2000 and during the 2008 financial crisis.
Indeed, Nasdaq-100’s decline during the IT bubble was dramatic, but during the financial crisis declines were large across many indices.Indeed, Nasdaq-100’s declines during the IT bubble were dramatic, but the declines of other indices were also large during the financial crisis.
Performance: Nasdaq-100 surpasses the S&P 500Performance: Nasdaq-100 surpasses the S&P 500
The graph below shows annual EPS (earnings per share) for Nasdaq-100-based and S&P 500-based, for the past 10 years (since 2011) and projections from 2021 to 2023 (average market forecast).The following graph shows annual EPS (earnings per share) for Nasdaq-100-based and S&P 500-based indices, for the past 10 years (since 2011) and the outlook from 2021 to 2023 (market consensus).
Year 20202020
Even during the Covid crisis, major IT stocks that dominate Nasdaq-100, such as GAFAM (Alphabet, Apple, Facebook/Meta, Amazon, Microsoft), Tesla, Nvidia, etc., are expected to continue posting record profits in 2021 and 2022–2023.Even during the Covid crisis, the main IT giants comprising Nasdaq-100—GAFAM (Alphabet, Apple, Facebook/Meta, Amazon, Microsoft), Tesla, Nvidia, and others—are expected to continue posting record profits in 2021, 2022, and 2023.
Below are the numbers from the bar chart aboveBelow are the values from the bar chart above
Share of the overall stock marketShare of the overall stock market
Currently, the total U.S. stock market capitalization is about 4500 trillion yen, with the S&P 500 accounting for about 80% of that, while Nasdaq-100 comprises about 37%.The current total U.S. stock market capitalization is about 4500 trillion yen, with the S&P 500 accounting for about 80% of that. Nasdaq-100 comprises about 37%.
【Kawata comments】【Kawata comments】
That concludes a rough overview of the S&P 500 and Nasdaq-100. The S&P 500 is all-weather, while Nasdaq-100 is a collection of growth-oriented companies.That completes a rough overview of the S&P 500 and Nasdaq-100. The S&P 500 is all-weather; Nasdaq-100 is a group of growth-oriented companies.
For long-term asset formation, either index works; the mix is a matter of personal preference. Personally, I mainly hold Nasdaq-100 ETFs. The important thing is not which index, but how much and how long you hold and dollar-cost average.For long-term wealth building, either index is fine, and the ratio should be chosen according to each person’s view. For me, I mainly focus on Nasdaq-100 ETFs. What matters is not which index, but how much and how long you hold and accumulate.
Nasdaq-100 reference siteNasdaq-100 reference sites
Nasdaq-100 Index - WikipediaNasdaq-100 Index - Wikipedia
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New seriesNew serial “This isPerfect! All about asset formation using U.S. stocks” “This is perfect! All about asset formation using U.S. stocks”
IntroductionIntroduction
We will start a series covering the basic essentials of asset formation. The overall structure is planned as follows:We will launch a series that covers the essential basics of asset formation. The overall structure is planned as follows:
What era are we living in? Part 1What era are we living in? Part 1
Self-reliant Japanese people and the asset formation essential for independence, Part 1Self-reliant Japanese people and the asset formation essential for independence Part 3
Is the stock market only in the United States? Part 4Is the stock market only in the U.S.? Part 4
Differences between Japanese and American stock culturesDifferences between Japanese and American stock cultures
Key features of the U.S. market you should knowKey features of the U.S. market to know
What is S&P 500What is S&P 500
Why is the U.S. strongWhy is America strong
Recommended investment strategies – Core and SatelliteRecommended investment strategy – Core and Satellite
Core investment strategyCore part investment strategy
Satellite investment strategySatellite part investment strategy
What should I buyWhat should you buy
Sources of information and investingSources of information and investing
Episode 4Episode 4 Differences between U.S. and Japanese stock cultures Differences between U.S. and Japanese stock cultures
What is the decisive difference between the U.S. and Japanese stock markets? In my view, U.S. stocks are “the purchase of a right to participate in the capital accumulation process,” whereas investing in Japanese stocks is “a donation.”The decisive differences between the U.S. and Japanese stock markets
What is the decisive difference between the U.S. and Japanese stock markets? In my view, American stocks are “the right to participate in capital accumulation,” whereas investing in Japanese stocks is “a donation.”
To put it simply, the U.S. stock market is a vehicle that brings profits to investors. Therefore, investing in U.S. stocks assumes investors will gain returns. Japanese stock investing, on the other hand, appears more like showing support for a company, with less emphasis on investment returns.To put it plainly, the U.S. stock market is a vessel that brings profits to investors. Therefore, investing in U.S. stocks assumes returns for investors. Japanese stock investment, by contrast, seems more like cheering for the company rather than focusing on investment returns.
This time, I want you to know the content of Mowers Research’sI want you to understand the content of Mowers Research’s“Strategy Bulletin (No. 296)”“Strategy Bulletin (296)”, and I will summarize it below., so I will outline it below.
(4) The stock capitalist system evolving in the United States(4) Stock capitalism evolving in the United States
U.S. capitalism seems to be entering a new stage.U.S. capitalism seems to be entering a new phase.
From funding to distributing: the role of the stock market has changedThe stock market has shifted from a funding stage to an income-distribution stage
First, the role of the stock market has changed. Previously, the stock market, more broadly the financial market, served as a system where households’ savings were accepted by banks as deposits, which were then lent to companies. Now, in the United States, profits are returned to shareholders, and the money returned to shareholders becomes the starting point for various economic cycles.First, the role of the stock market has changed. It used to be that stock markets, broadly financial markets, served as a flow where households’ savings were accepted by banks as deposits, and banks lent that money to companies. Now in the U.S., profits are returned to shareholders, and the money returned to shareholders becomes the starting point for various economic cycles.
Dividends and capital gains as the main means of savings growthDividends and capital gains become the main savings growth tools
Household savings in the U.S. have grown mainly through rising stock prices and dividends. Among household financial assets in the U.S. (excluding pension reserves in Japan and the U.S.), about 72% is in stocks and mutual funds, while cash and equivalents account for only about 18.7%. In Japan, the opposite: stocks and mutual funds are under 20%, cash is about 75%.Household savings in the U.S. have grown mainly through rising stock prices and dividends. In the composition of household financial assets (excluding pension reserves) in the U.S., about 72% is stocks and mutual funds, while cash and equivalents account for about 18.7%. In Japan, the opposite: stocks and mutual funds are under 20%, cash is 75%.
Comparing capital flows: U.S., Europe, JapanCapital flows: U.S., Europe, Japan comparison
In Strategy Bulletin (No. 296), Figure 16 excludes “insurance, pensions, and fixed guarantees” from the above data.Figure 16 in the Strategy Bulletin (No. 296) excludes “insurance, pensions, and guaranteed income.”
【Kawata comments】【Kawata comments】
I have known Mr. Mushahara of Musha Research since we worked together in New York in 1980. His approach is very innovative and influential in Japan, and I have learned a lot from him.I’ve known Mushaka (Mushahra) of Musha Research since we worked together in New York in 1980. His approach in Japan is very innovative and influential, and I have learned a lot from him.
The wealth effect of U.S. stocks is substantialThe wealth effect of U.S. equities is large
Over the very long term, the S&P 500 index includes dividends and can approach annual returns near 10%. Some high-return names like GAFAM have delivered enormous long-term returns to investors.Over the very long term, the S&P 500 return including dividends is close to 10% annually. Among these, many companies like GAFAM have delivered enormous returns to investors over extended periods.
Investors who owned those high-return stocks have sold some or, even without selling, their unrealized gains have boosted consumer spending and confidence.Investors who have invested in those high-return names feel richer even after partial selling, which boosts consumption.
Conversely, when stock prices fall, the opposite psychology emerges, affecting consumption.Conversely, when stock prices fall, the opposite psychology affects consumption as well.
Japan has not achieved a broad ownership of stocks among its citizens. As a result, even if stock markets rise, the benefits go to a limited group. Wealth increases from rising stock prices may inspire envy, but risk-taking and wise stock-picking are not widely celebrated.Japan has not achieved broad stock ownership among citizens. As a result, even if the stock market rises, the benefits go to a limited group. Wealth increases through rising stock prices may evoke envy, but risk-taking and wise stock-picking are not highly celebrated.
■ The U.S. and Japan do not share the same capitalism■ U.S. and Japan capitalism are not the same
Mushahra says, “Japan lags far behind the United States in stock-based capitalism.”Mushahra says, “Japan is considerably behind the U.S. in stock-based capitalism” (in the same issue, 9/10).
To interpret this, the direction of capitalism is similar, but the U.S. is ahead of Japan at this time.“Behind” here suggests that while the directions of capitalism in the U.S. and Japan may be similar, the U.S. is ahead at present.
However, I believe Japan’s capitalism will not merely imitate the U.S. In fact, Prime Minister Kishida is holding the “New Capitalism Realization Meeting” to pursue capitalism suited to Japan.However, I believe Japan’s capitalism will not simply follow the United States. Indeed, Prime Minister Kishida has established the “New Capitalism Realization Conference,” a think tank for capitalism suited to Japan.
Looking at China’s rise and post-bubble Japan, the notion of a single linear capitalism is doubtful. I think each country’s capitalism has its own direction, with Japan, the U.S., and China pursuing different paths.Looking at China’s rise and Japan after the bubble, the view that there is only one kind of capitalism and a straight line is dubious. I think each country has its own capitalism, with Japan, the U.S., and China pursuing different directions.
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5. Kawata’s walk6. Kawata’s stroll
◇◇◇◇Recently visited favorite places (movies, museums, books) ◇◇Recently visited favorite shops (movies, museums, books) ◇◇
The History of Anglo-Jewry | Genkosha Co., Ltd.The History of British Jews | Genkosha Co., Ltd.
Book reviewBook review
Since the birth of Christianity, antisemitism has pervaded European society. Yet Jews have persisted through persecutions and thrived in new lands. In particular, Britain’s success is remarkable. In the 13th century, Edward I expelled Jews; in the 17th century, Cromwell allowed reentry. Since then, they have closely linked with influential politicians like Lloyd George, Churchill, Thatcher, and the Rothschilds, who founded banking in the 19th century and became one of the world’s great financial powers. Read about the Jewish footprints that played a significant role in Britain’s millennium.Since the birth of Christianity, antisemitism has pervaded Europe. Yet Jews have persisted through persecution and thrived in their host lands. Britain’s success, in particular, is remarkable. In the 13th century, Edward I expelled Jews; in the 17th century, Cromwell allowed reentry. Since then, they have closely connected with influential politicians like Lloyd George, Churchill, and Thatcher, and the Rothschilds, who founded banking in the 19th century, grew into one of the world’s great financial powers. Read about the Jewish footprints that played a major role in Britain’s rise and fall over a millennium.
Table of contentsTable of contents
Chapter 1 Medieval times — from the rise of great wealth to expulsion orders (Britain’s wealthiest of all time, the female moneylender Riccoli…)Chapter 1 Medieval — rise of great wealth to expulsion orders (Britain’s greatest ever wealth, female moneylender Ricciolisa, etc.)
Chapter 2 Early modern period — re-entry and independent business development (the pivotal role of Cromwell’s Jewish intelligence network, etc.)Chapter 2 Early modern — re-entry and unique business development (the Chinese reentry facilitator Cromwell’s Jewish intelligence network, etc.)
Chapter 3 Modern era — Prime Minister Disraeli and the Rothschilds (the king of stolen goods, Mendosa, leader of modern pugilism, etc.)Chapter 3 Modern — Prime Minister Disraeli and the Rothschild family (king of stolen goods, Mendosa, leader of modern boxing, etc.)
Chapter 4 Contemporary — Jewish power and sustainability (Churchill’s Zionism, Israel and diamond industries’ starting points, etc.)Chapter 4 Contemporary — Jewish power’s sustainability (Churchill’s Zionism, Israel, and diamond industry’s starting point, etc.)
【Kawata comments】【Kawata comments】
In the U.S., Jews are active in many fields, including Wall Street, IT companies, and academia.In the U.S., Jews are active in many arenas—Wall Street, IT companies, and academia, among others.
Jews appear in Western culture, history, and economy from time to time. The U.S. is the world’s largest Jewish population country, but its history spans about 350 years, leaving out much of the medieval and early modern periods.Western culture, history, and economics frequently feature Jews. The U.S. has the world’s largest Jewish population, but its history is only about 350 years, so medieval and early modern periods are largely missing.
Thus, to understand Jews in the United States, understanding Britain’s Jewish history is essential. The book’s preface states this.Hence, to understand Jews in the U.S., one should understand Britain’s Jewish history. The book’s preface states this.
One day, a stranger on my Twitter recommended this book. The first chapter is about medieval times, the second about early modern, the third about modern, and the fourth about contemporary times. The later chapters feature more familiar names and are easier to relate to current economic and social issues. So I read from the end, but you could start from the fourth chapter if you prefer.One day, a stranger on my Twitter recommended this book. The first chapter is medieval, the second early modern, the third modern, and the fourth contemporary. The later chapters feature familiar names and easier connections to present economic and social issues. So I read it that way, though reading from the fourth chapter first is also fine.
Why are so many successful Jews in business?Why are so many successful Jews in business?
Key points to learn from this book include the following postscript (p202):A key takeaway is in the “Afterword” (p202):
“They were tempered by persecution and adversity. In medieval times, taxes and false accusations of ritual murder; in early modern times, inquisitions by the Catholic Church; in modern times, legal discrimination in German territories and pogroms in the Russian Empire, and more recently, the rise of Islamic fundamentalism in Middle Eastern countries and Putin’s regime’s crackdown on nouveau riches.”“They were tempered by persecution and adversity. Medieval times saw arbitrary taxation and false accusations of ritual murder. Early modern times saw the Inquisition by the Catholic Church. In the modern era, legal discrimination in various German states and pogroms in the Russian Empire, and in recent years, anti-Jewish sentiment arising from Islamist movements and Putin’s crackdown on nouveau wealth.”
Across ages, the business acumen of Jews has been refined in diaspora conditions, where entry into elite circles and comfortable life is often blocked. Thus, they had to detect business opportunities with their own talents. This sharpened their sense for new business opportunities.Across eras, the business prowess of Jews was refined in diaspora conditions where joining established elites and living a comfortable life was not easy. They had to keenly sense business opportunities to survive. That sharpened their ability to sniff out new business ideas.
Such harsh trials are rare for Japanese people. If one cannot find opportunities abroad, does Japan gradually decline? Yet reproducing postwar devastation is not realistic. If it continues to decline, where will it stop?There are few Japanese who must endure such trials. If you look for fields where immigrants can thrive, those not bound by vested interests will be business, entertainment, and academia?
Meanwhile, when Kawata was assigned to Yamato Securities’ Kyoto branch, the 29-year-old branch manager, Yamaguchi, who joined around 1954, reportedly became the Kushiro branch manager around 1959—an impressive feat. He also said, “The securities industry back then was like a convenience-store manager today.”By applying what you gain from this book, you can study and observe the Jewish people in the United States more deeply, which will enhance understanding of Jews, the United States, and the world. It could become a future research topic.
By the way, data is somewhat old, but the following table shows examples of Jews thriving in the U.S. industry.
World-moving “Jews”—founders who could become the next GAFAM, hints from “Israel”
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6. Upcoming activities
◇ End of the year
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7. Q&A
Is a portfolio with bonds necessary in the current situation?
Question
Various asset management information videos
Comments like “Bonds should be included in asset allocation because they act as a buffer when stock prices crash” are common.
I’ve just started core-satellite investing centered on the S&P 500 this year, and my assets are still small.
I want to approach around 10% yield, so should I allocate some weight to safe, low-yield bonds from the start?
Answer
Bonds are not necessary at the moment; in fact, they are a risk. A broker recommending corporate bonds or bond funds is often for commissions. However, with only U.S. stocks and cash, clients may feel uneasy. Therefore, telling clients “let’s include bonds too” is an effective sales tactic (according to honest brokers).
If you continue learning through my and Okura’s videos, you’ll understand the truth gradually.
Response
Eye-opening. I will graduate from the four-way split thinking (domestic stocks, U.S. stocks, domestic bonds, U.S. bonds) when uncertain.
For reference
From “Barron’s Digest” on why bonds have no advantage
November 21, 2021 issue; 10-year bond yield at a turning point 3%
Over the past 40 years, a traditional 60/40 portfolio using stocks and bonds has performed admirably.
Looking at nearly a century of data, the yield on 10-year bonds below 3% occurred for about one-third of the entire period.
When yields exceed 3%
Bonds provided excellent diversification to a portfolio, with returns hardly declining and volatility substantially reduced.
When yields were above 3%, real stock returns averaged 6.8%, bonds about 4.8%.
When yields were below 3%
Reducing stocks and increasing bonds to lower volatility significantly reduced returns.
Cash yields nothing, but is better than bonds that could incur losses; bonds are not a hedge against loss.
U.S. 10-year Treasury yield (last 40 years)
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