Truth about US stock investing from Shigenobu Kawada's "Training in U.S. Stock Investing Through the Media" [Vol.32] Distributed January 24, 2022
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The Truth about US Stock Investing
Shigenobu Kawada's "Training with the Media: A Course on U.S. Stocks"
［Vol.32］Delivered January 24, 2022
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＊＊＊ Table of Contents ＊＊＊
Market Review
This Week's Featured Articles
【Devaluation of the yen, on par with 50 years ago; weakened purchasing power; headwinds for imports; consumers feel the burden】【U.S. major companies’ profits up 23% in 10–12月 quarter; market expectations; price increases spreading; labor costs a burden】【U.S. banks strengthen “one-sided win”; last quarter top four banks posted record profits; M&A advisory thriving; market volatility and headwinds】【Nasdaq Composite index enters its 66th 10% correction since its 1971 inception】
Kawada's Stocks to Watch
Investment Tips
Kawada's Walk
Activity Information
Publishing hiatus: January issue 31
Two Million Yen Milestone
Source: Financial Services Agency; Asset Management Simulation prepared by ExeTrust Co., Ltd.
*The above figures are for simulation purposes only and do not guarantee future investment performance. Fees and taxes are not included.
How to read: Assumed return and achievement horizon
3–4% for 30+ years: this is what wrap funds and balanced funds often achieve
Even 5–7% would take 25 years: for stock funds outside the U.S., perhaps
8–10% would take about 20 years: a modest view of the S&P 500’s rise
S&P 500 performance history (dividends reinvested, 1970–2021)
Aim to achieve 20 million yen early with proper risk taking
Kawada's message is very simple: to reach 20 million yen, have as much of your surplus work as efficiently as possible. For that, all participants must correctly understand the meaning of risk and reward. Before you read this weekly newsletter, glance at this table and confirm your correct investment posture.
Now, start the countdown to achieving 20 million yen right away!
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1. Market Review (Jan 17–21)
＜Major Indices＞
・Dow Jones -4.6%
・S&P 500 Index -5.7%
・Nasdaq Composite Index -7.6%
＝Brief Version＝
Long-term interest rates rose to about two-year highs, and some companies’ earnings fell short of expectations, raising caution. While tech stocks saw brief bargain buying, the overall trend continued to slide, and the Nasdaq Composite entered a correction.
＝A bit more details＝
Monday was a holiday, but declines continued from Tuesday.
Spiking crude oil prices due to geopolitical tensions in the Middle East, with inflation rising and rate hikes accelerating, pushed long-term yields to about 1.85%, a roughly two-year high. In addition to growth stocks, financials, which were hit by earnings disappointments, fell as well.
Later, relief from PBOC easing provided some demand for tech stocks, but with futures due to FOMC and major tech earnings the following week kept sentiment cautious, and the week’s late rise faced substantial selling pressure.
Nasdaq Composite fell about 14% from its November all-time high, entering a correction phase.
S&P 500 over the past year
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2. This Week's Picked Articles
A column where I select information useful for asset formation from what I’ve gathered, rank it, and comment with my personal view.
The yen’s overall purchasing power is nearing its lowest level in 50 years. The real effective exchange rate was highest around 1995 at the 150 range, and has fallen by more than 50% since then. From 1995 to the present, Japan’s CPI (all items) rose by 4%, while the U.S. rose by 84%.
Price gaps are also clear in the Big Mac index. As of July 2021, a Big Mac is 390 yen in Japan and $5.65 (about 650 yen) in the U.S. If the yen does not rise to around 70 yen per dollar, price gaps cannot be bridged. The yen has been weakening, and consumers pay about 70% more in Japan to buy the same item in the U.S., indicating a loss of purchasing power.
According to the Bank of Japan's Import Price Index, beef has surged 2.4 times compared to a decade ago. Wheat rose 66%, and other imported goods show notable increases. Raw sugar and palm oil are already at multi-decade highs since the 1980s. If price pass-through to retailers continues, the burden on households will grow further.
Real Effective Exchange Rate of the Yen
【Kawada's Comment】
Recently, with no travel abroad possible, there are few chances to directly feel the yen’s “loss of strength.” But as the article notes, we are actually becoming poorer in reality.
Along with prices, currency movements also affect U.S. stock investing. From a long-term asset formation perspective, you’d want to buy U.S. stocks when the yen is strong, but that’s not always when you want it to be.
An old rule of thumb: in U.S. stock investing, don’t count on making money from both the exchange rate and stock prices at the same time. You should aim for returns that satisfy you without depending on the currency direction.
【2】 Nikkei NewspaperU.S. major companies’ profits up 23% in 10–12月; market expectations; price increases taking hold; labor costs a burden1/20
