Truths about U.S. stock investment conveyed by Shigenobu Kawada: "U.S. Stock Investment Course Trained by Media" [Vol.37] Distributed March 7, 2022
████████████████
The Truth About U.S. Stock Investing
Shigenobu Kawada’s “Training in U.S. Stocks through the Media”
［Vol.37］ March 7, 2022
████████████████
＊＊＊Table of Contents＊＊＊
Market Recap
This Week’s Picked Articles
Kawada’s Notable Stocks
Investment Tips
A Walk
A Little Guide: “Tips for Safe Asset Formation”
What the Ultra-Wealthy Practice: “Private Investment Strategy”
Activity Information
Q&A Corner
Online Salon “Dream Realization Asset Formation School”
This is an online salon where everyone learns together and motivates each other to succeed in asset formation. It offers member-only seminars that convey content beyond what our highly popular newsletter “Training in U.S. Stocks through the Media” can deliver, and lets you experience the魅力 of U.S. stock investing.
2000 Million Yen Achievement Pace Maker
Source: Financial Services Agency; created by ExeTrust Co., Ltd. based on asset management simulations
*The figures above are for simulation purposes only and do not guarantee future investment results. Fees and taxes are not considered.
Reading guide: assumed yield and achievement horizon
3–4% for over 30 years: wrap funds and balanced funds fit here
5–7% even for 25 years: this is what non-U.S. stock funds might look like
8–10% for about 20 years: this is the more conservative view of the S&P 500’s ascent
S&P 500 performance track record (dividends reinvested 1970-2021)
Reach 20,000,000 yen early with proper risk taking
Kawada’s message is remarkably simple. To achieve 20,000,000 yen, let the funds you have as discretionary capital work as efficiently as possible. For that, it is crucial that participants understand the meaning of risk and reward correctly. Before reading the weekly newsletter, glance at this table to confirm the correct investment posture.
Now, start the countdown to 20,000,000 yen right away!
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
1. Market Recap (Feb 28 – Mar 4)
• Dow Jones -1.3%
• S&P 500 -1.3%
• Nasdaq Composite -2.8%
— Speedy Version —
As the Ukraine situation was priced in, there was relief as Federal Reserve Chair Powell’s congressional testimony did not signal aggressive monetary tightening, but concerns about Ukraine resurfaced and the market fell into the weekend.
— A Little More Detail —
Sanctions announced against Russia since the previous weekend led to rising commodity prices, including crude oil, raising concerns about their impact on the global economy and financial markets.
Meanwhile, Powell’s testimony suggested a 0.25% rate hike in March, easing fears of excessive tightening and lending support to the stock market.
Initial jobless claims and other data indicated a healthy labor market recovery, and February’s employment report showed more jobs than expected while wage growth slowed.
Positive for the market, but as Ukraine concerns persisted, growth stocks, cyclicals, and financials were broadly sold due to risk-off sentiment.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
2. This Week’s Picked Articles
A column that selects, ranks, and comments on data that could help asset formation from information I’ve gathered, in a very personal viewpoint.
【1】 Nikkei Newspaper Putin Isolated Worldwide; President’s Address to Congress; Russian aircraft banned from foreign airspace / Domestic production to support employment3/2
▼ President’s Address to Congress
The president, based on the Constitution, outlines the administration’s policies for the next year across domestic and foreign affairs. It is one of the “Three Speeches” along with the Budget Message and the President’s Economic Report. This year marks President Biden’s first State of the Union address in his presidency.
Key Points of the Address
＊Russia’s invasion is an unwarranted and unjust war
＊Putin has become more isolated than ever
＊Putin cannot weaken the resolve of liberal democracies
＊The U.S. will defend every corner of NATO
＊To beat China in economic competition, rebuild the U.S.
＊Time to invest in America for renewal, and implement Buy American
＊Commit to domestic production without relying on foreign supply chains
① The full English transcript of the speech is available below
②Japanese full text of the State of the Union address
“Consequence for aggression by dictators”: rallying democratic unity against Russia
＊Freedom always defeats tyranny
＊Deficit cut by more than $1 trillion
＊Never tolerate attacks on suffrage
③ Video
President Joe Biden's State of the Union Address
【Kawada Comment】
I strongly encourage watching and listening to President Biden's speech. It aired on Tuesday local time at 9:00 p.m. Eastern Time, which translates to around 11:00 a.m. Wednesday Japan time.
Media will inevitably take a critical stance on the contents of the speech. Setting aside policy positions, I am always impressed by the presidential performances. Even before the speech, the atmosphere in the venue is charged, there are handshakes and hugs with those involved. The way he speaks to the people and engages in dialogue is a reminder of the roots of democracy. It is fascinating to observe this sequence.
Politicians’ words are their life
It is astonishing that an 79-year-old president can deliver such a fluent vocabulary. Even if the script is on the teleprompter, it is not something one could easily do. Watching my own morning meetings and TV appearances reinforces this view.
President Biden has had an exceptionally long political career (since 1970), yet to perform at that level on that stage, one must study extensively in advance. Personally, I am concerned about the markets, so I hope the speech ends safely without any unforeseen incidents.
Historically, presidents have speeches that stand out
Some critics may speculate whether Biden’s speaking is better or worse than past presidents. But if you are Japanese, you can ignore that pomp. Not just Biden, but also Obama's inaugural speech, Trump’s gesturing and body language—every president leaves a strong impression on me.Obama's inaugural speech, Trump’s gesturing and body language—every president leaves a strong impression on me.
【2】NikkeiOn autocracy, the Ukraine crisis marks a "new phase in history"
Listening to Ukraine crisis — U.S. political scientist Francis Fukuyama3/1
(Following the end of the Cold War and beyond the so-called end of history) the era of expanding democracy has clearly ended. Is the rise of authoritarian states continuing?
We are clearly in a different historical stage now.
What was asked at the “end of history” was whether there exists a government model beyond free democracy. I still think the answer is no. But in contemporary times we must push back against the retreat and weakening of democracy.
Is this the second Cold War?
Russia is not a great power like the former Soviet Union. The current regime is driven by ressentiment (hostility) and nostalgia for a superpower era. However, it will not be like the Cold War that lasted 50 years. Long-term, China is the greatest threat.
Will Ukraine's invasion spur a Chinese invasion of Taiwan?
It depends on the long-term outcome of this war. If Russia counters and suffers heavy losses from sanctions, it will urge China to be cautious regarding Taiwan.
Rearmament again
NATO up to 2014 was not seriously considered a combat-focused organization. There is a need to strengthen joint drills and stationed forces against the Russian threat, and strengthening forces in East Asia is also essential. China's military buildup is too rapid.
Democracy can suppress authoritarianism. Even in the Cold War, despite disagreements and weaknesses, Western alliances held together for two generations. There is nothing we cannot do now.
Francis Fukuyama
A political scientist born in Chicago, a third-generation Japanese American. His 1989 paper on “The End of History” argued for the decline of communism and the victory of democracy, gaining attention. After assignments at the U.S. State Department and think tanks, he is currently a senior fellow at Stanford University at age 69.
【Kawada Comment】
He occasionally references Fukuyama’s “The End of History.” Although the original edition was published in 1992, the book helped people worldwide—including Japanese—understand the meaning of the end of the East–West Cold War. The book is long (two volumes), so you may not read it in one go. If so, it might help to read reviews or summaries in small portions.
【What is the End of History?】 An easy explanation of Fukuyama’s argument
【3】Newsweek Japan Edition, Newsweek Mar8“The targets Putin will aim for after Ukraine” Special Issue: Ukraine War
Poor Ukraine
Putin and many Russians view Russians and Ukrainians as the same people. Russians are the “Great Russians,” Ukrainians the “Little Russians,” and Belarus is “White Russia.”
Ukraine is likely to become either a puppet under an autocratic state Russia or be divided into a western neutral region and a Russian-ruled eastern region.
Ukrainians claim they will continue armed struggle like Afghanistan 40 years ago and eventually defeat Russia. However, conducting guerrilla warfare in Europe’s heartland is not realistic and would involve enormous human losses.
Depending on Russia's next move, it could erode the post-1945 international order established after World War II and continued after the 1991 collapse of the Soviet Union, potentially returning the world to a Cold War-like bipolarity in the late 20th century. Putin desires to be remembered as a great ruler who united Russian lands.
On the other hand, if Russia's invasion of Ukraine fails, the siloviki (security and defense officials) who have supported Putin might push him to resign to protect their own positions and interests, potentially exiling him like Napoleon two centuries ago. In that case, Elba could become the Northern Territories.
【Kawada Comment】
For understanding geopolitical risks, media abroad is more useful than Japanese outlets. Even for the Ukraine invasion, perspectives from Newsweek or the Financial Times are more informative. If you wish, you can find a lot of information in Japanese too. By the way, I personally subscribe to the unlimited-reading app “Viewn”.“Viewn”.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
3. Kawada’s Interesting Stocks
A section where I introduce stocks that caught my attention while following U.S. stock information, starting with Kawada’s holdings.
This week's stock
Hercules Capital, Inc. ＜Ticker: HTGC＞
Overview
A Silicon Valley-based business development company (BDC). Unlike venture capital funds that invest in venture-stage companies, this company centers on lending to early-stage tech and biotech firms, while also investing in equity, etc.
What makes it attractive
Hercules Capital’s appeal is that returns from US venture investments are largely in the form of income rather than capital gains. As of late 2021, debt investments accounted for 90.8%, equity 7.6%, and warrants 1.6% of total investments. Venture equity can offer substantial capital gains but is high risk. The company has steadily earned profits from bonds, with net fee income growing at a 14.2% annual rate over the past decade and total assets growing at 13.3% annually.
(Figure 1: Hercules Capital investment mix at end-2021)
(Figure 2: Net investment income and total assets over the past 10 years)
As of end-2021, bond investments were made with 92 issuers, yielding an effective yield of 13.0% and a loan total of about $2.2 billion. Equity investments covered 75 issuers and warrants 97. The principal invested was $106.94 million with a value of $223.10 million.
Geographic diversification of portfolio shows 43% in the US West, 35% in the Northeast, and 8% invested in overseas companies via the UK office. Sector diversification includes about 40% in pharmaceuticals, about 24% in software, about 19% in internet services, and investments in high-tech hardware and renewable energy.
(Figure 3: Geographic breakdown of portfolio)
(Figure 4: Main investment sectors by company classification: Left to right High-Tech, Life Sciences, Software-as-a-Service, Sustainable & Renewable Technologies, Special Situations)
Focusing on sectors improves assessment of a company's health and growth and reduces default risk. In addition, by primarily investing in the top-priority bonds (mostly Hercules Capital as sole bondholder) with typical terms of 3–4 years, defaults are limited. Since its 2005 IPO, cumulative defaults have been only $58.8 million, with a default rate of less than 3 basis points annually.
In recent years, interest income was suppressed by low rates, but as US monetary policy tightens, revenue growth is expected. Rising rates are unfriendly to tech stock investments but favorable for Hercules Capital. Company estimates that a 200 bp rise in the prime rate adds $0.32 per share to earnings.
(Figure 5: EPS impact of rising prime rate—company estimate)
(Figures 1–5 are from company materials)
Risks
A downturn in the real economy could impact borrowers and portfolio companies through defaults. Investors’ expectations for Hercules Capital’s portfolio and earnings power are high, so the premium to NAV among major BDCs is around 1.5x, higher than the average of about 1x for other major BDCs. In recessionary periods like March 2020, share prices may drop significantly.
HTGC basic data (sources: company data, Yahoo! Finance)
(As of March 4)
Stock price $17.88
Market cap $2.14 billion
Total revenue $28 million
PEG/forward P/E 12.92x
Trailing yield 7.30%
Headquarters: Palo Alto, California
IPO: June 2005
Stock price chart 5 years
Chart provided by TradingView.com
(This column is for general informational purposes only and does not solicit or encourage buying or selling any specific securities)
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
4. Investment Tips
In this section, we write not only about investment methods and stock picks, but also about indicators, statements, and social or political developments.
Research Report: Energy Sector
With rising inflation pressures, interest rates have climbed and Ukraine tensions have intensified. As a result, the S&P 500 entered a correction phase (over 10%). Yet the energy sector has continued to perform well, leading all 11 sectors in gains within the S&P 500.
Therefore, I asked N researcher, who specializes in this field, to explain the oil industry behind the energy sector’s vigor.
The following is an excerpt from my online salon’s Wednesday evening program “Online Talk.”
Agenda
1. Classification of oil industry: FINVIZ heat map
2. Investment in oil fields
3. Differences between conventional oil fields and shale
4. Trends of major shale companies
5. Crude oil price and supply-demand trends
6. Investment options in energy-related companies
FINVIZ Heat map S&P 500 Map(March 4)
Divided into 11 sectors, with the area of a stock reflecting market cap. In other words, the energy sector in the center-right is smaller than Apple, Microsoft, and Amazon in market cap.
On March 4 (Friday), tech, finance, and general consumer goods/services fell sharply, while energy rose notably.
Energy sector share in S&P 500 since 1990s
It once exceeded 15% but recently dropped to the 2% range.
Table-1. Main classifications of the oil industry and representative companies
Oil majors: XOM (ExxonMobil), CVX (Chevron). They own multinational oil field interests and engage in exploration, production, refining, and sales.
SLB (Schlumberger), BKR (Baker Hughes), etc.—without technical services, production would not happen; key players in the oil industry
Exploration and production specialists often sell discovered oil fields or existing fields to majors; this is common
Oil majors constantly consider asset sales to grow the company’s value
Oil company assets are oil fields; refining divisions are treated as cost centers. PSX (Phillips 66), MPC (Marathon Petroleum)
Fig-2. Upstream (oil fields) investment status
In light of environmental protection and decarbonization, oil field investments have sharply declined since 2015
From exploration to development to production generally takes 3–5 years
Thus, it cannot respond quickly to sudden increases in fossil fuel demand
Since 2020, it has been anticipated that fossil fuel demand-supply would tighten
Fig-3. Comparison between conventional oil fields and shale oil fields
Conventional fields contain oil and gas in porous rock; shale contains oil and gas within rock.
Shale technology is provided by service companies
In China, shale formations exist, but development is hampered by technology and water shortages
Fig-4,5. Trends in crude oil prices
US shale firms increased production in response to higher oil prices, but prices fell repeatedly; Middle East oil producers looked on with frustration. Many shale firms went bankrupt due to price declines.
Since 2019, there were rumors that Saudi Arabia cut oil prices to curb shale growth.
Table-5 FY2022 oil production
Source: OPEC Feb, 2022
OPEC increased production, but only Gulf countries could respond
Researcher’s impression
(1) Will oil market supply-demand tighten further?
(2) Possibility of Iran oil re-entering the market
(3) For Russia exporting energy to Europe, heightened tension is favorable
(4) A buffer zone with Ukraine is necessary between Western Europe and Russia
(5) Investment in energy stocks may be prudent after the winter demand season.
Investment opportunities in energy-related companies (researcher’s personal view)
1. Objective of stock purchases
Dividends: XOM 4.4%, CVX 4.1%, BP 3.9% (as of Feb 11, 2022)
2. Stock price growth
(1) Conservative approach (diversification)
ETF: XLE (XOM, CVX, EOG, COP, SLV, MPX, PXD, PSX, WMO, VLO, DVN, HES, etc.)
(2) Individual names
DVN, HES, SHEL, XOM, CVX, BP, etc.
PDX, FANG are already high; there is a possibility of a pullback
(3) Oil ETFs
a. USO (Saxo Bank)
b. WTI Crude Oil Price Linked ETF (1671) per unit
c. WisdomTree WTI Crude Oil ETF (1690) in 10-share lots
d. NEXT FUNDS NOMURA Crude Oil Index Linked ETF (1699) in 10-share lots
※ Because it tracks futures, contango (front-month price lower than later months) can affect returns
Long-term chart of S&P 500 vs ExxonMobil (XOM)
【Kawada Comment】
N researcher’s main work is in energy. Using that expertise, he gave an overview that impressed the salon participants.
Now, how we apply the researcher’s insights to stock investment is our challenge.
Many who did well in growth stocks last year experienced declines in February and November. On the other hand, the energy sector ETF (XLE) performed exceptionally well.
Going forward, many expect FF rates and long-term rates to rise. Therefore, moving from overvalued tech stocks to value stocks like oil stocks is a natural consideration for investors.
The continued reliance on fossil fuels is likely. Even with demand-supply dynamics, underinvestment in development in recent years means supply constraints may not ease soon. In the short term, oil prices may remain high. In that case, incorporating energy sector stocks or ETFs into a portfolio is reasonable.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
5. A Walk
◇◇Recent shops, films, museums, book selections◇◇
～巻・熊倉 貫宜の巻～
A contribution by a former securities man and indefatigable reader, Mr. Noriaki Kumakura.
Kiriyama’s Guide to Stockholder Benefits / Hiroto Kiriyama
As a kind of trick star, the author’s stockholder benefit lifestyle is very popular. He ponders daily about beef bowls or curry, rides his bike to the cinema and gym, chooses trendy shirts and glasses, and uses gift cards at convenience stores. It’s hard to imagine the investing philosophy he holds (pardon me for the rudeness).
In this book, Mr. Kiriyama uses a criterion of “dividend + perk value exceeding 4%” for stock selection as one of his standards.
Also, for actual investing, he imposes a rule that you must buy at the minimum lot that yields perks.
From this unique perspective, Mr. Kiriyama’s portfolio achieves natural diversification by investing the minimum lot across many stocks to target shareholder perks, which may closely align with market performance.
This book’s stock picks contain no company descriptions of business operations or earnings forecasts; it’s a straightforward listing of perks.
Interestingly, many readers misunderstand the shareholder perk system. It does not confer the rights of vote at the annual meeting, dividend rights, or residual asset claims upon dissolution—these are not “shareholder rights” equivalent to ordinary stock ownership.
“Shareholder perks” are a Japan-specific program wherein companies send goods or vouchers to shareholders as a token of appreciation for holding stock.
There may be similar programs in other countries, but I am not aware of any real-world examples. It is essentially a promotional tool to attract investors.
However, from the viewpoint of fairness to shareholders, this practice can mislead and is viewed poorly by foreign investors. I have personally encountered this in practice.
If it’s possible to stabilize a small amount of capital with minimal costs, perhaps turning a blind eye to some gray areas is a mature approach. I would like to ask Mr. Kiriyama about this.
Sweden: Welfare State Depth and the Shadow of Wealthy Elites / Koichi Kondo
Is the grass greener on the neighbor’s lawn?
Reading this book makes it clear that statements like “in major countries overseas…” are biased and questionable.
For Japanese readers, Sweden is often imagined as a welfare state with abundant nature, generous workers, and a highly taxed society—a trade-off society.
In recent years, Sweden’s approach to COVID-19—restricting economic activity less and leaving mask-wearing to personal choice—was relatively lax. This portrayal sometimes shapes Japan's parliamentary discussions.
As a sidelight, many of us learned about Sweden’s corporate conglomerates and wartime collaboration with Nazis through the hit suspense "The Girl with the Dragon Tattoo." Understanding other nations involves grasping historical, geographical, ethnic, political, economic, and cultural factors, which is never easy.
It is not merely picking favorable parts to present to support one’s rhetoric.
Mutual understanding between nations requires accurate knowledge and mutual respect. This book helps readers understand Swedish society and presents insights into international understanding.
【Nori Kumakura】
1980 joined Daiwa Securities. Obtained MBA from the University of Chicago Booth School of Business through corporate study abroad. Worked in Singapore, Hong Kong, and Asia-Pacific business, deeply involved in Asian business.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
New Series “Everything about Asset Formation Using U.S. Stocks”
Introduction
We are launching a series that covers the basics necessary for asset formation. The overall structure is planned as follows.
What era are we living in? Part 1 & 2
Self-reliant Japanese and essential asset formation for independence — Part 1 to 3
Is the stock market limited to the U.S.? Part 4
Differences in stock market cultures between Japan and the U.S.
Key features of the U.S. market you should know
Recommended investment strategies — Core and Satellite investing —
Core investment strategy
Satellite investment strategy
What should you buy?
Sources of information and investing
Continuing from our website’s “40-Year U.S. Stock Investment” series, we will consider the long-term cruising speed and mid-term outlook of U.S. stocks based on contributions from Mr. Shigenobu Okura.
Toward better asset management
The most important thing for successful asset management is to clarify your purpose and goals, and to build and manage your portfolio to achieve them. Deciding which stocks to buy and when to sell is secondary.
If you are starting from zero, the goal is to achieve “how much to accumulate by when.” Consider what you should do to achieve that goal. If you already have assets and want to grow them, setting a clear goal will improve your approach. If you set concrete goals and aim to exceed them, your asset management will likely improve substantially.
Benchmarking asset management
For individual investors, a portfolio often ends up shaped by trendy mutual funds or individual stocks without clear intent or purpose, which experienced fund managers see as an underperforming portfolio. I call this the “portfolio as a result of random stock picks.”
Let me illustrate common patterns I have seen in Japanese stock portfolios managed by individuals. Buying seemingly cheap bank stocks only to hold losses as you miss the exit, then chasing another bank stock to cover the loss, and when prices continue to fall, moving into more volatile securities. Before you know it, the financial sector dominates the portfolio—a virtual gamble.
Recently, many people have sought to ride the wave of tech stock gains and invested in popular technology names. While this can work when times are good, as prices fall and losses mount, they may pile into other tech names that look even cheaper. If the person deeply understands technology, this might not be bad, but often the decision is driven by a sense that “it looks like it should make money.” This is essentially gambling.
As long as investments have momentum, it’s fine, but when prices fall, selling is hard, and you end up holding losses and waiting for a rebound. In the worst cases, you might be forced to cut losses near the bottom. Investment information used to be dominated by securities firms, but in recent years it has diversified to blogs and YouTube channels. Regardless of source, you must assess the quality of information.
Some may argue that growth will come and the story remains unchanged, so stock prices should rise. However, growth does not automatically translate into returns. Stories crafted by salespeople to promote stock or funds are just that—an image. Often, the story is set at market peaks.
If you are serious about asset management, consider setting concrete investment goals and think about how to exceed them. An important concept is the benchmark. The benchmark is the standard used to gauge performance and should form the foundation of your portfolio. If you set a target benchmark and aim to beat it, your investment approach will inevitably change, and the resulting portfolio will be an intentionally crafted one, not simply a portfolio of results.
Benchmark: The S&P 500 Index
If you are looking to grow wealth through American stocks, using the S&P 500 as a benchmark is prudent. The S&P 500 is a market index compiled by S&P Global and is a representative barometer of U.S. equity markets. It comprises 500 large-cap U.S. stocks and covers about 80% of U.S. market capitalization.
Referencing Figure 1, long-term expected return is around 8% per year in USD terms. (Past performance does not guarantee future results.) If a portfolio tracks this index to a reasonable degree, there is a good chance of achieving roughly 8% annualized returns over the long term.
Figure 1: 51-year trend of the S&P 500
In the U.S. asset management industry, investment style benchmarks are further defined by company size (large, mid, small) and whether they focus on value or growth, etc. It is said that only about 20% of professional fund managers can consistently beat their given benchmarks over the long term, including managers who benchmark to the S&P 500 among large-cap stocks. If you can track this index, you can potentially outperform the average professionals.
Warren Buffett, hailed as the “Oracle of Omaha,” is said to have told his family to invest 90% of his estate in S&P 500 index funds and the remaining 10% in short-term government bonds. This widely cited anecdote underscores the difficulty of consistently beating the S&P 500 over the long run.
Some fund managers claim “the S&P 500 is the strongest index” because its composition changes continually, much like Major League players. But that reasoning seems flawed.
If that reasoning were correct, the S&P 500 (selected top stocks) should significantly outperform the CRSP U.S. Total Return Index (which includes non-selected stocks and represents a broader market). In fact, from January 2002 to February 2022, the CRSP Total Return Index has outperformed the S&P 500 over roughly 20 years. In other words, it’s not that the S&P 500 is supremely superior; rather, “Corporate America is great.” (to be continued)
Figure 2: Comparison of the S&P 500 and the U.S. total stock market index
(Source) portfoliovisualizer.com
【Okura Makoto】
From Ehime Prefecture. Graduated from Osaka University, Faculty of Economics in 1984. He earned a Ph.D. in Economics from Saitama University in 2005. Worked at Citibank, N.Y., CitiTrust Trust Bank, and Societe Generale Trust Bank (now SMBC Trust Bank). In addition to pension and public funds, engaged in wealth management for high-net-worth individuals in private banking. In 2017, established EagleCapital, an investment company in Kyoto’s Higashiyama. CFA charterholder and certified member of the Japanese Securities Analysts Association.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
6. A few tips for “Fail-Safe Asset Formation”
Financial advisor Ryuuichi Motohashi shares essential tips for steady, medium-to-long-term asset formation.
Last time, we introduced two investment styles: “investing as a hobby” and “managing as a job.” Here is a rough recap of the idea.
Differences between “Investing as a Hobby” and “Managing as a Job”
Source: Written by the author based on FP Associates Group materials
This time, we’ll consider important perspectives and points when tackling each style.
■ What is important in “Investing as a Hobby”…
The left side of the chart represents the hobby-investing portion. How does it look to you…
Taking initiative to make decisions and feeling a sense of momentum in your investment actions is key.
For example, wanting to enjoy investing or to make money, trying to match your own market sense and timing, researching deeply, and betting on individual stocks or thematic funds with a sense of excitement. Even if the company is newly established and deep in the red, you might invest under the belief that it could revolutionize the world—treating it like a lottery bet.
Thus, the point of “Investing as a Hobby” is to invest with your own judgment, the market sense, and a willingness to take risks.
One client said, “I buy assets when the price is rising, but I set rules for selling when things go off plan.” Following this advice, I remind clients as a financial advisor that fun in hobby investing should not turn into a salted-away regret.
■
Another is “Managing as a Job.” This is the right-hand side of the chart.
This is a style where money is made through steady, patient work. Investing is a hobby, but managing is more about defense and long-term resilience, focusing on minimizing losses and enduring a long time horizon.
Why invest in assets that are not currently in the limelight? There are dull moments, but you must avoid major damage and sustain asset management over the long term, requiring patience and rationality.
Important: to make your money work properly in this approach, you need a solid investing philosophy. The secret to long-term asset formation is having a robust, well-understood “investment view.”
※ Those who only understand it at a mental level may panic during shocks or concerns and repeatedly switch investment plans or stop investing altogether.
■Three concepts supporting an investing view
To have money work steadily in the long term and to continue “Managing as a Job,” you should understand the benefits of long-term, diversified, and systematic investing. Here is a concise outline of these three.
・Why long-term investing
The main reason is that asset growth requires time. Short-term trading tends to be a zero-sum game where the gains of some come at the expense of others. Gambling and betting are examples.
However, investing in companies that grow and increase in value over the long term allows shareholders to gain as the company’s value and profits rise.
This is because growth makes the value of the investment a positive-sum game for all shareholders.
The essence of investing is growth, and the long-term strategy of investing in high-growth opportunities is the traditional path for individual investors to build wealth, given that institutions have more resources and information.
・Why diversificationThe most important factor in long-term investing is the power of compounding. The longer the investment horizon, the greater the compounding effect, but the degree of price volatility also matters. High-variance investments can hurt compounding during declines, reducing overall wealth.
Thus, you should focus on reducing volatility to protect compounding. Instead of chasing only potentially rising investments, you should diversify by including assets that may not be currently profitable—across different assets with different price moves. This is the key to controlling risk.
・Why dollar-cost averaging
Even with diversification, investing large sums when prices are high makes it hard to recover during downturns. If you aim to catch rising prices, it’s difficult even for professionals. Dividing purchases over time helps avoid buying at market peaks and can provide reasonable returns. This simple, effective method is particularly well-suited for “Managing as a Job.”
This approach also has a strong psychological effect. People tend to feel confident when prices are rising, but can become anxious when prices fall. Systematic fixed-amount purchases during declines allow you to buy more when prices are low, creating a psychological cushion and accelerating eventual gains as the market recovers. For beginners and increasingly risk-averse investors, this style matches “Managing as a Job.”
【
Graduated in 1998, started career at Yokohama Bank in the financial sector. Later moved to private banking with foreign institutions. After the Lehman shock, decided to pursue a career as a financial advisor who communicates prudent asset management. Spent about 20 years in finance, now independent as an independent financial advisor focused on client values, offering private financial consulting without belonging to any particular institution.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
7. Private investment strategies used by the ultra-wealthy
Hiroshi Ichikawa of Winviser shares investment strategies used by the ultra-wealthy in a simple way for everyone.
Continuing from previous, we cover one pillar of the four pillars of “Private Investment Strategy”: Private Equity investments.
Private Equity investments can be categorized by stages—Seed, Early, Middle, Late. For individual investors, Seed to Early-stage is often called angel investing, while Middle to Late-stage is where private equity strategies become most attractive.
What is an investment round?
An investment round indicates the growth stage at which a venture-backed company receives capital. A venture’s stage reflects how close it is to growth and eventual EXIT (IPO or sale). However, there are no fixed definitions for stage by employee count, revenue, founding year, etc.
Among private equity strategies, the Middle-to-Late stage investments are most attractive. Depending on the deal, exits occur in 1–5 years, with potential returns of several times to tens of times if successful.
Points for Middle-to-Late Stage investments
These are investments in startups whose products or services are gaining traction or startups with stabilized profitability. The goal is to reach profitability and then exit via IPO or M&A when feasible.
Typically, these rounds involve several hundred million to several billion yen in fundraising. However, these rounds are often limited to a small number of investors, so not every investor can participate. There is no need for broad advertising; you must access through specific channels.
U.S. vs Japan Private Equity Investing
In terms of GDP, Japan’s PE market is relatively small compared to other advanced countries. For example, it is less than one-tenth of the size of the United States. Nonetheless, the total annual deal volume in Japan’s PE market has shown long-term growth due to a rise in large-scale deals.
PE investment in the U.S. is quite mainstream for individuals as well, with platforms that allow private equity investments or markets where individuals can trade unlisted securities.
Also, in Japan, seed to early-stage deals dominate PE investments, while in the U.S., late-stage deals account for more than half. This reflects the availability of platforms accessible to individual investors; Japan still has limited opportunities for late-stage investments.
The terms “unlisted stock investment” and “PE investment” carry low trust in Japan. There are many fraudulent schemes. In practice, you usually access attractive PE opportunities only through specific routes. If you need help determining whether to invest, please consult us.
【Hiro Ichikawa】
Private Investment Tactics for the Ultra-Wealthy
President and CEO of Winviser Co., Ltd. After working in asset management at SMBC Nikko Securities' Ibaraki, Fukuoka, and Tokyo branches, he engaged in marketing for financial products for the ultra-wealthy.
He moved to an independent IFA (Independent Financial Advisor), providing asset management advice to the ultra-wealthy, and established a company to support IFA services in Japan. He now provides independent private financial consulting to individual investors, leveraging his experience.
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
8. Upcoming Activities
◇ Stock Voice: March 16, 11:00
◇ Nikkei CNBC: March 9, around 8:15 a.m. (telephone interview)
March 29 (Tuesday) Studio appearance
■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■□■
9. Question Corner Closed
───────────────────────────────
★Questions should first read the following 【Question Rules】
Please send to info＠kawata-magazine.com.
【Question Rules】
◆We cannot answer all questions. Please understand.
◆Questions may be published on our site, YouTube, SNS, or books in a manner that does not identify individuals.
◆We will not answer questions from non-subscribers.
◆Parts deemed obvious advertising or promotion will be omitted.
◆If you post malicious questions while not subscribed, we will take appropriate measures.
───────────────────────────────────
★Disclaimer
◆Our newsletter does not provide buy/sell recommendations for stocks, bonds, funds, ETFs, or sectors. Investment decisions are the subscriber’s responsibility; we provide no guarantees.
◆We do not guarantee damages incurred by subscribers using our newsletter.
◆We are not responsible for disputes between subscribers or between subscribers and third parties arising from information in this service (illegal or unethical conduct proposals, defamation, insults, privacy invasion, threats, harassment, etc.).
◆If the content of this service infringes on the rights of a subscriber or a third party and causes disputes, we bear no responsibility for such infringement or disputes.
◆We bear no obligation to compensate for damages arising from suspension, termination, or changes to this service’s content.
───────────────────────────────────
■ Publisher: Hibiya Technology Finance, Inc.
■ Kawata Shigenobu’s Thank You, America Stocks
https://www.kawataamekabu.com/
■ Twitter：https://twitter.com/ShigenobuKawata
■ For comments, requests, or to unsubscribe, use
【Email】info＠kawata-magazine.com
■ If you don’t receive the email, please check your spam folder.
───────────────────────────────────
