Truth about U.S. stock investment [Vol.38] delivered March 14, 2022 | Shigeno Kawada's "Training in U.S. Stocks through the Media"
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The Truth About U.S. Stock Investing
［Vol.38］ March 14, 2022
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Kawada Shigenobu's "Training in the U.S. Stock Market through the Media"
*** Table of Contents ***
Market Review
This Week's Picked Articles
Kawada's Interesting Stocks
Investment Tips
A Walk
What is the "Private Investment Strategy" Practiced by the Ultra-Wealthy?
Activity Information
Q&A Corner
Online Salon "Asset Formation Academy Where Dreams Come True"
An online salon where everyone learns and motivates each other to succeed in asset formation. We offer member-only seminars that convey content not fully captured by the popular newsletter "Training in the U.S. Stock Market through the Media" and let you experience the appeal of U.S. stock investing.
2000 Million Yen Milestone Pace Maker
Source: Financial Services Agency, created by ExeTrust Co., Ltd. based on asset management simulations
Note: The numbers above are simulations and do not guarantee future investment results. Fees and taxes are not considered.
Reading guide: assumed yield and target achievement date
3–4% over 30+ years: what wrap funds or balanced funds aim for
5–7% still takes about 25 years: when investing in non-U.S. stock funds
8–10% about 20 years: a modest projected rise in the S&P 500
S&P 500 performance record (dividends reinvested, 1970-2021)
Reach 20 million yen early through proper risk-taking
Kawada's message is extremely simple. To reach 20 million yen, let extra funds work as efficiently as possible. For that, participants must correctly understand the meaning of risk and reward. Before reading the weekly newsletter, glance at this table and confirm your correct investment posture.
Now, start the countdown to reaching 20 million yen right away!
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1. Market Review (March 7–March 11)
• Dow Jones Industrial Average -2.0%
• S&P 500 -2.9%
• Nasdaq Composite -3.5%
-- Quick Version --
Commodity prices rose, sparking concerns and began with declines. Oil price declines temporarily spurred buying, but inflation, the Ukraine situation, and rate hike uncertainty pushed the market back to a downtrend.
-- A bit more detail --
Fears over oil supply pushed U.S. WTI crude to the $130s, raising concerns about a spike in commodity prices.
With the broader economic impact, a stagflation scare emerged, and the stock market, continuing from the prior week’s tone, opened lower.
On Wednesday, as expectations of increased production led to oil price declines and Ukraine-related optimism, tech stocks saw renewed buying.
However, February CPI inflation rose 7.9% year over year, the highest since January 1982. In response, long-term interest rates moved into the 2% range and consumer confidence fell due to inflation, adding to the Ukraine uncertainty, keeping the market weak into the weekend.
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2. This Week's Picked Articles
This is a column where I select, rank, and comment on information useful for asset formation from what I have gathered.
【1】 Nikkei〈Ukraine Crisis: The Reality of "Emperor" Putin〉 Historian Niall Ferguson 3/12
For historians, this situation is only another instance of many disasters Ukraine faces. President Putin claims Russia and Ukraine are historically one, which is far from true.
Not Madness, But Evil
Xi Jinping, Chinese President, clearly gave the go-ahead for aggression.
Putin could not foresee Ukraine's unity or Europe’s severe economic sanctions. There is a decent chance of declaring victory within weeks, but he has little interest in further military escalation in the near term.
If he cannot win, his domestic position weakens. He is supremely rational and calculating. He is not crazy, but evil.
The Cold War structure becomes clear
Xi must consider whether supporting Putin was a mistake. If Russia falls into economic chaos, the consequences will be unknown. There is a 10% chance Putin could be toppled.
China and Russia would effectively form an alliance, making the Cold War structure more evident. Historically, China-Russia alliances have not lasted. China’s explicit ambition in Central and East Asia makes Russia a potential threat, and eventually the China-Russia relationship would wear down.
What Xi should ask himself is whether they would also face sanctions from Russia. The answer is no. China’s economy is enormous. If they take the same measures as Russia, the wounds would be greater.
I cannot believe Taiwan is prepared for this kind of fight. This would embolden Xi.
(Interviewer: Office Commentator Mikio Kanno)
Niall Ferguson is a Senior Fellow at the Hoover Institution, Stanford University. A native of Scotland, UK, he has written broadly on money, war, empire, and natural disasters. 57 years old.
【Kawada's Comment】
This person frequently appears in Nikkei and The Barron's Digest. He is quite harsh, with sharp critique of other nations and civilizations. Is this a typical projection of Western, Anglo-American values?
Anyway, the Anglo-American world is portrayed as superior. It extols Western civilization’s supremacy to the utmost and argues against any values other than Western ones. If you’re interested, it’s worth reading this person’s representative work, “Civilization,” etc.
The following are notes from my reading.
“Civilization”: Western Hegemony's Six True Causes — hardcover – 2012/7/6 Niall Ferguson(author),紀念仙名（翻訳）(translator)
Why Westerners rose to the top of the world? Six causes
①Competition②Scientific Revolution③Rule of Law and representative government④Modern Medicine⑤Consumer society⑥Ethics of labor
The modern era began in Japan during the Meiji era (1868–1912); around this time, people in “other regions” began to download these six applications. However, things did not go smoothly. In Japan, because they could not determine which Western culture or制度 (systems) were the most important, they imitated everything. They copied clothes and hairstyles, and even followed in the footsteps of colonizing foreign lands. But unfortunately, this overlapped with the period when imperial construction costs were rising and profits were no longer rising. (p485)→ They simply copied and abandoned thinking for themselves.
Anglo-American superiority, especially that of the United States, is expressed with absolute confidence in this 2012 publication. In his view, the current U.S. Afghanistan issue (as of September 2021) is incomparable to China’s threat.
【2】Nikkei ShimbunShukan3/13
Wasn’t that a spell to lull the Japanese into complacency…? Now, even such thoughts arise in the phrase “Japan as No. 1.” The author, Ezra Vogel, a professor at Harvard, wrote a book with that title that became a best-seller over 700,000 copies.
▼This 1979 publication argued the strengths and background of Japanese management, making people proud at the time. It peaked during the bubble era, leaving a lasting sense of self-worth and optimism in the Japanese mindset for years. The “Japan is Amazing” programs on TV were a symbol of this. However, the pandemic seems to be breaking that spell at last.
▼According to a corporate survey released last November–December, the share of people who believed Japan’s economy and technology were “strong” fell by 17 points compared with three years earlier. Technology dropped from 75% to 58%, and the economy from 37% to 20%. The world’s lag behind in digitization embodies Japan’s vulnerabilities revealed during adversity.
▼This may cause a wave of self-doubt across society. But waking from a long dream and seeing reality is a fortunate gain. Vogel, in his later years, said there are still many merits in the system this country has built.An opportunity for Japanese people, who have vacillated between arrogance and humility, to mature.
【Kawada Comment】
When praised by the United States, I get carried away, and when scolded I sulk. This may be the fundamental message of this column: Japan will never become “an adult” if this continues.
If Japanese people are not mature, what age are they? This reminds me of the “12-year-old Japanese” theory by General MacArthur. On May 5, 1951, in the U.S. Senate Military and Foreign Affairs Committee, he testified that from the perspective of development in science, arts, religion, and culture, the Anglo-Saxon peoples are in their mid-40s, while Germans are roughly the same age. But the Japanese are still students, still 12 years old. … This is the famous “MacArthur’s 12-year-old Japanese” remark, and many in Japan who once worshiped him were suddenly cooled by this statement. There is a striking alignment between MacArthur’s perception of Germany and Japan and the New York Times’ recognition.
There is no truth in this kind of argument, so there is no concluding answer. Yet I think Japanese people can gain more understanding of others and realize their own life-size self by interacting more with people abroad. I am confident this steady effort will raise Japan’s global standing. However, in reality, Japanese people tend to distance themselves from foreigners. It is easier to be within one’s own circle, as in any country.
【3】Nikkei Shimbun“Outside the West: Insufficient Understanding” by William Blanton, HSBC Asia-Pacific Equity Research Head3/13
Russia’s invasion of Ukraine: The key is that Putin’s actions must have a reason. If you cannot understand his actions, it is probably because you interpret them based on Western liberal-democratic views.
Many Western leaders believed they could deter invasion by relying on the idea that economic prosperity was their shared objective with Putin and the Russian government.
Western countries have historically underappreciated Asia, including Japan, and have often made incorrect judgments.
China has a rich history and a large economy, and is politically important, yet Western understanding of China seems very limited. This knowledge gap leads to toxic and emotional debates. China understands the West far better than we understand China.
If Western countries want to avoid shocks like those seen in Ukraine, they should prioritize addressing the widening perception gap with non-Western regions. It’s important to recognize that Western values and priorities are not universally shared or followed by all countries.
【Kawada Comment】
This person always adopts a favorable stance toward China. Still, his perspective is extremely important. In other words, most of the information we encounter daily carries Anglo-American bias, and we should be aware of that. There are no absolute truths in geopolitics or history. Remind yourself of that, expose yourself to diverse values, and develop eyes capable of independent judgment.
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3. Kawada’s Notable Stocks
This is a corner where we introduce notable stocks, starting with Kawada’s holdings and other U.S. stock information.
This week’s stock
Becton, Dickinson and Company＜Ticker: BDX＞
Becton, Dickinson and Company
Overview
A medical devices company with three segments: Medical (syringes, local anesthesia equipment, and other medical instruments), Life Sciences (diagnostic tests for infections and cancer), and Interventional (catheter therapies and radiotherapy equipment).
（Figure 1: Kits for injectable drugs）
（Figure 2: COVID-19 diagnostic kit box）
（Figure 3: Radiotherapy equipment image）
Company appeal
Steady demand for high gross margin product lines
Gross margin was 55.9% for the fiscal year ending December 2021. The sustained demand for such high-margin products is due to strong trust in the company’s products by medical facilities and research institutions. They supply almost globally, with annual production of about 45 billion units including consumables, aided by economies of scale.
Consistently growing dividends
Sales in 2021 grew by more than 60% from five years earlier thanks to these product lines and strategic acquisitions, supporting continued dividend increases. Unlike pharmaceutical companies, it does not require large R&D expenditure over long periods, while cash flow from product sales remains abundant—this supports dividend growth.
Recent years’ stock price weakness attributed to stronger USD and temporary pandemic effects
Long-term business stability and steady growth are expected, though recent stock performance wasn’t stellar. Causes include headwinds from a stronger USD affecting overseas operations, margin declines from acquisitions and asset sales, some product recalls, and reduced surgery volumes due to COVID-19. Yet, as these are temporary factors, management continued to raise dividends.
（Figure 4: BDX domestic vs. international cost structure – Q4 2021）
Plans to spin off diabetes-related business to Embecta to further improve earnings base
The Embecta spin-off, scheduled for April 1, will allocate to Becton Dickinson shareholders. This spin-off is expected to further improve the company’s earnings profile and lead to a reevaluation by investors. In a volatile market, steady dividends and potential price appreciation are anticipated.
（Figure 5: Spin-off press release excerpt）
（Figures 1–5 are from company materials）
Risks
As with most medical and healthcare stocks, risks include product liability accidents or large lawsuits. Also, potential decreases in surgical volumes due to reemerging COVID-19, ongoing USD strength against other currencies, and unexpected acquisitions could pose risks.
BDX basic data (source: company data, Yahoo! Finance)
(As of Mar 11)
Share price $254.51
Market cap $72.47B
Total revenue $20.2B
Estimated P/E 21.64x
Trailing yield 1.30%
Head office: Franklin Lakes, New Jersey
Listed: April 1962
Five-year stock chart
Chart provided by TradingView.com
(This column is intended for general information only and does not constitute an invitation to buy or sell any particular securities)
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4. Investment Tips
This column covers not only “investment methods” and “stock picks,” but also “indicators or statements that caught my attention” and “movement of society and politics.”
When the market is volatile and the VIX is high, generally the market declines. We present research showing that investing during those declines can be profitable for investors’ risk appetites.
VIX index
The VIX stands for Volatility Index, calculated and published by the Chicago Board Options Exchange based on S&P 500 option movements. Generally, the higher the number, the more investors fear the future.
VIX since 1990
Since 1990, there have been 16 occasions when the VIX exceeded 30 for seven or more trading days. During the financial crisis, the VIX stayed above 30 for 170 days. The second-closest period was during the back-to-back upswings ending in October 2011 and May 2020, each lasting 50 trading days.
A rise in the VIX is often accompanied by a drop in stock prices, but the returns after seven consecutive days above 30 have mostly been positive. The median one-week return after seven trading days of gains is a slight decline of 0.5%, with about a 50% chance of a rise, but subsequent performance improves steadily. One-month S&P 500 returns have a median gain of 3.0% with nearly a 70% chance of positive results. At three, six, and twelve months, the S&P 500 is above its prior level with probability over 80% and medians of 7.8%, 17.3%, and 25.9%, respectively.
There have been two periods in which the S&P 500 fell one year later. The only case consistently low occurred during the 2008 financial crisis.
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5. Walk Corner
◇◇Recent stores visited, movies, museums, and books◇◇
① Activity Report
Online talk: March 9 (Wednesday)
Reflecting on the era with Taiko Sequencing: “Currency Roar (Asahi Bunko)” by Yoichi Funabashi, 1992-12-01, author
For Japan, around this agreement, the yen appreciated and Japan entered a bubble economy, enveloped in a hard-to-describe euphoria. Afterward, the bubble burst in 1989, leading to a long-term stagnation.
Since then, we have experienced 1989: end of the East-West Cold War, 1995: Great Hanshin-Awaji Earthquake, 1997: financial crisis, 2000: IT bubble burst, 2008: global financial crisis, and 2011: Great East Japan Earthquake. Now Russia’s invasion of Ukraine has highlighted geopolitical risks.
Among online talk participants, few who experienced the late 1980s exuberance as working adults; most were underage and felt the bubble era through adults around them. Here are a few interesting comments
＊ I was in elementary school, but my parents said, “If you sell your house in Osaka that climbed in value during the bubble, you can buy three or four houses in your new assignment in Fukuoka.”
＊ I worked at a hotel, where flashy insiders behaved boldly and without restraint in the hotel.
＊ An old lady opposing land speculation saw a truck crash into her tobacco shop.
＊ The securities industry at the time was a village-like society. With foreign entrants, anyone who could speak English was offered lucrative job opportunities.
＊ “Onoue Nui” is the proprietress of a Osaka ryotei; she lent 60 billion yen through Sumitomo Bank. I knew the name, but couldn’t believe such things happened.
＊ Nowadays, most people on trains do not iron their trousers or polish their shoes. A sense of era gaps.
＊ I was a high school student, but I remember adults spending money lavishly. They’d wave a 10,000-yen note to stop a taxi and say, “Stop there for me.”
Daiun Doctor’s maxim: “Wealth formation comes from long life.”
So, in today’s Japan, where such vigor cannot be restored, what is the secret to asset formation? In a dialogue video with me, Dr. Makoto Okura, who advocates long-term investment in U.S. stocks on this salon, appears and provides valuable hints.
According to him, the key to asset formation is simply to stay invested in the market for a long time. Warren Buffett is the prime example. He will turn 92 this August, and his net worth exceeds 11 trillion yen. Even if he dies at 80 or stops managing assets, he would still be among the world’s wealthiest. Yet, he keeps most of his assets exposed to market fluctuations. Over the past 12 years, his performance has been roughly in line with the S&P 500, but his wealth has grown substantially. The lesson is to stay in the market and harness compounding. Now, I will share from media materials.
Warren Buffett’s asset trajectory
His wealth was about $1 million at age 30, which would be about ¥110 million today. The growth since then has been remarkable. Over the 10 years from ages 30 to 39, wealth increased 25 times. In the 20 years from 72 to 91, wealth increased by $64.7 billion (about ¥7 trillion), with a growth rate of roughly 2.8 times. Berkshire Hathaway’s own investment performance and the sale of holdings likely contributed.
His greatness in asset formation lies in enduring market risk for the very long term and not fleeing. Of course, this is achievable largely because his investment target is U.S. equities.
Even an ordinary person can succeed in asset formation if the investment target is U.S. stocks and one avoids mistakes.
And someday, I too will use that success for society and for the next generation, while weathering today’s market storms with that dream in mind.
Nearly ¥9 trillion… An investor who built 99% of his enormous wealth from his 50s
By the way, this week’s Nikkei Valitas feature is Warren Buffett. A four-page special with the following headlines.
When crisis hits, Buffett style
Attack during market turmoil, tapping into undervalued, quality stocks
Steadfast philosophy plus flexibility
What will Berkshire be like after Buffett
A sage’s words, a compass for investing
If you’re interested, please take a look.
②～熊倉貫宜の巻～
Contributions by former securities trader and avid reader, Mr. Kanenori Kumakura.
Tomorrow's Gold / Mark Faber
As markets rise, participants, including investors, fall into a state of happiness and euphoria. It’s not unusual with Japan’s bubble economy, the global IT rush, and today’s U.S. stock boom, etc. In such fervor, various theories and explanations spread, and scholars and analysts who can be called gurus emerge.
From among these, market participants pick those who suit them and worship them as if in front of a shrine; this resembles a behavioral science experiment.
This book was a popular enlightenment work among market participants during the height of the Asian stock craze in the early 2000s.
In Japan, the book didn’t become widely talked about, but in Hong Kong and Singapore young dealers and investment bankers brought it to lunch meetings and sales strategy meetings, dreaming of striking it rich.
Mark Faber, through this book, became one of Asia’s stock market gurus alongside Jim Walker and Christopher Wood.
Twenty years later, reading this again, the world’s financial markets and political situations have changed greatly, so not all content is perfectly relevant, but there are many informative points.
Currently on Amazon, “Chapter 1: The Morphing World” is available for trial reading; it may be worthwhile to read that portion.
Additionally, for Asia’s economy, reading Paul Krugman’s treatise “The Mirage of the Asian Economy” (Foreign Affairs anthology: The Tasks toward Asian Success) would broaden your perspective.
By the way, the gurus Mark Faber, Jim Walker, and Christopher Wood were promoted by a Hong Kong securities firm founded as CLSA, Credit Lyonnais Securities Asia.
In the late 1990s, CLSA occupied the same building as my office; its business scale was not very large at the time.
One of the founders, Gary Carr, who was a former journalist at the South China Morning Post and participated in CLSA’s founding, shared a similar age to me, and I often chatted and joked with him at various Hong Kong financial events and in nightlife spots.
I was suddenly informed of Carr’s death in October 2006; he had returned to his homeland in Canada for health reasons, and he passed away at 50. It was deeply sad since he had so much more to contribute.
On ri ly—Onri Lyce! (In-joke)
Мトレイン／Patti Smith
This is Patti Smith, the queen of New York punk, a collection of essays.
As the poet laureate who performed at the Nobel Prize ceremony in place of Bob Dylan, she includes travel writings about Japan as well.
Honestly, I wasn’t a devoted listener of hers, but fortunately much of her writing has been translated into Japanese, which I paid more attention to.
This book, though a collection of essays on a rock musician, is published by the solid “Bungei” publisher Kawade Shobo Shinsha, and is wonderfully literary and excellent in content.
I noted that the translator, Keijiro Suga, calls it a memoir; it contains memories of travels with her former husband Fred Smith (former MC5!), along with memories of artists, parents, friends, and others she encountered.
She is known to be a heavy coffee drinker, but the writing, poured from that slender frame amidst long coffees at favorite cafés in New York, is a fascinating travel writing piece.
As an artist living in New York, she chooses travel destinations from a wide range of interests like reading, film, music, and art, which is quite impressive.
Her adventures—from Jean Genet’s “The Thief’s Diary” to the journey toward French Guiana, and to visiting Osaka in homage to Ozu Yasujiro—are good examples.
Also, while there are calm depictions, there are dramatic moments where one reads Murakami Haruki’s works in one go; that wide swing is part of her charm.
Wouldn’t it be natural to revisit her acclaimed albums like Horses (1975) and Radio Ethiopia (1976) as well?
【Kan N Kumakura】
Joined Daiwa Securities in 1980. MBA from the University of Chicago Booth School of Business as corporate-sponsored student. Worked in Singapore and Hong Kong, involved in Asian business.
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New Series“This is Perfect! All about Asset Formation Using U.S. Stocks”
Introduction
We are publishing a series covering essential knowledge for asset formation. The overall structure is planned as follows.
What era are we living in? Two parts
Independent Japanese and asset formation essential for independence—Three parts
Is the stock market only in the United States? Four parts
Differences between Japanese and American stock cultures
Key features of the U.S. market you should know—Ten parts
Aiming for better asset management
Sources of information and investment
Continuing, based on contributions by Makoto Okura, a familiar figure from our YouTube channel “Investing in the U.S. Stocks for 40 Years,” we examine how to manage U.S. stocks long-term.
Aiming for better asset management (Part 2)
Last time, we talked about setting goals and introducing benchmarks. To succeed in asset management, it’s crucial to set concrete targets. If you want to grow your assets through U.S. stock investing, set S&P 500 as your benchmark and aim to beat it. This time, I’d like to discuss the specifics of measuring performance.
Compare performance to the benchmark
Use the S&P 500 as the benchmark and compare your portfolio’s performance to it. If you beat the benchmark over the past three years, that’s excellent. If collecting past data is tedious, start by checking monthly performance this year (or last year). Regular performance checks will help you understand how closely your portfolio tracks the market (I personally perform performance comparisons almost daily as a professional habit).
If you mainly manage individual stocks, performance will naturally deviate from the benchmark. If you underperform, analyze the causes of the deviation (what you owned that you shouldn’t have owned, or what you missed), and make adjustments. This is the key point.
If the deviation is short-term, you don’t have to force a correction. But if not, leaving it could lead to ongoing underperformance, so corrective action may be required. Here, “loss” does not mean absolute return, but relative return against the benchmark (even if a stock’s price rises, if it rises less than the S&P 500, that stock is dragging down performance). Through this performance-check process, you can operate your portfolio in a better state.
As you may have noticed, asset management is about portfolio “management” rather than simply buying low and selling high individual stocks. Saying “I invested in Company A and earned X” or “I sold Company B near its peak” might be fun, but it’s not meaningful in benchmark-conscious portfolio management.
Profit-taking from individual stocks is like pruning branches in forestry. If you want to grow a huge tree of assets, you should focus on the portfolio’s overall performance, not individual profit stories. Definitely use the S&P 500 as a yardstick and regularly check how much the tree has grown.
Performance comparison table
If you have time, create a “Performance Comparison Table” as shown in Figure 3 and compare your portfolio’s performance to the benchmark.
Figure 3: Example of a Performance Comparison Table
Note: Clicking the link below will download it.
The table starts from the end of 2021, but if you could go back to earlier years (for example, the past three years) and enter your portfolio data and S&P 500 data, you would better understand whether your management was successful. Updating this kind of comparison table will likely heighten awareness of the S&P 500 benchmark.
Measuring performance
From here, for those interested, I’ll explain “How to measure performance.”
1) Calculation of portfolio performance
Performance is calculated monthly. If there are no money in/out during the month, it can be calculated with the following formula (if your brokerage account has an “asset movement” history, you can see monthly asset totals).
This month’s return = (End-of-month assets – End-of-previous-month assets) / End-of-previous-month assets
For example, December end assets = 1,000,000 yen, January end assets = 1,300,000 yen, and there were no movements in January, then January return is
January return = (1300－1000) / 1000 = 0.30 = 30%
But what if 200,000 yen was added on January 20? Then you must account for mid-month movements, and the simple formula becomes a bit more complex.
This month’s return = (End-of-month assets – End-of-previous-month assets – mid-month movements) / (End-of-previous-month assets + (days from mid-month movement to month end / days in month) × mid-month movements)
Let’s show a concrete example. December end assets = 1,000,000 yen, January end assets = 1,300,000 yen, and 200,000 yen was added on January 20. The January return would be
January return
= (1300 − 1000 − 200) / (1000 + (31 − 20) / 31 × 200)
= 1000 / (1000 + 11/31 × 200)
= 0.093373… ≒ 9.34%
Some notes:
● If funds are withdrawn, mid-month movement is negative.
● If mid-month movements are zero, the second and first formulas are the same.
● The larger the mid-period movements relative to prior assets, the greater the distortion in required returns.
The above is the method for monthly returns. For multi-month returns, for example January to March, you multiply the monthly returns:
January–March return = (1 + January return) × (1 + February return) × (1 + March return) − 1
This is how you calculate multi-month returns.
2) Calculation of benchmark performance
Since portfolio performance is in yen, the benchmark must be in yen as well. The yen-denominated benchmark is the U.S. S&P 500 Total Return Index multiplied by the USDJPY rate.
First, go to S&P Global’s homepage to obtain S&P 500 data (https://www.spglobal.com/spdji/jp/).● There is a search box labeled “Search by keyword.”
● Type “S&P 500” there; you’ll see “S&P 500.”
● Click it to display the S&P 500 chart. This chart is price return; change it to total return (including dividends).
● Set the period to your desired range, and click “Export” to download the S&P 500 Total Return data.
From here, collect the required monthly end data (and the most recent data).
Next, obtain the USDJPY data. There are various ways to obtain exchange rates; here we use Investing.com (https://jp.investing.com/).● On the homepage, go to Market → Foreign Exchange → Rates → USD/JPY to open the USD/JPY page.
● Under “Historical Data,” you can access data with a daily time frame.
● Change to “Monthly,” adjust the data period to your liking, and click “Download Data” to download the USD/JPY rate data.
By multiplying the S&P 500 Total Return Index by the USD/JPY rate, you create a yen-denominated total return index (benchmark). Once you have the yen-denominated benchmark, you can calculate monthly returns, and then apply the same method to obtain multi-month returns. Since the benchmark has no fund movements, calculations are straightforward.
【Okura Makoto】
From Ehime Prefecture. Graduated from Osaka University Economics in 1984. 2005: PhD in Economics from Saitama University. Worked at Citibank, N.A., Cititrust Trust Bank, Societe Generale Trust Bank (now SMBC Trust Bank). Worked with pension funds and other institutional investors, and also did wealth management for high net-worth individuals at a private bank. In 2017 founded EagleCapital Co., Ltd. CFA Charterholder. Member of the Japan Securities Analysts Association.
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6. What ultra-rich people actually do: “Private Investment Strategies”
Hiroshi Ichikawa, who specializes in sales support for IFA, explains investment strategies used by the ultra-wealthy in a straightforward manner.
From this issue, we discuss one product in private investment strategies: “Structured Bond Investing.”
Structured Bond refers to bonds that are customized to be linked to specific indices or indicators, and are issued as order-made products. Being bonds, they have fixed terms and yields, unlike private equity or private funds.
Structured Bond explained
“Structured bonds” are bonds that incorporate options, swaps, or other derivatives into ordinary bonds.
Unlike standard bonds, principal and interest payments are contingent on changes in financial indicators such as stock prices or exchange rates, potentially offering higher yields than ordinary bonds.
Typical examples include coupons or redemption amounts linked to exchange rates or stock prices, or bonds that redeem early in maturity but offer higher yields than ordinary bonds.
Order-made issuance
The main feature of structured bonds is that they are issued to order. Of course they can’t be created with completely arbitrary terms, but with consultation with the issuer, they can be tailored to a considerable extent.
For example, with terms such as a maturity of up to one year and a yield of over 10%, many patterns can be formed. The issuers are mainly overseas financial institutions, such as high-grade banks.
Unlike investments with uncertain entry points, these can be issued at the investor’s preferred timing and terms, making them ideal for boosting portfolio yield or generating higher cash flows from investments.
Because they can be created to order, a certain amount of capital is required. Some issuers require at least 100 million yen, but there are structured bonds available for 1 million yen in private investment strategies.
Unique risks
Structured bonds carry risks. In addition to standard bond risks (credit risk, liquidity risk, etc.), there is the risk that the yield received could be less than initially offered, the payoff at maturity could be reduced due to indicator movements, and some may be redeemed in-kind (not in cash) as stocks or commodities. Of course, each product has its own conditions, so please be cautious.
In private investment strategies, structured bonds that pay fixed interest over a set term are indispensable. While investing all assets is not recommended, leaving funds in low-interest deposits is far less desirable than using them for structured bonds.
In the next issue, we will discuss this “Structured Bond” in more detail.
【Hiroshi Ichikawa】
Investment Techniques for Becoming Ultra-Wealthy
CEO, Winviser Co., Ltd. Worked in asset management consulting at SMBC Nikko Securities’ branches in Ibaraki, Fukuoka, and Tokyo, then engaged in marketing private financial products for the ultra-wealthy.
A switch to IFA (Independent Financial Advisor) and, after advising ultra-wealth clients, founded a support company specializing in IFA to develop the Japanese financial industry. Currently, while supporting IFAs, he also provides independent opinions on asset management for individual investors based on his experience.
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8. Q&A Corner
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