The Truth About U.S. Stock Investment [Vol.49] Distributed June 6, 2022
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The Truth About U.S. Stock Investing
［Vol.49］ Delivered June 6, 2022
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Kawada Shigenobu's “Training in U.S. Stocks through the Media”
***Table of Contents***
Market Recap
This Week's Picked Articles
Kawada's Interesting Stocks
Investment Tips
A Walk
A Little Lesson: “Tips for Not Failing in Asset Formation”
What Private Investors with Extreme Wealth Practice: “Private Investment Strategy”
Activity Information
[How to Read Nikkei to Enrich Your Life]
This project picks up articles from Nikkei, which I have been reading for over 40 years as a working adult, and comments on them. It is conducted every Saturday from 9:00 to 9:45 a.m. via Zoom.
Participation is free, so if you are interested, please apply onPeatix.
Below are several headlines from articles covered last Saturday.
Online Salon “Asset Formation That Fulfills Dreams”
This is an online salon where everyone learns together to succeed in asset formation and shares insights. We provide member-only seminars that convey content not fully captured by the popular newsletter “Training in U.S. Stocks through the Media” and allow you to experience the魅了 of U.S. stock investing.
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1. Market Recap (May 23 – June 3)
・Dow Jones +5.2%
・S&P 500 +5.3%
・Nasdaq Composite +5.8%
＝ Snapshot Version ＝
The U.S. stock market had been declining, but long-term rates stabilized and supply-demand uncertainties eased, leading to a sharp rise from the week of the 23rd. However, inflation concerns persisted and officials signaling continued rate hikes caused a cautious mood to return in the following week. When the employment report at week’s end showed ongoing labor market tightness, long-term rates rose again, and selling resumed.
＝ A Little More Detail ＝
The week from May 23 saw a strong rebound.
The Dow had eight straight weeks of declines, and the clearance of futures and options positions at the previous week’s end removed short-term supply-demand uncertainty, triggering the rebound.
Minutes from the May FOMC meeting suggested a clearer path for policy, and as inflation indicators showed signs of peaking, long-term rates fell, boosting confidence especially in growth stocks.
The following week, with Memorial Day on Monday and the employment report looming, the market stayed cautious.
There were some buys on strong earnings reports from individual companies, but strong signals from Federal Reserve officials about continued tightening pushed long-term rates higher again.
The weekend employment data showed the labor market remaining tight, fueling inflation concerns and causing long-term rates to rise to a two-week high, weighing on sentiment.
S&P 500 Chart—5 Years
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2. This Week's Picked Articles
This section selects information useful for asset formation from Kawada’s sources, ranking them and commenting from a personal perspective.
From this week, we will also include Picked Articles and comments from 熊倉貫宜, who covers the Walk section with book recommendations.
[1] Nikkei Shimbun Reinforcement of automotive glass; AGC at a crossroads—Asset shrinkage and power to earn6/2
AGC’s glass is used in about one in four new cars worldwide, but with a recent slowdown in auto production, raw material prices have surged and price negotiations have not progressed.
Return on Equity: ROE reaching 10% requires revamping in the relevant field.
The glass segment accounts for 43% of consolidated net sales of 1.6973 trillion yen (fiscal year ended December 2021), but only 13% of operating profit. Chemicals account for 67% of operating profit.
Compared to Chinese peers Sinoglass and Fuyao, which have ROEs of 37% and 13.1% respectively.
Even in similar environments, Chinese players are able to sell to local automakers at fair prices, while AGC, which does most of its business with Western and Japanese automakers, faces stronger price-cut pressures and has not moved to price increases.
Chemicals markets have cooled, so achieving 10% growth sustainably will require revamping the automotive glass business, improving profitability and asset efficiency, which will not be easy.
AGC changed its name from “Asahi Glass Co., Ltd.” to “AGC Inc.” in 2018, removing the two characters for “glass,” signaling a commitment to expand from chemicals into a broad range of materials globally.
To fund growth in chemicals and healthcare, steady progress in transforming its core glass business is necessary.
【熊倉 Comment】
In the glass industry, traditional firms producing sheet glass and bottles face tough conditions due to overcapacity, while specialty glasses used by HOYA, NEC Glass, Okamoto Glass, etc., are adding value by meeting changes in lighting sources (e.g., high-brightness LEDs) and advancing information and communications tech like 5G.
Glass industry, like iron and steel, has a high fixed-cost ratio and requires input of fuel and raw materials regardless of output, making low utilization risky for losses.
Thus, as with iron, demand for flat glass (dominated by overseas players) and glass bottles (substitution by PET bottles) is expected to remain challenging.
A knowledgeable contact summarized the industry as follows:
1) From an equipment investment perspective, new entrants and restructuring are difficult.
2) The industry differentiates products by commoditized vs. high value-added.
3) Commoditized products are expected to stay challenging.
4) For high value-added products, there are two major opportunities:
① High-brightness light sources (e.g., diffusion lenses)
② LTCC (low-temperature co-fired ceramics) inorganic substrate and related products for after 5G
5) ① and ② will likely be targets for overseas suppliers globally.
It seems Japan’s large, heavy, long-lived companies face headwinds, but those that create value-added competencies contributing to profitability tend to win.
Investment hints may lie here as well.
【2】Nikkei Shimbun Shift of funds into infrastructure stocks; profits less affected by economic conditions Reflecting investors’ cautious sentiment 6/3
Investors are pouring money into infrastructure companies that operate roads, water, and power transmission/distribution, and related stock indices are near all-time highs.
Shifts from high-growth tech to defense-in-depth, recession-resistant companies reflect bearish investor sentiment.
The World Infrastructure index (computed by S&P Global) rose to 2,927.70 on June 1, at its highest level since the index began in February 2007, up about 6% from late 2021.
Getlink, which operates the Channel Tunnel between the UK and France, rose 23% from late 2021 and is near its all-time high as of May 31. UK National Grid and other utilities are also up more than 10%. Waste Management is near the all-time high as well.
Telecom stocks, considered less affected by the business cycle, are also being bought. Deutsche Telekom rose 17% to multi-year highs, while Japan’s NTT rose 24% to near a 22-year high.
However, some say they are overvalued, suggesting limited room for funds to escape, and if earnings weaken, selling could spread.
S&P Global Infrastructure Index 2,939.32 (June 3)
【熊倉 Comment】
Infrastructure is the backbone of economic activity and a driving force for growth, and this is undeniable.
In emerging markets the impact is more evident than in developed nations, but upgrading and modernizing infrastructure remains a key issue in advanced economies as well.
Recent SDGs emphasize not only clean energy, safe water, and climate action, but also building resilient infrastructure, promoting inclusive and sustainable industrialization, and expanding technological innovation.
Nevertheless, in financial markets, attention to these stocks often appears as a pause within a broader market cycle.
When I entered the securities world in the 1980s, electricity stocks were very popular as stable dividend payers among individual investors, but the myth collapsed during the bubble era and after the Great East Japan Earthquake’s nuclear incidents.
As the article notes, if there is inflow of investment funds, it is hard to gauge whether global liquidity remains excessive, whether advanced-country infrastructure is in a phase of maintenance and renewal, or whether a new era of infrastructure investment has begun. There are many uncertainties.
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3. Kawada's Interesting Stocks
In this corner, I introduce stocks Kawada holds and other U.S. stock information that caught my attention.
This Week’s Stock
JPMorgan Chase & Co.
Overview
A bank holding company with operations in commercial banking, investment banking, and asset management across more than 60 countries, primarily in the U.S. Its oldest predecessor was founded in 1799 in Manhattan; the current holding company formed in 2000 by the merger of Chase Manhattan and JP Morgan.
Why it’s attractive
Stable business model
JPMorgan Chase (JPM) has total assets of about $3.7 trillion (as of end-2021), serves 66 million households in the U.S., and more than 90% of Fortune 500 companies. While results vary by business segment with market conditions, adjusted earnings have grown steadily since the Global Financial Crisis. Profitability measured by ROTCE exceeds industry averages, suggesting mid-term profitability is stable.
Figure 1: JPM Revenue by segment and 2021 regional breakdown (in billions USD)
(AWM: Asset Management, CB: Commercial Banking, CIB: Investment Banking, CCB: Consumer & Community Banking, Corp: Corporate) (Geographic: North America 76%, EMEA 14%, Asia-Pacific 8%, Latin America 2%)
Figure 2: Trend in adjusted net income; normalized for credit losses, showing stable growth
Figure 3: ROTCE greater than 15%, above industry average
Undervaluation
Despite a solid, mid- to long-term earnings growth trajectory, the stock trades at a relatively cheap level. The current price-to-earnings ratio (PER) is about 10.4x, and the expected dividend yield including a roughly 10% dividend increase is about 3.0%.
The market’s concerns about potential earnings declines due to a recession, worries about capitalization levels, and rising expenses flagged during the Q1–Q2 earnings season have weighed on JPM’s multiple since the Q1–Q3 2021 report.
Investor Conference Alleviating Concerns
However, JPM’s investor conference on May 23 addressed many of these concerns.
Regarding the recession, JPM projected very low loan losses in both corporate and consumer segments in 2021, supported by abundant savings among both firms and individuals, implying continued low loan losses in 2022.
Figure 4: Historical loan-loss reserves by card, consumer (excluding cards), and corporate segments
On capital adequacy, JPM expects steady growth and sufficient capital to support shareholder returns by 2024.
Figure 5: Despite rising profits, capital adequacy remains above regulatory requirements; forecast 12.5–13.0% needed capital ratio, with 13.7% projected
Regarding cost growth concerns, higher hiring costs and travel expenses from economic reopening were cited, but investment-related expenses were allocated to growth in each division, with no outsized or unusual expenditures noted. Thus, concerns about cost increases appear less worrisome now.
Figure 6: No unusual cost growth; no major red flags
(Source: Figures 1–6 from company materials)
Risks
If monetary tightening proves harsher than expected, combining with a recession, there could be temporary declines in profits due to bond value declines and larger loan-loss reserves.
Moreover, the tenure of the current CEO Jamie Dimon is a medium-term risk; investor confidence in his leadership is high, so political or other roles could become market topics.
JPM’s Key Data (Source: Company data, Yahoo! Finance)
(As of June 3)
Stock price $130.16
Market capitalization $382.2 billion
Total revenue $123.7 billion
Estimated PER 10.38x
Estimated yield 3.03%
Headquarters: New York, New York
Listed: March 1969
Stock price chart: 5 years
Chart by TradingView.com
（This column is for general informational purposes only and does not constitute an invitation to buy or sell any particular security）
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4. Investment Tips
This column covers not only investment methods and stock picks but also notable indicators, remarks, and societal or political movements.
Last week on Wednesday, June 1, at 8:00 p.m., an online salon was held
I will summarize and convey the research content presented by Fujii in last week's online salon. Fujii is originally from a city bank and is now active as a private banker at a major financial institution.
The Neighboring Millionaire: The Seven Rules That Create Wealth
Note: Data from around 1996
【Author's Background】
Thomas J. Stanley
A leading figure in wealth marketing in America
William D. Danko
Emeritus Professor at the State University of New York
Participated in research studies as Stanley's partner
Portraits of Millionaires
Defined millionaires as having net worth over $1 million.
About 3.5% of the 100 million households in the United States qualify
Among these, 95% have assets between $1 million and $10 million
Average income $247,000; average assets $3.7 million
Most have built their wealth in a single generation
The average millionaire has never bought a suit costing more than $399! (The media tends to spotlight flashy spenders, but such people are not the real wealthy; the truly rich accumulate wealth differently.)
In households that excel at wealth accumulation, wives are often exceptionally frugal
Most high earners are weak at safeguarding wealth (they spend a lot). Millionaires are strong at both offense and defense
Wealthy underachievers spend money to gain social recognition
7 Rules (Eight-tenths of wealthy Americans become wealthy in one generation)
1) Live well below your income
2) Efficiently allocate time, energy, and money to asset formation
3) More important to not worry about money than to maintain appearances
4) After turning professional, do not receive financial help from parents
5) Children are financially independent
6) Skilled at seizing business opportunities
7) Choose the right professions
The quality of investment advisers has a direct and substantial impact on wealth accumulation
How to identify a good adviser ①
“Could you show me a copy of your past several years’ tax returns and a list of stocks you have invested in personally in the last three years? If you’ve earned more from stocks than I have, I’ll consider hiring you.”
How to identify a good adviser ②
If a tax accountant approves the adviser and says their client is excellent, that adviser is likely trustworthy in investments. If they give sloppy advice, the referring tax accountant would file a complaint.
Excellent investment advisers are especially careful and courteous with clients referred to them.
MILLIONAIRE STOCK TRADING FREQUENCY
Source: The Millionaire Next Door
95% of millionaires own stocks
Most invest more than 20% of their assets in publicly traded stocks
42% of millionaires did not move their stock in the past year
Millionaires prefer to buy stocks after careful study and hold them for a long time
Wealthy Parents’ Child Rearing Guidelines
Don’t tell your children that you are rich
Avoid talking about what you will leave as inheritance to children or grandchildren
Remember that children are independent individuals!
Educate them to measure success by what they achieve, not by material possessions
Teach that there are things more valuable than money (health, longevity, enjoyable life, loving family, independence, good friends)
The more financial support you provide, the less wealth your children accumulate; the less support, the more they build wealth
1) Money given tends to be spent rather than saved
2) Those who receive parental support tend to identify their own wealth with their parents’ wealth
3) Those who receive financial support from parents invest less money
Highly successful children often receive nothing from their parents.
Teach your children to fish.
Then the Neighborhood Millionaire
Note: Data from around 2016
【Author's Background】
Thomas J. Stanley
Professor at Georgia State University
Professor at the State University of New York
Died in 2015 in a drunk-driving accident
Sara Stanley-Faller
Chair of DataPoints, which develops tools crucial for wealth accumulation by individual investors and financial advisers
Daughter of Thomas J. Stanley
Wealth accumulation is a marathon
A typical millionaire worked 59,800 hours to reach a seven-figure net worth (about 28 years at 8 hours a day)
Neighborhood Millionaire tends to be the employer, not the employee
Economic success factors: discipline (frugality), immense effort, perseverance
Will to pursue goals despite past failures and pain
What creates a successful investor?
Attitude toward risk (able to make investment decisions even when exact results are unknown)
High risk tolerance (people who favor stocks tend to make good investment judgments)
Knowledge about investment targets and decision-making and understanding of investment products’ potential ups and downs, cyclical stock market characteristics
Calmness (ability to ride out market changes)
Asset-type (BS) wealthy vs. income-type (IS) wealthy
People who dress like the rich and drive like the rich are often not truly wealthy.
Differences among advisers (Mr. Jack and Mrs. Jenkins)
Advisors Alpha (value of advisers)
About a 3% additional return to the portfolio
Portfolio rebalancing
Portfolio construction
Improving investment behavior (e.g., not buying high and selling low)
The real value today that a financial adviser can provide is helping clients evolve from wealth-accumulation underachievers to wealth-accumulation overachievers (behavior change)
Skills in accounting, tax, finance, and investing plus coaching and life-planning skills
About Donations
As estate sizes grow, charitable donations dramatically increase
Bloomberg donated a cumulative $3.3 billion to his alma mater Johns Hopkins University
Helping others and supporting future generations brings greater satisfaction than self-display
Michael Bloomberg
Founder of Bloomberg and the 108th Mayor of New York City (2002-2013). In a New York Times editorial, he announced a gift of $1.8 billion to Johns Hopkins University to support students’ education. This is the largest donation by a single university to date.
【 Kawata's Comment 】
Fujii says that the behavioral patterns of wealthy individuals are often similar in the US and Japan. For example, they readily pay for valued goods and services, but rarely indulge in conspicuous extravagance due to concern about others’ judgments.
In “The Millionaire Next Door,” wealth is defined as having net assets over $1 million, but the book was published 26 years ago. By the end of 1995, the S&P 500 was at 615, while recently it is around 4,100, about one-seventh of that level. If $1 million were split in half with $500k in the S&P 500, that alone would be worth about $4 million today.
They appear to ride the upward trend of the U.S. stock market, gradually increasing wealth through compounding.
In Japan, awareness of U.S. stock investing is rising. I believe that using the mainstream U.S. equity approach with compounding in Japan can create many wealthy individuals, and I am prepared to put this into practice.
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5. Walking Corner
◇◇Recently visited stores,movies, museums, books◇◇
～巻：Kaneki Kumakura～
A contribution from Kanekura Ken-ji, a former securities man and booklover.
Summer Reading List (probably)
JPMorgan Chase, a major American financial institution, annually announces its “Summer Reading List” for clients, and this year also announced its 23rd list on May 24.
https://www.jpmorgan.com/news/jpmorgan-launches-23rd-annual-summer-reading-list
Since it is intended as a companion for the ultra-wealthy during summer holidays, the lists are typically very interesting.
From business ideas that may become trends, to timely topics, cultural and civilizational reflections, entertainment, and personal development, I personally go through about 10 books each year with a lot of contemplation.
However, I do not read every book, nor do I intend to (frankly, I don’t have the language skills for all of them).
Simply by glancing at the list, I feel a stronger sense that the year’s “world issues”—not to overstate it, but at least the issue consciousness of major U.S. financial institutions and their clients—are aligned.
Thus, although these are hints for U.S. stock investors, I have not seen them receive attention in Japan, so I would like to share them here.
Now, more details to follow, but this year the ten books are as follows.
1) The mindset of respected corporate leaders
2) Addressing climate change
3) Self-management within relationships
4) A guide to non-fungible tokens (NFTs)
5) An anti-thesis to a life of “no regrets”
6) Solving problems through art
7) Hayao Miyazaki’s art
8) A photo collection exploring Black identity
9) A documentary on how philanthropy should be done
10) A collection of Greek myths
In these turbulent times, isn’t it about returning to basics with these ten books?
Now, books can easily be obtained in original language on Amazon, and translations may be published as well.
Now, I will summarize each book with JPMorgan’s commentary.
CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest
by Carolyn Dewar, Scott Keller and Vikram Malhotra
CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest
by Carolyn Dewar, Scott Keller, and Vikram Malhotra
Based on interviews with leaders at Netflix, JPMorgan, General Motors, and Sony, it presents how global corporate leaders establish a vision for transformation and how readers can acquire that top leadership.
Race for Tomorrow: Survival, Innovation and Profit on the Front Lines of the Climate Crisis
by Simon Mundy
明日への競争：気候危機の最前線における生き残り、革新、そして利益
by Simon Mundy
In a remarkable journey across 26 countries and six continents, Financial Times’ Simon Mundy travels the front lines of the climate crisis and shows that the battles underway are already reshaping our world.
Being Present: Commanding Attention at Work (and at Home) by Managing Your Social Presence
by Jeanine W. Turner
Presence: How to command attention at work (and at home) by managing your social presence
by Jeanine W. Turner
In a confused world, our focus becomes harder each day. How can we disengage from digital devices that threaten our presence? Georgetown University professor Jeanine W. Turner provides a framework for more effective and deliberate communication with family, friends, and colleagues, drawing on 15 years of research, interviews, and guidance to help sustain social presence.
The Comprehensive Guide to NFTs, Digital Artwork, Blockchain Technology
by Marc Beckman
非代替トークン（NFT）は、ブロックチェーンと暗号通貨の開発以来、最も重要なデジタルイノベーションの1つです。しかし、それらは正確には何であり、それらは私たちの世界にどのような影響を与えるでしょうか？
The Power of Regret: How Looking Backward Moves Us Forward
by Daniel H. Pink
後悔する力：過去を振り返り前進するには
by Daniel H. Pink
“No regrets” is a worn life philosophy, but Daniel H. Pink argues against this idea in his latest book, inviting us to embrace regret and think creatively to live a more fulfilled life. Pink draws on research from psychology, neuroscience, economics, and biology to argue that by making wiser decisions, achieving more at work, and deepening purpose, we can turn regret into a positive force.
Fixed.: How to Perfect the Fine Art of Problem Solving
by Amy E. Herman
修正済み：問題解決のファインアートを完成させる方法
by Amy E. Herman
Amy E. Herman, a lawyer and art historian, developed the “Art of Perception” seminar at The Frick Collection in New York to enhance medical students’ observational and communication skills. Since then, she has continued giving international talks to leaders and professionals in many organizations where mistakes can be fatal, including the FBI and police forces. Herman encourages opening the mind to question long-held assumptions through art, uncovering possibilities that are often overlooked. Regardless of the scale or complexity of a problem, Herman’s lens provides a powerful new perspective for approaching any problem and generating effective solutions.
Hayao Miyazaki
by Jessica Niebel, Daniel Kothenschulte and Pete Docter
宮崎駿
by Jessica Niebel, Daniel Kothenschulte, and Pete Docter
Praise for Miyazaki Hayao’s artistic vision, craft, and human themes in his animated films. This book, published in collaboration with Studio Ghibli and the Academy Museum of Motion Pictures in Tokyo, provides insights into the animator’s creative process and storytelling. His dynamic natural settings and strong sensibilities—many of them centered on young women and girls—cross cultural boundaries and offer universal exploration for youth and humanity.。
As We Rise: Photography from the Black Atlantic by the Wedge Collection
私たちが立ち上がる時：黒大西洋からの写真、ウェッジ・コレクションより
Selected from the Wright-Wedge Collection at the University of Toronto, a collection dedicated to Black photographers, this book explores Black identity. Gathering over 100 photographs by Black artists across Canada, the Caribbean, the UK, the US, South America, and Africa, it examines themes of community, identity, and power.
Between the Mountain and the Sky: A Mother’s Story of Love, Loss, Healing, and Hope
by Maggie Doyne
山と空の間：愛、喪失、癒し、そして希望の母親の物語
by Maggie Doyne
Maggie Doyne, a American philanthropist and founder of the Blink Now Foundation, shares the journey of becoming a caregiver to more than 50 children in Nepal. She purchases land with her own savings, builds homes for the children, and through opening homes and eventually establishing a women’s center and school in the mountains and skies, illustrates how one person’s actions can bring goodness and change.
Greek Myths
by Gustav Schwab
ギリシャ神話
by Gustav Schwab
This classic German author Gustav Schwab’s anthology contains 47 tales, reviving the captivating world of Greek myth for modern readers. Through stories of gods and mortals, Schwab reveals humanity’s feats, ambitions, and flaws—from Perseus’s courage to Icarus’s vanity and Midas’s greed. Rich illustrations accompany the text, and these timeless truths continue to fascinate readers of all ages.
【 Kanakura Nanigori 】
Joined Daiwa Securities in 1980. Studied at the Chicago Booth School of Business as part of corporate delegation, gaining an MBA. Through postings in Singapore and Hong Kong, involved in Asian business.
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6. A Little Guidance: “Tips for Wealth Creation That Won’t Fail”
Ryuichi Motohashi, a financial adviser, shares essential tips for steady, medium- to long-term wealth creation.
There seems to be a common mindset among those who succeed in steady wealth creation. Here, as a private banker, I’ll share the insights I glimpsed in the minds of “ultra-wealthy” clients I have served for many years.
◆ The Ultra-Wealthy Mindset: Three Points
1) Focus on “not shrinking wealth” rather than on “growing wealth”
2) Distinguish between “speculation” and “investment”
3) Do not be swayed by recommended product information
Actually, I previously introduced the first point, “not shrinking wealth,” in this newsletter Vol. 41 on the importance of compounding without large losses.
This time I’ll focus on ② the distinction between “speculation” and “investment” and ③ not being swayed by recommended product information.
Now, a question for you.
Do you understand the difference between “speculation” and “investment”?
◆Speculation is gambling; investment is an investment
Speculation (Gambling) ends with someone losing and someone winning.
Common saying is that in gambling, in the end the house wins and participants lose… a Loser-or-Winner scenario. Therefore, speculation is also called a“zero-sum game”.
【Image of Gambling】
In contrast,Investment is a “positive-sum” where everyone involved can become wealthier, Win-Win, and is essentially long-term wealth management that you are already practicing.
Under capitalism, everyone desires a better life today than yesterday, and tomorrow better than today, so GDP grows. This is the growth of the world economy.
【 World Nominal GDP and U.S. Stocks (S&P 500) Trends】
Source: Nomura Asset Management
This growth is slow but steady. By investing in global economic growth, everyone becomes wealthier—an investment in the world’s growth.
The reason I emphasize long-term is that global economic growth is at a slow pace. Times of rapid development are seen in emerging markets, while developed countries mature more slowly, with regional variations…
◆Don’t be swept away by recommended product information…
They are seasonal topics! These newly promoted products often have price declines as soon as you buy them.
Themes that everyone agrees are “popular” are often overvalued.Among ultra-wealthy clients I support in wealth management, there are many such product proposals (sales) that tempt them.
Clients say, “If I can understand it well and think, ‘Even if I lose a bit, I’ll try it as a friendly exploration,’ I’ll participate.”
Actually, if you’re an entrepreneur managing your own business, you can understand wanting to be excited about a topic even if you might lose a little.
If you are used to taking risks in business and investing, you are not swayed by “recommended product information.”
◆Behind the Creation of Recommended Products…
Below is the cycle I experienced working as a financial institution employee, involved in product development and sales strategies for investment trusts, leading to the birth of recommended funds.
【Birth of a Recommendation Product (Theme-type Funds)】
Source: Author’s seminar materials
The vertical axis represents the temperature of economic conditions related to current hot topics (here we use stock prices for ease of imagination). The horizontal axis is time. There were many theme funds on hot topics… various examples (to the right).
※ Even now ESG, SDGs, risk-limited funds, dynamically managed funds following trends, and balanced funds with multiple asset classes bloom like bamboo shoots after rain, and new products are developed (laughs).
In the old days as well as now, most “recommended products” are born through roughly this cycle.
And… the backstage of the phase when “recommended product birth” occurs looks like this!
A: The most agile asset-management firms begin to take notice, but there is no buzz yet, so even if a product is developed, sales are poor. If a fund is developed early, as a first-mover it has a hit-product potential. This speed is a decisive factor.
B: It gradually gathers public attention, and investment themes appear in research by securities firms. A large poster appears in the sales floor for a new theme-type fund. At this stage, it has not yet appeared in bank storefronts.
C: Features are covered in money magazines, and similar theme funds proliferate at banks’ storefronts, becoming top sellers in the “now selling well” rankings.
This C phase, for me as the person responsible for introducing new products, meant I’d often receive orders from the executive in charge to quickly introduce new funds and allocate sales targets to the field. I would daily receive presentations of same-theme funds from the asset-management companies, and after internal approvals and meetings with related departments, the result was that the funds mainly came from internal groups or occasionally from foreign asset-management companies with similar themes…
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Though my past experiences come rushing back and I’ve digressed somewhat, even hot-theme funds are not created by a marketer’s quick grab on the latest trend, but rather are launched after observing others’ sales movements and only after a degree of confidence in sales is achieved, becoming products at the peak of their cycle (or past it).
Therefore, true businesspeople who have been at the forefront and found real business ideas are unlikely to be swayed by new products, keeping a measured relationship with them (laughs).
Graduated in 1998 and began a career in the financial industry at Yokohama Bank. Later became a private banker at a foreign financial institution. Soon after, the Lehman Brothers collapse shocked the world, and he decided to abandon frontline sales and pursue becoming a financial adviser who promotes orthodox wealth management. After consulting a few clients, he became independent after about 20 years in financial institutions. With zero credit or networks, he thoroughly studied overseas PB/FA business models and continually devised innovative ideas to enhance client experiences.
Currently, he operates as an independent financial adviser, dedicated to truly valuing clients’ beliefs and providing private financial consulting without belonging to a specific financial institution.
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7. The Ultra-Wealthy’s Practical “Private Investment Strategy”
Hiroshi Ichikawa, who specializes in sales support for IFAs, shares in simple terms investment strategies used by the ultra-wealthy for your understanding.
This time we discuss the ultra-wealthy’s home country bias in investing.
What is Home Country Bias
Have you heard of home country bias?
This is the tendency for investors to be cautious about overseas investments and to favor domestic assets. Humans naturally prioritize based on their own country, leading to domestic investment tilt.
Reasons for susceptibility to home country bias include: information about domestic matters is more familiar; if domestic investments offer similar returns to foreign ones, domestic investments feel safer; cultural differences between countries also play a role; and investors’ risk tolerance is often not high, making overseas investments less appealing.
Additionally, in institutional investing, there are regulatory constraints on foreign-currency assets. Many places are loosening these regulations to reduce home country bias.
Loving your own country is important, but in investing you must reset that fixed notion. Ultra-wealthy investors who continue to succeed show especially little home country bias.
Japanese people are overwhelmingly prone to bias
In Japan, for example, looking at the 401(k) investment choices, domestic stock allocations are 59% for company plans and 54% for individual plans, higher than foreign stocks.
For individual investors living in Japan, having knowledge of land and corporate culture and avoiding currency risk makes Japanese stocks appear natural to invest in. However, this is clearly overinvesting and overemphasizing domestic assets.
In the MSCI All Country World Index, the Japanese stock allocation is only about 7%, roughly equal to Japan’s share of the world’s nominal GDP.
In terms of market capitalization and economic size, Japan’s share of the world is less than 10%. Therefore, a majority investment in Japanese stocks clearly represents overinvestment.
Reasons to eliminate home country bias
If for Japanese investors Japanese stocks and Japanese government bonds offer higher expected returns than overseas assets, a Japan-centric approach is fine.
However, when measuring investments, past performance shows U.S. stocks have performed far better than Japanese stocks.
Over the past 30 years, the Japanese stock market declined about 0.7x (nearly 30%), while the U.S. rose as much as 12x in the same period.
Moreover, over the last decade, global stocks’ risk-adjusted returns are similar to Japanese stocks, but returns have often surpassed Japan’s over the long term. For individual investors who have primarily invested in Japanese stocks, they have not benefited from relatively favorable global stock returns.
Home country bias exists in every country, but given past investment performance, Japanese stock-heavy investing should be avoided.
【 Hiroshi Ichikawa 】
Investment Techniques for Becoming Ultra-Wealthy
Winviser Co., Ltd., President and CEO. After working in asset management consulting at SMBC Nikko Securities at branches in Ibaraki, Fukuoka, and Tokyo, he marketing ultra-wealthy financial products.
He moved to an independent financial adviser company, specializing in wealth management for ultra-wealthy clients, and also provides third-opinion investment advisory to individual investors based on his experience.
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8. Future Activity Information
◇ Stock Voice: June 15 (Wed) from 11:00
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June 30 (Thu) Okura-san telephone interview (Arano-san)
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