Mariko Mabuchi, Featured Economic Analyst, discusses her stock selection and future economic forecasts.

--Even if you are interested in investing, it can seem like a hurdle and difficult to actually get started. So, first of all, could you tell us how to gradually step up from being a beginner investor?

Mabuchi: The first thing I would like to tell you is that even if you are just ‘steadily investing in an index every month with NISA’, you are a fine investor. There are many investment targets in the world, such as individual stocks, bonds, FX and crypto assets, so there are actually many beginners who think that they are not real investors if they do not invest in such things.

--There are indeed many stories of people who ‘invested in individual stocks and increased their assets many times over in a short period of time’, so it is easy to think that it is not enough to just invest steadily.

Mabuchi: That is not true at all. Investing without thinking deeply, with the thought that you have to buy this and that, is a very high-risk act. You can start with a small amount of money, and as your knowledge deepens and your assets increase, you can step up and consider other options.

Even if you are just investing steadily every month with NISA,

You're already a great investor.

--The NISA and indexes you mentioned at the beginning are well known as investment options for beginners, but are they still something you recommend?

Mabuchi: With NISA, profits from investments are tax-free, and indexes are relatively low-risk, so they are definitely a certain solution for beginners as an investment target. There are so many people who start out with high-risk investments and lose, and then they have a negative impression and stay away from investment behaviour.

First of all, it is important to have a successful experience of steadily increasing assets and to feel that you can build assets from a long-term perspective, so index investing is recommended in this respect. Indexes also mean that you invest in a diversified range of companies.

Diversification of investment targets is the basis of investment, so I can recommend index investing to beginners in this respect as well.

--I see. On the other hand, to be honest, I feel that it is not interesting just to buy index funds with a steady hand. Are there any precautions to be taken when investing in non-index funds?

Mabuchi: Even when investing in other financial instruments, you should still be aware of diversification. For example, 60-80% of the portfolios of high-net-worth individuals are made up of low-risk assets such as stocks, cash and bonds, including indexes, while alternatives such as gold and crypto assets, which are called ‘alternatives’, account for only about 10%.

While it is up to each individual to decide how much to invest in high-risk financial instruments, it is important to understand that these percentages are basic as a guide.

--There are many types of indices, including the S&P 500 and the Dow Jones Industrial Average, which are representative of US stocks, as well as global, Japanese and emerging market stocks. In terms of accumulating assets steadily, is there anything you can recommend?

Mabuchi: Right now, global stocks are relatively easy to recommend. As stocks that make up the S&P 500 are included in global stocks, you are also investing in the US economy, which has a high degree of trustworthiness, and it is also a risk hedge as the investment targets are more diversified.

--So, what are the points to look out for when considering investing in individual stocks as the next step?

Mabuchi: Many people are concerned about dividends when investing in individual stocks, but it is important to know whether or not the company has been paying dividends continuously for many years.

Stock investment websites often list ‘dividend rankings’, but it is important to check not only the most recent but also the long-term performance of the company. Be wary of companies that have paid high dividends for the last two years but no dividends before that.

Companies that have been able to raise prices are

Among individual stocks, look out for companies that are able to raise prices! What are their true intentions?

--What are some of the individual stocks that you have been paying attention to recently?

Mabuchi: It is not a specific field, but companies that are able to raise prices are a focus of attention. In the past, it was said that raising prices would drive consumers away, resulting in poor performance and lower share prices, but from this year the situation is different.

In fact, price increases are only possible for companies that are competitive and that do not lose consumers even if they raise prices. And companies that raise prices in a healthy way gradually return profits to their employees, so they can attract good people. That makes a big difference to the level of growth in a few years' time compared to companies that have not been able to raise prices.

In fact, in the market, shares in companies that have already been able to raise prices are highly valued.

--Price increases may seem like a bad thing from a consumer perspective, but from an investor's point of view, it can be seen as a positive thing. Incidentally, US stocks are also popular as individual stocks, aren't they?

Mabuchi: Japanese stocks can only be traded in units of 100 shares, so you need hundreds of thousands or millions of yen just to invest in one company, but US stocks can be purchased in units of one share, so the appeal is that you can invest even with little money and diversify easily. Particularly popular are companies that pay dividends over a long period of time, such as Coca-Cola and P&G.

However, it is more difficult to gather information to make investment decisions than with domestic companies, so beginners are better off focusing on large, well-known companies where information is easy to obtain. In any case, the ironclad rule is to learn about the subject you are investing in and buy only after you are fully convinced.

Where do I start learning about investing?

--When you are researching investments, you may feel that there is so much information to know about company performance, national economic conditions, interest rates, currency exchange rates, etc., that you don't know where to start. When you think about learning about investment, where should you start?

Mabuchi: First of all, I think it is a good idea to focus on stock indices such as the Nikkei Stock Average and the Dow Jones Industrial Average. For example, if you investigate the question of why the Nikkei 225 went up or down, you will gradually understand how the economy works.

--Recently, in the first half of 2023, the Nikkei 225 rose from 26,000 yen to 33,000 yen, and in the second half of the year, the Nikkei 225 temporarily fell to around 30,000 yen. What factors caused these movements?

Mabuchi: The basic premise is that the Japanese economy is tied to the US economy and is therefore strongly influenced by it.

When the Dow and other US indices are rising, the Nikkei 225 also rises, and in the recent past, the Nikkei 225 also fell as the US indices fell. However, in the first half of this year, there were periods when the Dow was falling but the Nikkei 225 was rising.

--Why was that?

Mabuchi: It is thought that the difference between the situation in the US, where interest rates are high and companies are likely to suffer, and Japan, where monetary easing is continuing, had an impact. In addition to that, in a move unique to Japan, the TSE asked listed companies whose PBR (price book value ratio) was stagnant to improve it.

Simply put, this means that they should spend more money on investment in growth, human capital, research and development, etc. In response to this, share buy-backs and other actions increased, which raised expectations for Japanese companies and the Nikkei 225 rose in the first half of this year.

However, whether such moves by Japanese companies will continue or lead to growth over the next few years remains to be seen, so the momentum came to a halt for a while. At that time, US stocks fell and the Nikkei 225 also fell slightly, which is the most recent price movement.

--Why did US stocks fall?

Mabuchi: In July, the upper limit of the US policy rate was raised to 5.5%. Based on the recent economic situation, and assuming that interest rates will continue to rise, investments in bonds will yield more than stocks. So investors move their money from stocks to bonds and the price of stocks falls.

This major movement of funds is called a ‘fund shift’. When you understand that there is a concept of fund shifts in the investment world, you can see the major trends. Interest rates also affect exchange rates. When interest rates rise, the US dollar becomes more popular and the yen inevitably sells off and depreciates.

However, the series of price movements is actually caused by a number of factors. Please bear in mind that this explanation is a very simplified version.

When should you start investing?

--We have seen that by focusing on the Nikkei 225, we can gradually understand other factors that influence it. Now let me ask you about the next question: when should I start investing? Recently, we hear things like ‘inflation will accelerate and the US economy will collapse’, so I feel that maybe we shouldn't start now.

Mabuchi: If you start now, there is no problem at all. The US economy has crashed many times in the past, but the S&P 500 has continued to rise higher. Most recently, during the Corona Shock, stocks in the US and around the world crashed, but they quickly recovered and are now at their pre-Corona highs.

Index investing is investing in the ‘growth of the world as a whole’, so to speak, so if your intention is to invest steadily over the long term, you can start on the day you think of it. However, if you are investing in individual companies, you have to think about cutting your losses when the rationale or story behind the growth collapses and the company goes into the red.

I'm not good at ‘cutting losses’, so I've developed an investment technique that suits me that way: ‘I don't have to cut losses.’

--I often hear from people who are investing that they are not good at cutting losses. Do you have your own ‘style of cutting losses’, Mabuchi-san?

Mabuchi: Actually, I am really bad at cutting losses. I worked as a professional trader for two and a half years in the past, but I was not good at cutting losses and suffered many painful experiences. When I couldn't cut my losses and widened my wounds, I would repeatedly ask myself why I didn't make a decision at that time, and suffer more than I should have (laughs).

--(laughs) - even you, Mabuchi-san, had such times, didn't you?

Mabuchi: Because of that experience, I have started to invest with the mindset of ‘how can I reduce the number of times I have to cut my losses’. As a result, I mainly invested in indexes, where it would not be necessary to cut losses.

--You are aware that you don't like to cut your losses, and you have chosen an investment method that allows you to invest without cutting your losses. Through investing, you have developed a way of thinking and a way of doing things that suits you.

Mabuchi: I feel that understanding my own direction through investment has also helped me in my work outside of investment. Besides, it's good that investing gives you a chance to think seriously about your future.

For example, when you start NISA, you have the opportunity to simulate how much assets you can build up in 20 or 30 years' time: will you save 50 million yen by the age of 60 and live comfortably, or will you save 20 million yen for the time being and use the rest to enjoy your daily life?

Another benefit of investing is that it gives you time to think seriously about your life plan.

Tips for stepping up as an investor

First, invest steadily in low-risk assets and experience success. ‘Index investing with NISA’ is a definite entry point for investment beginners.

Wealthy, people's portfolios are 60-80% low-risk assets. Avoid investing all of your assets in high-risk financial instruments.

Those, who want to learn more about investment and the economy in depth should look at indices such as the Nikkei Stock Average and the Dow Jones Industrial Average. By investigating why prices have moved, investment literacy can be improved.

Book Review

'Developed by Japan's busiest economic analyst! The Super-Speed Work Technique to Increase Income Tenfold’.

This book introduces the selected work techniques of Mr Mabuchi, who has achieved a 10-fold increase in income as a result of concentrating on the work he needed to do while taking time off and not overworking himself. Learn communication skills, presentation techniques and mentality to carefully select tasks and spend time on ‘valuable work’.

Mariko Mabuchi (Author) PHP Research Institute (2023/7/20)

Profile.

Mariko Mabuchi

After graduating from Kyoto University's Graduate School of Public Policy, Mariko Mabuchi worked as a trader, managing corporate assets, and now works as an economic analyst. She has appeared in numerous media outlets, including Fuji Television's ‘Live News Alpha’ (regular commentator). Economic analyst / President of the Japan Institute for Monetary and Economic Studies / FUNDINNOECF analyst / Visiting associate professor at Hollywood Graduate University / External director of eGuarantee.

Mariko Mabuchi official website

https://mabuchimariko.jp

Mariko Mabuchi's Stock Club

https://www.youtube.com/@mabuchi-mariko



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