And so a New Year beckons. You have made your resolutions, started your iDeCo, opened your NISA and brokerage account, maybe got an overseas account too. What next? What should you actually be investing in? I interviewed stock investor @CacheThatCheque and he kindly provided some insights into how he chooses and organises his investments. I hope you find it useful!
Please tell us a little about yourself. How did you come to be in Japan and what got you started with investing? A little about myself – I am half Japanese, half American, but I grew up totally in the US in an area where there were few other Japanese people around. You could basically count the number of Japanese people living in my area on one hand. Eventually, I decided to move here to Japan to get closer to my roots, and now some 10 years later, I’m still here. While there are pro’s and con’s to living here like with anywhere else, my family and career that I’ve established here mean that I’m here now for good. As for investing – I started out perhaps a bit late. I bought my first stocks when I was 30 years old. My main reason for getting started was rather simple: I decided I wanted to have a way to grow my money and retire in the future. I also got interested in the idea of FIRE- achieving financial independence through investing so that I could either retire early or only pursue the type of work that I enjoy doing on my own terms. The more I read about FIRE, the more I became interested in investing and learning more about it. I really like the idea of being financially independent. I’m in my mid to late 30’s now, so while I wish I had started investing earlier, the best time to start investing is still always now rather than never at all.
What do you think about the current investment climate in Japan? The investing climate in Japan to me is quite interesting. Very few people in Japan actually invest, and when I first started investing while living here in Japan, I talked to many people around me about it, and they all thought I was crazy or eccentric. But since I’ve started investing, many of the same people around me that thought I was crazy for getting started with investing have since started investing themselves. While many people in Japan have an image of investing being dangerous or risky, there has also been an uptick in the retail investing culture here in Japan. More people have opened up brokerage accounts in Japan for the first time in the past few years, and TV coverage about Japan’s stock market and its many different tax advantaged investment products has increased. While many people here still don’t invest, it’s interesting to see how more people around me (whom I personally know) have gotten started with investing in recent years. I have been able to see the change and growth, which is exciting. One of my favorite Japanese celebrity retail investors is Kiritani-san, who is known for having built a small fortune from investing in Japanese stocks that hand out gifts to shareholders. While he’s funny and sort of crazy and wacky, he’s also sort of an inspiration for mom and pop investors like myself. It’s always great to see him talking about Japan’s stock market whenever he’s on TV.
How do you organise your investments? At the moment, I organize my investments into different streams – passive US and international index funds (50%) and individual Japanese stocks (50%). This may not be the best way to do things, but it’s a reflection of how I got started out with investing. When I first got started, I opened an account with Interactive Brokers and bought only total market US index funds – simple and boring. I did this for several years until I got more interested in the idea of buying up individual stocks. When I started looking at buying up individual stocks, I then ended up getting really interested in the idea of buying individual Japanese stocks. I was really attracted by the low valuations of many individual Japanese stocks and how so many pay out really high dividend yields. While I also pursue a passive index investing strategy, I also got really into dividend investing the more I read about it, and when I found out how cheap so many reliably earning Japanese companies were, it seemed like a natural fit to make a portfolio made of ½ Japanese dividend paying stocks. I like the idea of getting regular dividend payments from companies I own, and it’s an important part of my goal in the future to one day achieve financial independence either completely or partly through solid dividend paying companies.
Do you have a regular investing routine? I invest regularly in the sense that I contribute every month into various index funds. I buy total stock market index ETFs every few months. I also manage family tax advantaged mutual fund accounts for my wife (ideco and tsumitate nisa) where money is contributed every month automatically. I allow the dividends I get from my Japanese companies to accumulate every few months where I then reinvest them into more dividend paying companies. Sometimes I buy more shares of the same companies I own but other times I add new positions into other companies that I am interested in. At the moment, I have about 30 different Japanese dividend paying companies in my portfolio.
What is your investment philosophy? My investing philosophy (if you can call it that) is basically a mix and blend of Boglehead investing, dividend growth investing, and value investing. Every month I buy index funds automatically regardless of whether the market is up or down. My index funds accounts are 100% passive. The price movements of my index funds day to day isn’t so important to me because they will only be relevant to me in 20-30 years when I decide to retire. My other part of my investing strategy is a combination of dividend growth investing and value. For this part of my investing strategy, I also see it as simple and long term oriented. As much as possible I want to buy shares of dividend paying companies at the best price possible. My goal is to buy up as many quality companies at cheap prices. For me, Japan happens to be one of the best places for this type of strategy. So many quality companies in Japan are at such deflated prices, it’s really astounding. My personal favorite sweet spot: a company with a single digit price earning ratio at half its book value paying out a 3-5% dividend yield – amazing how a search of a Japanese companies can bring up dozens of such companies that have nothing really wrong with them (aside from being unloved and unwanted because they are Japanese companies). While many detractors will say that buying up such companies is meaningless if their share prices hardly move, for this part of my investing strategy I am concerned only with the dividend payouts. My basic feeling on this is that if I lock in the basement price of a quality company already paying out a 3-5% dividend yield, I can just sit back and wait, while enjoying a good return through dividends while benefitting from any good potential upside while limiting my downside. I also think that if you’re an investor in Japan who can speak the language, it’s a major niche in your favor if you can read and learn about the Japanese stock market and all the quality companies that exist here that those outside of Japan who can’t speak the language don’t have access to.
How do you pick the actual investments? For my Japanese stock picking part of my portfolio, it’s almost like a shopping and bargain hunting experience for me that I enjoy doing. There are over 3,000 stocks in the Japanese market so there is no shortage of good deals out there. There are some good Japanese screeners like Buffett code that are useful that I recommend. Basically, while Japan has many quality large caps, the Japan small cap space is the most interesting. There are so many companies here that no one has ever heard of with net cash, zero debt, family controlled, paying more attention to shareholder value raising their dividends. Those are the stocks I am always looking to add more of to my portfolio. Stock screeners, Japanese blogs, youtube, and twitter are all ways I try to keep myself on the hunt for good companies to add to my portfolio.
What is a stock or stocks that you are really excited about now? I’ve posted about my portfolio before on twitter, but stocks that I really like are Japan’s many different trading companies – large, mid, and small cap. They’re often very old and established companies used to brokering deals and relationships with customers all over the world in all kinds of niche fields. They’re always very cash flow positive and also run many other different businesses as well, so they’re very diversified.
Do you hold any stocks that you will never sell? In principle, whenever I buy a stock I do so with the idea that I will never sell it. While I sell out of stocks sometimes for various reasons, I try to keep true to my rule.
I know you as a stock investor, but do you also invest in other asset classes? I only invest in stocks and some ETFs that have allocations to bonds. I don’t own any crypto. As there are people much smarter than me out there that have very contradictory views on crypto (“It’s rat poison! “crypto is the future!”) I’ve stayed away from crypto completely as an investing class. The way I see it, I can still reach my goal of achieving financial independence regardless of whether or not I ever buy any crypto or something I do not understand well.
Could you tell us about an investing mistake you have made, and what you learned from it? I think everyone makes mistakes in investing at some point. For me, while it’s not a major mistake perhaps, I used to make the mistake of checking my accounts constantly when I first started out with investing, which would lead to temptations to sell out of positions whenever they would dip in the market. Nowadays, I rarely check my accounts and feel content to know that there’s no need to do so when you’re confident and secure that you own many good companies for long term.
What basic advice do you have for people who are looking to invest more in Japan? Japan is a good market for value investors, but it’s also a peculiar market that has historically paid little attention to shareholders. While things are changing, I think investing in Japan still requires a lot of patience.
Anything else you would like to add? If you’re new to investing, it’s never too late to start. One obstacle to investing if you live here in Japan, though, is the added barrier and suspicion of investing in the stock market as something risky. There’s also the few number of other people around you who have any investments of any kind (aside from idle cash sitting in their bank accounts) who will make you feel crazy for trying to start. The irony of the risk averse nature of many Japanese though is how many don’t realize how many companies in Japan are very low risk to invest in because of their total lack of debt and solid balance sheets. It’s also interesting to me of how unaware many Japanese people are that their government is already using their tax dollars to invest in the stock market through its public pension fund (GPIF) and central bank buying (BOJ ETF buying). My feeling on this is that if the government is using public money to invest in the stock market, you may as well also invest for yourself as well. In Japan, especially, where many people can’t expect much in the way of major pay raises, investing in the stock market seems like the ideal way to grow your money for long term.
Where can people find you to follow your work? I don’t keep a blog or substack. I have a day job and family that keep me plenty busy, but if you want to follow my ramblings and thoughts on Japan and its market you can follow me at my twitter handle: @CacheThatCheque
There’s lots of detail in here that I’m sure readers will find useful. If you have any questions, please post in the comments or ask away on Twitter.
Thanks again to @CacheThatCheque and here’s wishing everybody all the best for 2022!
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.