Yen keeps going from strength to strength!

[TJKansai]

I'm expecting (at some point) a 40% drop in the global stock market along with the yen strengthening to 100 or so, meaning a temporary 60% drop in our net worth.

For me that is a realistic worst case scenario, and I hope I will be okay with it.

But people need to be thinking in those terms if they want to invest.

I have my doubts about 100/$1, but wouldn't complain as I have been accumulating yen (and spending mostly USD) for a year or so.

[ChapInTokyo]

Another consideration is that traditionally the yen strengthens when there is a global recession. So more fun to come!

I'm expecting (at some point) a 40% drop in the global stock market along with the yen strengthening to 100 or so, meaning a temporary 60% drop in our net worth.

For me that is a realistic worst case scenario, and I hope I will be okay with it.

But people need to be thinking in those terms if they want to invest.

I agree. Those are extreme scenarios but within the bounds of the possible.

After all, I remember when we were at 80 yen or something to the dollar when US companies like LLBean and REI were raking it in here in Japan.

[ToushiTime]

But for a retiree, allocating a good chunk of the portfolio to Japanese companies paying dividends in yen, and with strong financials to continue doing so while stock prices may decline certainly gives me some peace of mind.

Japanese equity market is pretty geared to global growth. If you expect a recession it is one of the last places I would think of allocating to. It is rammed through with companies with highly cyclical earnings - auto, hardware tech, financials, heavy industry, automation/robotics....

That's true. But that's the definition of cyclical sectors isn't it.

In case we are going to go into recession, I am increasing my non-equity allocation at the moment. Thankfully I had already lowered my US tech exposure last year.

As for the Japanese equity market, it also has it's own defensive stocks as well as companies like Suzuki which has zero reliance on the US market, so those are chugging along nicely. Even the hardware tech etc companies like Tokyo Electron and so on will have a tough few years but they will continue to pay dividends in yen which is somewhat nicer than a dollar dividend with a strengthening yen.

You pays your money and you takes your choice...

Good going on those Japanese stocks, at least in relative terms! A couple of questions: when did you start those investments, and why is Toho 一般 not 特定 ?

[Hanimal]

Good going on those Japanese stocks, at least in relative terms! A couple of questions: when did you start those investments, and why is Toho 一般 not 特定 ?

Just to piggyback on this. During the recent crash I was pleased to see my Japanese defensive stocks going up when the wider markets were going down 5% a day.

I have a bunch of Japanese stocks up over 100% in a few years providing regular dividends and even much hated stockholder benefits (on this website at least!). Many of these are showing decent gains YTD to help iron out those pesky eMaxis All Country losses.

[RetireJapan]

much hated stockholder benefits (on this website at least!)

I don't think anyone actually hates stockholder benefits. They are kind of fun.

But unsophisticated investors in Japan tend to put too much emphasis on them.

[Deep Blue]

I don't think anyone actually hates stockholder benefits. They are kind of fun.

I do. They disenfranchise non-retail shareholders and they are usually an example of poor corporate governance due to the board signing off on unfair discrimination towards different classes of minority shareholders. Dividends are a much better way to distribute profits as every shareholder benefits equally.

It is almost invariably done to protect incompetent management teams as retail shareholders rarely vote at AGM's, so the more retail shareholders a company has the harder it is for investors to remove incompetent management teams.

Yutai should be banned, and I expect in time it will be.

[ChapInTokyo]

I don't think anyone actually hates stockholder benefits. They are kind of fun.

I do. They disenfranchise non-retail shareholders and they are usually an example of poor corporate governance due to the board signing off on unfair discrimination towards different classes of minority shareholders. Dividends are a much better way to distribute profits as every shareholder benefits equally.

It is almost invariably done to protect incompetent management teams as retail shareholders rarely vote at AGM's, so the more retail shareholders a company has the harder it is for investors to remove incompetent management teams.

Yutai should be banned, and I expect in time it will be.

I only have a few stocks which provide stockholder yutai, but it does feel nice to get discount coupons for car ferries and local speciality food stuffs etc.

I guess for institutional investors it’s a drag on potential upsides but then no one is forcing them to buy such stocks.

I think that the popularity of yutai basically guarantees that the practice will continue at many companies as long as it helps them to attract a large number of retail investors who will buy and hold such stocks. This Nikkei article shows that yutai is definitely not fading away!

[Deep Blue]

I guess for institutional investors it’s a drag on potential upsides but then no one is forcing them to buy such stocks.

I guess many of you own passive funds, run by institutional investors. These funds are literally forced to buy these stocks. Entreching bad management in a subset of the market directly hurts every retail investor who owns units of these passive funds.

By the way, your article is from 2015, so it doesn't support your point. Actually I doubt yutai has faded much since then, but your article doesn't show it. The only big company I recall who has abandoned yutai recently is Orix - bravo to them!

There are many shitty abusive practices in the Japanese stock market which are being resolved or reducing/dissappearing:

cross-shareholdings
parent-child listings
poor capital allocation
staggered boards
lack of independent directors
inappropriate incentives for executive compensation

None of these issues are fully resolved yet, but comparing the situation now with how it was a decade ago shows huge progress has been made on all of them. The TSE has been very successful in accelerating the pace of reforms over the past 2-3 years.. I doubt it will take them forever to get around to discouraging abusive mis-treatment of classes of minority shareholders. Indeed I might know a person or two who has suggested this to them.

[ChapInTokyo]

Japanese equity market is pretty geared to global growth. If you expect a recession it is one of the last places I would think of allocating to. It is rammed through with companies with highly cyclical earnings - auto, hardware tech, financials, heavy industry, automation/robotics....

That's true. But that's the definition of cyclical sectors isn't it.

In case we are going to go into recession, I am increasing my non-equity allocation at the moment. Thankfully I had already lowered my US tech exposure last year.

As for the Japanese equity market, it also has it's own defensive stocks as well as companies like Suzuki which has zero reliance on the US market, so those are chugging along nicely. Even the hardware tech etc companies like Tokyo Electron and so on will have a tough few years but they will continue to pay dividends in yen which is somewhat nicer than a dollar dividend with a strengthening yen.

You pays your money and you takes your choice...

Good going on those Japanese stocks, at least in relative terms! A couple of questions: when did you start those investments, and why is Toho 一般 not 特定 ?

I bought them mostly last year when I cashed in a lot of my Stateside holdings, repatriated the dollars and converted to yen before the yen strengthened.

The一般 account for the Toho I can’t quite put my finger on but it’s probably because I bought them on a recommendation a long time ago maybe I only had the 一般 back then.

One thing I enjoy about individual stocks is I get to learn a lot more about the individual businesses than when investing via index funds.

[ToushiTime]

That's true. But that's the definition of cyclical sectors isn't it.

In case we are going to go into recession, I am increasing my non-equity allocation at the moment. Thankfully I had already lowered my US tech exposure last year.

As for the Japanese equity market, it also has it's own defensive stocks as well as companies like Suzuki which has zero reliance on the US market, so those are chugging along nicely. Even the hardware tech etc companies like Tokyo Electron and so on will have a tough few years but they will continue to pay dividends in yen which is somewhat nicer than a dollar dividend with a strengthening yen.

You pays your money and you takes your choice...

Good going on those Japanese stocks, at least in relative terms! A couple of questions: when did you start those investments, and why is Toho 一般 not 特定 ?

I bought them mostly last year when I cashed in a lot of my Stateside holdings, repatriated the dollars and converted to yen before the yen strengthened.

The一般 account for the Toho I can’t quite put my finger on but it’s probably because I bought them on a recommendation a long time ago maybe I only had the 一般 back then.

One thing I enjoy about individual stocks is I get to learn a lot more about the individual businesses than when investing via index funds.

Ah that’s why! I was just wondering.

And yeah, I find the individual stock-picking to be a fun educational hobby. At the same time, some of the financial podcasters, even the ones with professional qualifications, are a bit disingenuous. They claim to be advocates of the Boglehead approach, but spend most of their podcasts discussing newfangled ETFs and miss-pricing of stocks etc. without mentioning that we should keep stock-picking to less than 5 to 10% of our holdings.

Ramen Nakisa is very conscientious about emphasizing that he has very little hope of beating the market. Ben Felix and James Shack are very honest on this too. Check out James Shack's latest video about factor-ETFs that amount to active investment vehicles. At the end, he gets a bit puritanical, and recommends total abstinence on the grounds that we cannot compartmentalize, especially in a crisis.

The Problem With Index Funds
https://youtu.be/RPYJFv5aPc8