It seems like everybody in this thread is saying "No duh, invest in Japan right now!"
The assumption is that the market will turn around, and anybody who buys into Japanese companies stands to make a lot of money. If this is the case, then why are the prices going down at all? Are other investors really that ignorant?
If you are already invested in Japanese equities the "safe" play is to try to take some cash off the table to defend against what could be a bleak revenue picture in the near future. If you are not yet in that market then there might be a long term play investing when these stocks are weak. Id assume most here who advocate buying are in this boat.
Both buying and selling may be the correct play depending on your current position.
Aren't those sunk costs though? Isn't the real question whether the market's information is overly optimistic or overly pessimistic? Given perfect information in the market wouldn't we expect it to be 50/50 based on true uncertainty about the future?
These aren't rhetorical questions, this is just my line of thought based on my relative ignorance of investing.
Person A has lost 50% of assets in Japanese stock, and cannot afford to drop to 30%. Person B has money they're interested in investing long-term, and is not afraid to take a 40% hit up-front for the possibility of a long-term 20% gain.
So there we have perfect information about the stocks' long-term performance, but two situations in which both buying and selling the same stock is wise, or at least understandable.
People who need cash will sell at a depressed price. People who have cash will buy from them. The overall optimism for Japan's recovery is likely to be based on at least some hard facts: Japan is a leading national economy on the world stage, historically a huge producer/innovator, and proved after WWII that they can recover fast and big. Not a bad bet, barring another catastrophe such as earthquake further South, pan-Asian war, etc.
I was referring to Japan achieving the 2nd (now 3rd) largest economy within 40 odd years following near total annihilation. Not really interested in debating that point either, in case that's where you're heading...
You're correct in pointing out that we can only be buying if someone is willing to sell to us. However, one big factor is your time horizon. For average investors like ourselves, if you're investing for the long term / retirement, you generally know that it will recover, whether it's over 1 year, 2 years, or longer. It may go down further, but will it be in the same state 30 years from now? Probably not, so it's relatively safe to buy in at a "discount".
Contrast that to hedge funds, investment banks, and other investment groups that have investors to please and targets to hit in the immediate/short term. For them, their time horizon is shorter and 1) they need to free up cash and 2) they cannot take the risk of holding on because the economy is definitely impacted in the short term.
> know that it will recover, whether it's over 1 year, 2 years, or longer
Let's put this in perspective. The Nikkei is down 80% over the past 21 years. At an optimistic rate of increase of 6% from now, it will be another 25+ years before it hits 38957 again. All up, over 45 years.
Have a look at Shiller's house price graph. From 1890 to 1955 there was zero real increase - and large falls in the meantime. This is 65 years. Again long term is very long term. Same in Australia by the way. The USA and Australia of the most prosperous and successful economies in the C20. Others did far worse.
This "in the long run all will be well" argument just doesn't hold water. Not if you have a human life span.
See for more on this "The Big Investment Lie: What Your Financial Advisor Doesn't Want You to Know" by Michael Edesess. Everything a financial planner tells you may be a self-serving lie.
Yes, I live for the day when people start being greedy on a super-long-term, multi-generational basis, and finally investment banks will work for the general good of humanity.
Another aspect is that people actually need cash in these sort of situations and sell liquid assets to get it, while others that need cash on hand are putting less in. So, the market may benefit a long term holder of securities, but people that do or might need the money soon can't afford the short term volatility.
Usually, eh? I assume you have bought your put options?
This can be true, but remember that you don't know where the sell orders are placed. We could have already seen the trigger and the corrpesponding drop-off.
Also, remember that many investors believe this, so they put buy triggers below where they think sell triggers are. Also, there are value investors who place buy triggers without regard to the existence of sell triggers.
I'm not saying that the phenomenon you describe does not exist here, and I acknowledge it has happened in the past. But you need to qualify axioms like that to see if they apply to new situations.
Full disclosure: I made a small-but-quick profit on the Nikkei today.
Happens so, so often. A great example (very YC suited!) is Apple's stock prices in January.
When Steve Jobs announced his medical leave just under two months ago, the Apple (AAPL) price opened the next day (Tuesday) down 5.44% on Friday's close price. The low point on Tuesday was 6.45% lower than Friday's close price.
While the price did go back up a bit that same day (the Tuesday close was only 2.25% lower than Friday's close price), it kept dropping for a few days. By the time the markets closed on Friday, AAPL's price was 326.72, down 6.24% in a week (compare that Friday close price to AAPL's lowest price on Tuesday, which was 326.00).
For some reason, investors were selling Apple stock because of fears over Jobs. This seemed ridiculous to me, and sure enough, in the (nearly) two months since then, the market has shown that I'm not alone in that view.
If you bought AAPL stock at that Friday closing price and sold right now, you'd be selling 8.21% higher than you bought. Even if you didn't time the buying quite as well, so didn't get it at such a low price, if you bought it at the opening price on Tuesday (the day after the Jobs announcement) you'd have made 7.30% profit, or if you bought it at the closing price on that same day and sold now, you would have made 3.79% profit.
So even with pretty shit timing on when to buy, just by having faith that Apple stock would bounce back, that's a very healthy rise in value over just two months.
The cause (I think) of the problem is two-fold. For starters, people are afraid that, if they buy back in too early, they will be too far ahead of the market and prices will continue to drop - obviously, they're hoping to be just a tiny bit quicker than the market, buying just before prices start going back up again quickly.
The second reason is basically the same, but with a different approach. Rather than wanting to avoid having your shares devalue immediately after buying them, it's a case of not wanting to buy back in too soon because, the lower the price you pay, the bigger the return once they have bounced back.
The thing is, what if Steve Jobs couldn't return to Apple at all? So market was pricing that possibility into the price of Apple stock.
There is a legitimate concern, that without Jobs to supervise things, in a year or two, the "magic" of getting the right product out at Apple would be gone.
Sure, Apple would still be making money, because Tim Cook is a great COO, but the "vision" would slowly fade.
Think, Microsoft over the last 10 years(stock basically has stayed put). Microsoft still makes money, but it has a lot of misses to show for its hits. Meanwhile, Apple has been hitting them out of the ballpark.
Remember, when you are buying Apple stock you are paying a premium on the expected growth.
And yet the stocks have bounced way up in under two months. The only way that wasn't going to happen was if Jobs died, or perhaps if he announced a permanent retirement. Neither of those things were going to happen so quickly after the announcement, otherwise they wouldn't have announced it the way they did.
So yes, the market was pricing that possibility, but it was obvious that in no time at all it would forget about it and go mad over the Apple's short-term future. Sure enough, it did.
It's easier to post a buy comment here than it is to post a buy order with your broker. I doubt many of these posters have actually put in a buy order of any substantial amount.
I think part of the assumption is that people tend to trade less than perfectly when they think a radioactive cloud might be heading their way.
Right now a lot of the losses are due to uncertainty, people are factoring in risks of the unknown, potential worst case scenarios etc. If you buy in expecting the market to go back up, you are essentially betting the situation won't end up as bad as feared right now.
I'm wondering the same thing. One estimate puts the number of houses destroyed at around 100k (http://www.msnbc.msn.com/id/42025882/ns/world_news-asia-paci...). Car ownership is around 1 car for every two people in Japan, no doubt more in rural areas. So 100,000 destroyed houses might mean 80k to 140k flooded cars. I'd guess that more than 50k extra cars are going to need to be produced in Japan to replace those that have been lost (which, though a relatively small proportion of the probably 1,000,000 cars made in Japan yearly, is nonetheless significant).
Another sad fact of this disaster is that it disproportionately affected the retired -- this too may well have consequences economically.
Economics is in part about people having productive stuff to do. If there was a work shortage in Japan before, I doubt there is now.
I think the general belief is that they are being irrationally over-pessimistic due to panic over the daiichi situation, and that this can be exploited by people whose distance affords them a more cool-headed approach.
The market as a whole may be rational, but individuals in the middle of a tense situation probably won't be.
A number of prices will be going down because of reduced dividend expectation. Companies that are about to make a big loss due to natural disasters are going to reduce dividends, so the shares are actually worth less than they were a week ago.
That said, the "efficient market hypothesis" of which you speak; that is, the idea that any and all future price rises and falls have already been factored in - is false.
Many investors _are_ ignorant. Many are stupid. Many are prone to panic. They are prone to everything that all other humans are prone to. Many are in fact big funds that have preset automated buying and selling positions and would happily buy and sell regardless of what else is going on.
As evidence, I point to every bubble and crash there has ever been.
Bubbles are produced by rational small-scale behavior. That's the fascinating thing about bubbles. The "greater fool" theory is frequently a good bet. Except, of course, when there is no greater fool and you're left holding the bag.
More importantly, outside events or circumstances could mean there isn't money in the right place to be able correct market price mistakes.
> Learn the lesson of what happened to BP after they bottomed out.
By buying the panic, in effect you are selling out "of the money put options" to the rest of the market. In effect you are selling insurance policies saying things are not worse than they look. The performance characteristic of selling OOTM options is that most of the time you make money. But...
Once in a while you lose your shirt. Ask Victor Niederhoffer. What is there is a catastrophic meltdown and Tokyo has to be evacuated? What will the Nikkei be worth then? What about all the people who bought dot.com stocks after they fell 50% because they were "cheap".
When considering the merits of investment, it is worth asking:
1. Am I selling insurance to someone without realizing it?
2. Does my strategy amount to nothing more than leverage? Leverage works well in rising markets and works very badly in falling markets.
3. Are there hidden risks I am not aware of but someone else is? Or as Buffett puts it, have you been playing poker for an hour and still haven't worked out who the patsy is? (It's probably you).
4. Are you taking uncompensated risks like putting 1/3 of your net worth into one company when you could be diversified for no cost?
I completely agree with the diversification part, putting much of your portfolio in correlated risks does not need to be rewarded by an efficient market.
On the other hand out of the money put options have a limited upside.
Japan has had a crap economy for a generation, and this disaster may result on them being on a whole new course with massive upside.
"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."
You're pretty much saying you think markets are efficient. Some others are pretty much saying they think there is a predictable panic sell component in current prices (and likewise in other bad news events). Maybe the latter is often true. Actually I believe it is possible for someone to have sufficiently good judgement to consistently make money from market overreactions. In this case, I personally don't have a clue - there too many uncertainties for me with this one.
It depends on how bad the news really is, e.g. how damaged Japan's infrastructure actually is, as a whole. You need to judge this with facts, not on what other investors do, efficient market hypothesis notwithstanding.
FWIW, I don't know enough of the facts to make a decision. I do have a feeling that the Japanese people will rebound vigorously, as they did after WWII.
People behave irrationally during panics. Through a little bit of cleverness on my part and alot of luck I found myself sitting on cash when Lehman collapsed.
So faced with the prospect of fiscal apocalypse or (I had friends pulling money out of banks) the buying opportunity of the century, I bought a bunch of equities that were punished by the collapse, and made a bunch of money.
Just guessing but if you are doing short term trading isn't it better to sell if you think it can go down a bit more then buy at the absolute lowest price.
and they just lost ~1 trillion ++ worth of infrastructure... I believe they have a 10 year rebuild in front of them.
This is assuming that we have hit bottom on the catastrophe over there now and that we can contain the Daiichi plant.
It would be very interesting though, if things turn south and some massive takeovers occur in the next 12 months.
Imagine companies like Fujitsu, Hitachi or others (my mind is blank) being bought up by the IBMs Apples or even Google or GASP facebooks (those who have a lot of cash to buy tech houses in Japan and picot into HW?)
Pure fantasy sure - but so was the SCIFI scenario we are now looking at today, just last week.
Currency? Do you have a source on revised infrastructure damage figures, because I've only seen $100-150 billion estimates by some insurance companies.
The Christchurch figure is a debatable one, as the government is talking it up so as to justify an asset sale (national park mining and power companies are current favourites) while the true figure seems unknown (I can't find a good source, any you know of?). The EQC only pay part of some claims, but here are their stats http://canterbury.eqc.govt.nz/repair-replacement/progress
Time to start buying. Bet Buffet is taking a look at all those wonderful Japanese companies who moats are wide, have good fundamentals, and produce reasonable free-cash flow. Hope his "itchy trigger finger" found a few targets. My IRA could use a boost after the last few years.
I remember buffet saying in some interview that Japan makes great products and has a great economy but they don't make great companies, from the investor's perspective.
Yes and no. What I see is all of Japans equities moving in lock step regardless of where their manufacturing or distribution centers are actually geographically located. Much like Toyota or one of our own blue chips some of these companies are headquartered in Japan but exist all over the world. Those are the companies whose fundamentals do not reflect an equities plunge like we are seeing.
Toyota's stock is probably undervalued to begin with because of the stupid pedal thing, and this probably makes it extreme. Short-term traders need not apply, though.
Toyota is listed on the Nikkei. The thing at the NYSE is called an American Depository Receipt (ADR). Basically, it is a coupon that says "Entitles the bearer to two shares of Toyota common stock in Japan."
In principle, the two do not necessarily have to move in lockstep. However, because of the massive size, prominence, and stability of Toyota, one would ordinarily expect them to correlate extraordinarily heavily as anything else is an exploitable arbitrage opportunity.
Various algorithmic traders play on these dual listings. Put a computer in between (in network terms) and you can trade ahead of the people in either japan or new york.
and of course you can also do regular pairs trading (if they drift farther apart).
You're going to want to look for a company with the least exposure to Japanese demand. You also want to see which company's plants were most disrupted by the crisis. I had the data before, I no longer look at the car industry in Japan but do some research and you'll know. Not sure if this is the time to buy any Japanese equity right now though, it's a flight away from risk and investors are indiscriminate with their funds.
There's no better time to buy stocks than during a market panic. Japan is a wealthy country. The Japanese work ethic is unbeatable. Now is a great time to buy Japanese stocks.
Be careful. Good work ethic doesn't always mean business success. The two are correlated, but that doesn't suggest that tossing money at any Japanese company is the way to go. Still do your due diligence and only invest in solid companies. This is certainly an opportunity, but not a reason to be irresponsible.
Sony, Toyota, Honda, Nintendo, etc. Japanese companies like these that were a great investment a week ago are still a great investment. Only now the stock is less expensive because of a temporary panic. Smart money is buying up all the stock possible for these companies before they can rebound.
The big question is how the operations of each of those companies is affected. If operations are hugely impacted and would require time to rebuild, their stocks will not rebound so easily.
Good point, but if you consider corps like those mentioned by the parent, they are clearly internationally-diversified companies. If their operations in Japan alone are impacted, it's cause for concern, certainly, but the company as a whole is likely none the worse for wear, and this is just Mr. Market overreacting as he likes to do.
And yet, Japanese stocks had 0 or negative returns for more than 20 years. In addition, even with the current drop in the Nikkei, the Nikkei was lower two years ago. What makes the Nikkei more attractive at 8600 following this major disaster than at 8000 in May of 2009 when there had been no major disaster? Did you buy then? Why or why not? Are you applying any rational financial analysis of the market, or just emotionally jumping at "oh a disaster, people must be overreacting, therefore I should buy"?
How does one invest in the Nikkei 225 in the USA? I'm looking for an Exchange Traded Fund (ETF) type of deal. I see that there are a couple mutual funds (UJPIX) but I'm more interested in something on one of the US markets.
It's a good question to ask, but if you have to ask it, you should probably spend more time learning about global financial markets before you take action.
REMEMBER: This is probably not the best place to get investment advice. Everyone's got an opinion but it's different when you've got actual cash on the line.
Can someone share the best way to enter the stock market for someone who is completely clueless on stocks in general yet wanted to dabble in them for quite some time?
I'd be very careful, if you're not experienced at all, you could get wiped out pretty easily in a market with this much volatility. A lot of people would've said today's trading session was a great day to buy, but look what happened.
This is what they call a Black Swan event and nobody's sure that we've seen the bottom yet.
Yes - especially since right now everyone and their broker are thinking of ways to get in at those prices. Chances of you getting a decent deal while it's still around are slim, especially if you have no prior knowledge. If you don't know enough to know who the fool is in the market, you are the fool.
True story, probably experienced by thousands of people. Know someone who was into daytrading stocks and such. He had a home, no mortgage, no debt. Ended up losing the home. Wife left, took the kids. Wife eventually came back with the kids, they live a simple life now in some apartment. Life is not what it was, but they're getting by.
If you don't know what you're doing, you can lose everything. When you talk with truly successful traders (I know one who makes a million a year or more), you learn to appreciate that doing it well is difficult and requires a discipline that few people have.
This fiduciary disconnect can create a lot of malevolent market behaviour if controls aren't in place. And more often than not, controls aren't in place.
>You win, you get commission. You lose, it's not your money.
You get a wage either way. If the bank profits you get a bonus too even if you lost your customers money. If you screw the bank up the gov bails you out and you still get a bonus.
Oh I doubt I will be jumping in to anything right now - while on one hand a low market seems tempting, I know nothing about it, so I still wouldn't take the risk. Though I will follow idlewords advice and do some pretend trading to figure things out. Thanks for the warning.
Pretend you have $100K and set up a fake portfolio, and play with that for a bit. Meanwhile put aside a few thousand dollars you can afford to lose, and when you're comfortable enough with managing your fake portfolio, start investing for real.
Unless you really want to play with buying/selling individual stocks, you're probably best off buying a broad-based index fund, which effectively buys you a slice of the entire stock market. Eg VTSMX/VTSAX
Also, are your 401k and IRA/Roth fully funded? Be sure to do that first. (Assuming USA resident here)
To add to Nick's point, you can read Random Walk Down Wall Street to get an understand of why buying an index fund is probably a good idea for you. It boils down to the fact that the market is fairly efficient "most" of the time (hard to find deals), and by trading you are already at a disadvantage against the market because you will likely pay more commission and pay more taxes (based on your trading volume of course, but generally speaking, buying index funds are extremely efficient in both these two areas). To over come this and still beat the market as a whole (over a long period of time and risk-adjusted) is a extremely difficult. You have to be very very skilled to accomplish this. Most pros do not accomplish this in their careers (even though it may be due to other factors such as incentive structures, but that's for another discussion). So realistically speaking, you will have to invest a lot of time to become "good enough", which means it will only be worth while if you are trading a significant amount of money. Even Warren Buffett, who's an evangelists for value investing recommends investing in index funds for most people. And the last and most important thing to remember is that yes, people make money from the stock market all the time just like how people make money from the casino all the time. It doesn't mean it makes sense risk-adjusted, and that it can be done over a long period of time.
Could you make an argument for bothering to fund 401k + IRA/Roth at 20-something? If I'm trying to get fuck-you money by 40, don't I need every dime in order to get there? My nest egg is in plain old savings right now because I view it as personal runway.
If you plan on being alive at 65, then yes you should. Both are fantastic investments because of the tax free growth. Basically everyone should follow this pattern with extra money they have:
1.) Max out employer matching in 401k
2.) Max out roth IRA contribution (in most cases, sometimes you might want a normal IRA)
I don't understand your implication that striving in a career endeavor requires that you spend all your income with nothing going to savings. If anything, healthy savings will allow you to take advantage of an unexpected opportunity, and/or lessen the impact of an unexpected obstacle. This 'backup plan' will also make it easier to take risks without having to worry as much about the potential for failure. In other words, savings provides you with options.
But that's in terms of general savings. For retirement more specifically, you should definitely start now if you can afford it, due to the effects of compound interest. Try playing around with an interest calculator[1] to see why. But perhaps the best reason is that once you're 40 and have had a few curve balls thrown at you, you'll appreciate that regardless of how things turned out, you'll have put yourself in a good place financially for the long-term.
For the record, I'm in my mid-20s myself, and across my Roth and my employer's SEP-IRA, around 20% of my income is going towards retirement (with other non-retirement savings on top of that). I've set up my direct deposit such that the Roth contributions are totally automatic. It just gets dumped into three index funds: US Stock, Intl Stock, and Bonds. I basically never need to think about the accounts except when rebalancing. It's nice.
If you can't afford to fully fund your 401k without thinking twice, you have bigger problems in your financial setup. $16,500 out of a $100k yearly salary is just stupid cheap.
If you are not making $100k+, you are not going to have fuck-you money by 40. All the Facebook stock in the world still requires a liquidity event, which is unrealistic at the current valuation.
Find some low dollar stocks and put a couple hundred dollars in. Don't go for the big boys yet until you understand what trends to look for and how to manage that.
I bought Atmel stock not too long ago, it has since doubled in price. I made my money and then some. I bought Jamba Juice when they were still below a dollar, they are now trading at around $2+.
I didn't put a whole lot in, means I can't lose a whole lot, and I definitely won't become a millionaire, but at least it gives me the security that I won't be screwed because I put my eggs in one basket without knowing what I was doing.
Put your money into a Vanguard (lowest maintenance costs) targeted retirement account and leave it there. Dabbling in stocks is a good way to lose money.
(by all means, trade stocks if you're serious, but if you're serious you wouldn't ask)
This is a tough bet. My first reaction was, "They are going to open up their wallets and spend like crazy to rebuild." Then I heard on the news that Japan runs a massive fiscal deficit and I thought, "Where are they going to get the money." When the market cools, it might be good to pick individual stocks (construction and pharma come to mind). Right now though, staying out of the broader market (index funds, etc.) might be prudent.
Disasters like this are, in theory, actually beneficial to economies--especially stagnant ones like Japan's. The capacity for immediate bonafide economic growth has been diminished but that doesn't mean that economic production will decline. There is now ample room to deploy all that surplus capital (humans, machinery, money) that was previously unproductive. The upper echelones of the financial sector will make a killing shorting and re-buying.
Only an economist can consider a theory like that for more than a few seconds and not laugh hysterically. As Tom Woods has said, following this logic, the best thing we could do for our economy is build a huge armada of amazing battle ships, have Japan do likewise, then float them to the middle of the pacific and, after evacuating them (surely, the loss of human life is not a necessary component in this economic model, is it?) blow them all up.
Empiricism is not on your side. The richest country in the world spends more than its fair share on 'a huge armada of amazing battle ships', actually, as much as everyone else on the planet put together, and also actively seeks out remote spots of the planet to blow stuff up in.
Nah, neither, I was using raw GDP. Those countries don't have politico-economic systems which funnel large chunks of their populations into either incarceration or the military. Forbes list also seems appropriate for the discussion given the 'very rich' theme going on.
Care to dig up those rates/expenditures per capita?
I actually believe this is a bit of an insult to economists. I don't believe most mainstream economists would consider anything involving loss of life on a large scale "a good thing", just those that dabble in economic theory.
The Nikkei 300 is, you're linking to the nikkei 225.
The nikkei 300 index is "The Nikkei 300 is a market value-weighted index of the 300 major issues on the first section of the Tokyo Stock Exchange (TSE). The Nikkei 300 uses a weighted average based on market capitalizations of component firms to reflect movements in the overall value of first section stocks. This contrasts with the widely followed Nikkei Stock Average which is an average price and is suitable for monitoring the level of the market and its changes.(1)"
The Nikkei 225 index is "The Nikkei Stock Average is the average price of 225 stocks traded on the first section of the Tokyo Stock Exchange, but it is different from a simple average in that the divisor is adjusted to maintain continuity and reduce the effect of external factors not directly related to the market(2)"
This will trigger deleveraging around the world. Specifically, this will impact the venture capital in silicon valley. We'll likely start to see some angel/vc investors start to panic and withdraw from the market, shutting down startups, etc.
Wait what? There was a massive deleveraging event a few years ago and I don't remember VCs being forced to withdraw money from startup accounts. How would they do that anyway? Once they invest the money the money belongs to the company they invested in. They might be forced to sell shares I guess but they can't just take someone's money.
Chailette doesn't say they would withdraw money from startup accounts: "angel/vc investors start to panic and withdraw from the market" presumably means that startups could be deprived of the next financing stage, which, if they're still burning cash, will shut them down.
Not necessarily. For every dollar being pulled out there also a lot of lost value due to the declining prices. Many investors follow a "basket" strategy where if one market goes down they will allocate more money to buying there and pull it out of other areas such as private investments.
This _has_ been seen in prior US public market downturns - if a pension fund is allocating 90% to public market investments and 10% to private investments, and the public market drops 33%, their fund is now split 60/10 instead of 90/10. So to rebalance back to 90/10, they'll need to liquidate 33% of their private investment allocation and move it to public investments. (This is an oversimplification but you get the idea.)
Many Japanese investors will be pulling out of other countries' markets, by necessity. Of course this is too complex to be summed up in a few sentences, but obviously demand patterns will undergo a major shift.
The assumption is that the market will turn around, and anybody who buys into Japanese companies stands to make a lot of money. If this is the case, then why are the prices going down at all? Are other investors really that ignorant?