Japanese share trading account feature reveals philosophical bias

by admin on October 31, 2012

My Kabu.com account has a portfolio analysis tool.

This is how it analyses my portfolio. See the translations below the image.


Kabu dot com tool Kabu dot com tool










Now, I would normally ignore this kind of entertainment feature, but it’s just occurred to me that this illustrates several major problems in many people’s thinking:

Problem 1 “I need to buy something which is large in size, because that is safe”

I often encounter this thinking with people new to investing, who tend to ask questions implying that this is their view. (Usually accompanied by “The analyst said it was good” – if they only saw how sausages are made in the sell side industry…)

Solution: Don’t worry about size. Liquidity is great in running away from a stock, but it might be a better idea to ensure that you don’t want to run away from it in the first place. Buy stuff that is good and inexpensive, and sleep soundly.


Problem 2: “If it moves around a lot, that’s good – because a lot of movement means a high return”

Even a child can see that this makes no sense. A lot of movement is not a lot of return – one day, all the academics who came up with this kind of stuff will get put into a basement and locked up.


Problem 3: “It has a good technical rating, so should buy it”

A stock will generally have a poor technical rating when it has fallen. This is the best time to buy stock (as long as you are sure that it is a good company in the first place).

Technical analysis should be used sparingly, as it is not a very good predictor of anything most of the time. If you find that there has been a large increase in volume and a large decrease in price, then you can make inferences about that. But if a computer algorithm tells you that a technical rating is such and such, then you really should ignore it.


Japanese people like large companies. Will the terrible performance of the country’s most well-known stocks change this? I don’t think so. I think that this is a systematic error (i.e. a bias), which may explain the ridiculous valuations in Japanese small caps.

{ 4 comments… read them below or add one }

Andy December 18, 2012 at 4:17 pm

academics come up with that sort of stuff *because* they have been put in a basement and locked up…


admin January 7, 2013 at 9:06 am



F April 17, 2013 at 1:29 am

Investing in larger (i.e. well-known) companies – I think this is perhaps familiarity bias.

Just came across with this blog over the weekend. Not too many English-language blogs out there dedicated to net-net investing in Japan, but this is a good one – keep up the good work!


admin April 17, 2013 at 8:32 am

You are right about the larger companies.

What are you looking for in relation to Japanese stocks? What would you want from a blog on Japanese stocks?



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