Less than 9 percent of Japanese household assets are invested in the stock market even after the biggest gain in four decades for the Nikkei 225 Stock Average. (NKY) To Shinji Harada, that smells like opportunity.
Harada gave up more than $250,000 in salary, an office overlooking Tokyo Station and a bank directorship to write equity research reports for Japan’s housewives from a room the size of a cubicle.
Bored with churning out fodder for hedge funds, the technology analyst left Citigroup Inc. (C:US) in February 2013 to start a website for investors still interested in buying and holding stocks and who are in need of advice: households.
“Providing information to people who have none is where you can really have an impact,” said Harada, 35. “Besides, working for the majors stopped being fun.”
Emboldened amid the Nikkei 225’s 57 percent surge last year, Harada and Ryosuke Izumida, a former fund manager at Fidelity Investments in Tokyo, hired 10 analysts from some of Wall Street’s largest firms to start Longine.jp, selling stock reports for the price of a box lunch, about $10. The site has drawn about 4,000 members since opening in June, Harada said.
“There’s very little independent financial advice in Japan,” said Toshiki Yotsuzuka, a professor of finance at Tokyo’s Waseda University. “Until recently you probably couldn’t make money doing it, because it was pretty hard to convince people that investing in stocks was a good idea in the first place.”
The Nikkei 225 has followed last year’s rally with a 9 percent drop so far in 2014, returning to form for a generation of people who grew up when stocks were a losing bet. The gauge remains more than 60 percent below its 1989 peak. Only 8.5 percent of Japan’s almost 1.6 quadrillion yen ($15.5 trillion) in household assets are in equities, Bank of Japan data show. That compares with 33 percent in the U.S. and 16 percent in the euro zone.
Prime Minister Shinzo Abe’s government started a program Jan. 1 allowing people to invest 1 million yen in securities without being taxed on dividends or capital gains for five years. That hasn’t been enough to lure investors like Kyoko Morioka, a 63-year-old housewife from Nagoya. While she was one of the estimated 4 million Japanese who opened a Nippon Individual Savings Account last year, she isn’t confident enough to use it.
“I really don’t know anything about stocks,” she said.
A visit in late 2012 to a Tokyo branch of Nomura Securities Inc., the country’s biggest brokerage, convinced Longine’s founders there was a gap in the research market.
After leaving Boston-based Fidelity to write a book, Izumida walked into Nomura to look at equity research. Instead of the reports he’d been accustomed to getting as an institutional investor, he was given a one-page digest and turned away when he asked for more.
“I saw that, while the trading infrastructure is really developed -- you can go to all of these online brokerages and buy and sell stocks -- there’s no equivalent knowledge infrastructure for individual investors,” the 37-year-old said.
That’s when the conversation with Harada started.
“He called me and said, ‘how do regular people figure out what to invest in?’” Harada said. “So we started looking into what’s out there and it turned out there was hardly anything.”
Websites like Seeking Alpha or Motley Fool, which individuals in the U.S. sometimes use for investment tips, are rare in Japan, according to Masuyuki Ohtani, a researcher at Tokyo-based Securities Japan Inc.
“All people have is what they can get through their brokers,” he said.
That may not be much, especially now that individuals buy and sell about 90 percent of their stocks through discount online brokerages. SBI Holdings Inc. (8473), Rakuten Securities Inc. and Matsui Securities Co. -- Japan’s three largest online trading firms -- have no more than two analysts covering the nation’s 3,732 listed companies, they said.
While Japan’s traditional brokerages do offer research to their retail investors, it often comes late. Tokyo-based SMBC Nikko Securities Inc. posts reports on its website three days after research is available to institutional clients, according to spokesman Tadataka Ishida.
Nomura makes broad economic research available online in real time. For reports on stocks, individuals have to go through a sales person, according to Tokyo-based spokesman Yasumasa Suzuki.
Compared with his 16th floor suite at Citigroup in the ritziest part of Tokyo’s financial district, Harada’s new office half a mile away at Longine is a cramped, rented room with three chairs, a table and little space to spare in a warren of low-rise buildings behind the city’s stock exchange. The analysts -- including veterans from New York-based JPMorgan Chase & Co., Mitsubishi UFJ Financial Group Inc. in Tokyo and New York-based Citigroup -- work from home.
So far, 11 of Longine’s 15 stock picks had made money through yesterday. Investors who acted on all of Longine’s recommendations earned a 14 percent return, compared with a 10 percent gain on similarly-timed investments in the benchmark, according to the site.
The best-performing tip was Omron Corp. (6645), which jumped 52 percent from when the site recommended it in July, until Longine removed the Kyoto-based maker of assembly line sensors from its list of picks on Jan. 5. The Nikkei 225 gained 18 percent in the same period.
When Harada and Izumida started in Tokyo’s financial industry a decade ago, the life of an equity analyst ran at a slower pace, Harada said. There was less data to deal with -- companies didn’t announce quarterly results, let alone monthly sales figures. And because buy-and-hold asset managers such as Nippon Life Insurance Co. and Sumitomo Mitsui Trust Holdings Inc. played a bigger role in Japanese stock-trading volumes, there was demand for long-term analysis, he said.
Over the years, Harada’s job at Citigroup changed. By the end, the analyst says he found himself racing to pump out instant recaps of earnings announcements for hedge funds rather than coming up with sophisticated investment ideas. His new clients are more interested in taking the long view, he said.
“It’s been satisfying,” said Harada. “I’m surprised by how many savvy individual investors there are. A lot of people out there see that investing for the long term is the way to get higher returns.”
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