Steady Employee to Millionaire Success Through Average Down and Undervalued Stocks

Super Diversified Investment and Long-Term Investment 212 stocks centered around undervalued stocks with low downside risk.

In contrast to the strong performance of the U.S. stock market, Japan’s stock market has been fluctuating with mixed results. Recently, the possibility of an additional interest rate hike by the Bank of Japan in December has diminished, and although the foreign exchange market has slightly shifted towards a weaker yen, the stock market remains sluggish.

In such a situation, what kind of stocks should be targeted? We ask Nagoya-based long-term investor, Nagochou, who became a millionaire by steadily investing in undervalued stocks with low downside risk.

Profile: Nagoya’s Long-Term Investor (Nagochou)

A part-time investor who began stock investing in December 1995. A long-term investor with a strategy of highly diversified investments, currently holding 212 stocks (as of November 2024). He focuses on income gains and dividend growth in his portfolio. He prefers stocks listed on the Nagoya Stock Exchange (NSE) and often purchases stocks with a price-to-book ratio (PBR) under 1. Although his work schedule limits his availability, he makes time to attend about 10 shareholders’ meetings annually.

Strong grip and averaging down led to becoming a millionaire.

In stock market terminology, there’s a term called grip strength, which refers to the strength to hold onto stocks without selling them. An individual investor with strong grip strength can hold onto stocks even if they fluctuate slightly, whether they go up or down. If things go well, the rise in stock prices can become more significant, or a declining stock may eventually turn around. Of course, the strength of one’s grip can sometimes backfire. By holding onto a stock, a stock that was rising could start declining, or the loss in a declining stock may increase.

The person introduced here, “Nagoya’s long-term investor” (Nagochou), as his handle suggests, has an exceptionally strong grip. And not only does he have strong grip strength, but he also made use of averaging down (a strategy where you buy more of the same stock when its price drops) — a strategy often considered taboo by beginner investors — to become a millionaire while working as an office worker. Let’s first take a look at his investment history.

Picking stocks that seem good – With 500,000 yen saved up from a part-time job during his student days he started stock investing with mini stocks.

Nagochou first bought stocks in 1995, when he was a 20-year-old student. He had always been interested in stock investing, and with the 500,000 yen saved from his part-time job, he invested in four stocks: Fujitsu, Toshiba (which was later delisted), France Bed (still holding it), and Mos Food. Although he was already practicing diversification from the start, there was a reason behind this approach.

“At that time, the standard trading unit for most stocks was 1,000 shares, and with only 500,000 yen, I couldn’t afford them. So, I opted for ‘Mini Stocks’ that Daiwa Securities had just started offering. It was a service where you could trade a tenth of the normal unit size, so I bought 100 shares at a time.” (Nagochou)

Later, as Nagochou entered the workforce, he continued to invest in new stocks while gradually increasing his holdings in stocks like Fujitsu and Toshiba, which he had bought during his student days, by continuing to purchase additional shares via Mini Stocks to reach the standard unit size of 1,000 shares.

“At that time, I didn’t have a clear set of criteria for selecting stocks. Looking back, it felt like I was just buying stocks that seemed good at the time.

Even so, during events like the 1997 Asian Financial Crisis, the 2001 Dot-com Bubble Burst, and the 9/11 terrorist attacks, the stock market often experienced major declines. However, each time a market crash happened, I would ‘average down’ through additional purchases, and as a result, I made gains during the recovery of the market after those crashes. Around 2002, my 2 million yen had grown to about 6 million yen.”

“Average down” (or “Nanpin Buying”) is when you purchase additional shares of the same stock when its price drops, lowering your average acquisition cost. For example, if a stock originally bought at 1,000 yen falls to 800 yen, and you buy another 100 shares at the lower price, your average acquisition cost would be reduced to 900 yen. If the stock price rises above 900 yen, you would have an unrealized profit for the 200 shares you now own.

Why beginners should not engage in Nanpin Buying

However, averaging down is generally considered a no-go action for beginner investors. If successful, it can turn a loss into a profit, but if it fails, the loss could widen further. If the stock price continues to drop without recovering, it may become a “stuck” stock, held for a long time with unrealized losses.

According to behavioral economics, people tend to experience the pain of loss more than the pleasure of gain, at a rate more than twice as strong. As a result, when a stock loses value, there’s a strong tendency to delay realizing the loss (loss aversion). Therefore, it is essential to eliminate these emotional biases and make a calm decision about whether to hold on to the stock or not.

The fact that a stock has fallen indicates that there may have been a mistake in the reason for investing in it. However, if the decline is merely influenced by the broader market movements, averaging down may still be a good option. Indeed, such a judgment may be difficult for beginners. But for someone like Nagocyo, who had naturally developed the know-how of averaging down through investing in small lots from the beginning, it might come naturally.

“When a crash happens, I don’t average down all at once but do it in several stages. This way, the chances of buying near the bottom increase. To do this, it’s necessary to have funds ready for additional investment in advance.”

“Additionally, as a prerequisite, I check the company’s performance before averaging down. If the performance is stable and the forecasts haven’t changed, there’s a high possibility that the stock will recover in line with the market rebound.”

This is when a turning point came for Nagocyo: the Japanese stock market crash starting in 2002. In April 2003, the Nikkei average reached a 20-year low of 7,000 yen.

“The losses kept growing. It became a terrible situation. I realized that I needed to go back to the basics and relearn stock investing.”

How did Nagocyo overcome this crisis and become a millionaire? What specific methods did he use for value stock investment? What are the stocks to watch derived from this approach? The full article, including actual stock recommendations, can be found in the paid version of [FRIDAY Subscription].

 

Click here to read “The Law of Success of a Steady Company Employee Who Steadily Accumulated ‘Nanpin Buying’ + ‘Undervalued Stock Investing’ and Became a Millionaire…” ( in Japanese).