A steady company employee who became a millionaire by steadily accumulating “buy-and-hold” and “undervalued stock investment”… The “Law of Success” that a solid company employee has achieved.

Super Diversification” and “Long-Term Investment”…212 stocks, focusing on undervalued stocks with low downside risk

In contrast to the strong U.S. stock market, the Japanese stock market continues to move back and forth. The possibility of an additional BOJ interest rate hike in December has receded and the yen has weakened slightly, but the stock market has been sluggish.

Under these circumstances, what stocks should we target? We asked Mr. Nagochou, a company employee in Nagoya who has become a “billionaire” by steadily investing in undervalued stocks with little downside risk.

Profile: Long-term investor in Nagoya (Nagochou)

A part-time investor, Mr. Nagochou began investing in stocks in December 1995. He is a long-term, ultra-diversified investor, holding 212 stocks (as of the end of November 2012). His portfolio emphasizes income gains and dividend growth. Prefers stocks listed on the Nagoya Stock Exchange (NSE). He often purchases stocks with P/B ratios of less than 1x. Although he is not able to go to many stockholder meetings due to work conflicts, he makes time to attend around 10 companies’ shareholder meetings a year.

Became a “millionaire” with a strong “grip” and “buying on a dime

One of the terms used in stock investment is “grip strength. It refers to the ability to hold on to invested stocks without selling them. An individual investor with a “strong grip” can hold on to a stock even if it rises or falls slightly. If they do well, they can increase the range of stock price appreciation, or even turn a declining stock into a rising one. Of course, there are many cases where a strong grip backfires. Holding on to a stock may cause a stock that was rising in value to turn down, or a stock that was falling in value to expand its decline.

Mr. Nagochou, whose handle is “Nagoya’s Long-Term Investor,” has a very strong grip. He is a businessman who became a billionaire not only by his strong grip, but also by making full use of “nan-pin buying,” which is considered taboo for beginners in stock investment. Let us start with his investment history.

Started investing in stocks with “mini-stocks” using 500,000 yen he saved from his part-time job as a student.

Mr. Nagocho first bought stocks in 1995, when he was a 20-year-old student. He had always been interested in investing in stocks, and with the 500,000 yen he saved from his part-time job, he invested in four stocks: Fujitsu, Toshiba (later delisted), France Bed (which he still owns today), and Mos Food. There is a reason for this diversification from the beginning.

At that time, most stocks had a trading unit of 1,000 shares, which was unaffordable at 500,000 yen. So, I decided to buy “mini-shares,” which Daiwa Securities had just started. This was a service that allowed trading in one-tenth the number of shares in a trading unit, and I bought 100 shares at a time.

Later, when he became a working adult, he invested in other stocks, and he also continuously bought additional mini shares to bring the number of shares he had bought as a student in stocks such as Fujitsu and Toshiba up to 1,000 shares, which is the number of shares needed to make up a trading unit.

At that time, I had no set criteria for stocks to invest in, and in retrospect, I just kind of bought stocks that looked good.

Even so, the Asian currency crisis of 1997, the bursting of the IT bubble in 2001, and the terrorist attacks in the U.S. caused the stock market to fall sharply many times, but I was able to “buy on a dime” whenever there was a crash, As a result, I was able to earn unrealized gains on the market’s return after crashes. Around 2002, my original capital of about 2 million yen had increased to about 6 million yen.

Nanpin buying,” in which one buys more of the same stock when the price of the stock one bought falls, can lower the average acquisition price. For example, when a stock now priced at 1,000 yen drops to 800 yen, the average acquisition unit price will be reduced to 900 yen if 100 additional shares, the current unit price, are purchased. If the stock price exceeds 900 yen, an unrealized profit of 200 shares will be generated.

Why beginners should not engage in “nanpin buying

However, nanpin buying is basically considered to be a no-no for stock investment beginners. If it works, the loss may turn into profit, but if it fails, the wound will widen further. If the stock price does not recover and continues to fall, it will become “salt-cured stock,” held for a long time in a state of unrealized loss.

According to behavioral economics, people tend to feel the pain of losses more than twice as strongly as the pleasure of gains. Therefore, even if they incur a loss on a stock they have bought, they tend to postpone the confirmation of the loss (i.e., loss aversion). Essentially, it is important to eliminate this emotional bias and make a calm decision on whether or not to hold on to a stock.

If a stock you bought has fallen, there is a strong possibility that your reasons for investing in that stock were somewhat erroneous. However, if you were simply influenced by the overall stock market, you may be able to buy more shares. However, Nagocho, who has been investing in 100 mini stocks since he started stock trading, may have naturally acquired the know-how to buy more shares.

When a crash occurs, I buy not once, but several times,” he says. This way, there is a greater chance of picking up near the bottom. To do this, you need to have funds available in advance that you can invest additionally.

As a precondition, we also check the performance of the stock for which we are making a nanpin purchase. If the performance is good and the forecast has not changed, there is a high possibility that the stock will turn around as the stock market returns.

But then a turning point came for Mr. Nagocho. It was the plunge of Japanese stocks since 2002. At the end of April 2003, the Nikkei Stock Average hit the 7,000-yen level for the first time in 20 years. ……

‘The losses kept mounting and …… became terrible. I realized that I needed to relearn how to invest in stocks from the very basics.”

How did Mr. Nagocho get through this phase and become a “billionaire”?　What is the specific method of “undervalued stock investment”?　The “stocks to watch” derived from the above are available at ……. The full article can be read 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).