In a quest for the next Warren Buffett, Japan faces a unique challenge. With the Nikkei 225 breaking records, the push for domestic investment intensifies. However, the Tokyo Stock Exchange’s minimum trading lot of 100 shares hinders novice investors. Despite attempts to adapt through online brokerages, limitations persist, discouraging participation. High-profile stock splits and NISA account initiatives aim to attract retail traders, yet barriers remain. To achieve a sustainable investment boom, Japan must heed Buffett’s early lesson and enable individuals to start small on their path to becoming capitalists.
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By Gearoid Reidy
In 1942, at the tender age of 11, Warren Buffett purchased the first of the many shares he would accumulate throughout his career. “What I bought was three shares of Cities Service preferred stock,” he said in 2019. “I had become a capitalist, and it felt good.” ___STEADY_PAYWALL___
Buffett didn’t reveal why he bought Cities Service, a company that would eventually become Venezuela-controlled Citgo Petroleum Corp. But we can assume, going off his subsequent record, that he saw something in the company he liked.
With Japanese stocks finally hitting new records, the country is looking for its own young versions of Buffett today. The Nikkei 225, having finally reached a new all-time high, has broken 40,000 for the first time, but most of that is due to buying by foreigners. Politicians for years have tried to convince individuals to move their savings out from under the mattress and into investments that will provide more return, with some ÂĄ2 quadrillion ($14 trillion) stored in cash or equivalents by households that could instead be pumped into the stock market. An expanded tax-free investment account program that launched to much fanfare at the start of the year has come at a perfect time.
But would-be Buffetts in Japan face a problem: The country won’t let them buy three shares — or even a single stock — of a company that takes their fancy.
The Tokyo Stock Exchange has a minimum trading lot of 100 shares, introduced in 2018 after decades when each company could set their own, spanning from one to 2,000 shares. But the requirement to buy 100 shares at once puts many attractive stocks out of the reach of a starting investor. The $114.75 Buffett paid in 1942 is around $2,244 in today’s money, but that’s still chump change compared with the ¥7.3 million it would cost you to buy into world-leading industrial automation firm Keyence Corp. — well more than the average national salary.
As the number of retail traders has increased in recent years, the private sector has sought ways around this. These days, online brokerages offer various programs to buy less than 100 shares, but they all come with some kind of limitation: higher fees, a lack of real-time trading or ability to set limit orders triggered at a certain value or simply a reduced pool of stocks to choose from. Most importantly, holders of these odd lots don’t get to vote or attend shareholder meetings, reducing the feeling that you’re the part-owner of a company — or, in Buffett’s words, a capitalist.
All of this confuses the novice dabbling in the stock market for the first time. The result is that it’s often much easier for an individual Japanese investor to buy a share of, say, Apple Inc. than Sony Group Corp. Indeed, it can be cheaper to buy a single share of US-listed shares of local firms like Sony than the main stock listed in Tokyo, if one is willing to take on the currency risk.
And unsurprisingly, individuals show an overwhelming preference for foreign stocks. Younger people frequently purchase names like the US tech giants, Japan Exchange Group Inc. Chief Executive Officer Hiromi Yamaji recently told me, because they can buy individual shares and are very familiar with their services. “There is a stumbling block for the younger generation to put a small amount of money in Japanese stocks,” he noted, adding the exchange had been discussing ways to resolve the 100-share lot issue, including potential methods to reduce it. Yamaji hopes to take steps in the “not-too-distant future.”
A number of high-profile outliers have been conducting stock splits to try to attract retail traders ahead of the NISA account introduction. Nippon Telegraph & Telephone Corp., which for years was the country’s go-to example of the folly of buying stocks and even now is still 40% down from its peak in 1987, just three months after listing, conducted a 25-for-1 split last year. Other longtime egregious outliers such as Nintendo Co. and Fast Retailing Co. have lately made it cheaper to buy in. But it’s still a $5,500 punt if you want to invest in the maker of Super Mario. That’s a barrier to a surge in young investors buying stocks like their American counterparts, regardless of how much Japan’s inflation might be pushing them to get returns.
One of the biggest barriers is companies themselves, complaining of the costs of each additional shareholder in printing materials, or the hassle of opportunistic cranks showing up at shareholders meetings. And ultimately, for the vast majority of individuals, it’s not worth trying to beat the market. Indeed, that was what Buffett himself concluded, saying he should have put his $114.75 in an S&P 500 tracker fund, which would have netted him a $600,000 gain by 2019.
But for all the passive investing revolution has done to benefit savers, the allure of getting your hands on a sliver of one individual firm — one you might interact with every day, buying their products or riding their trains — is far easier to understand than an ETF or a mutual fund.
Foreign investors in Japan are famously fickle, and in the past it hasn’t taken much for a narrative shift to send them to the exit. For the boom to be sustainable, domestic investors must be convinced that this isn’t another false dawn. So if Japan wants savers to get that money out from under the mattress, it should learn from the 11-year-old Buffett.
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