For beginners in stock investment, selecting specific stocks can be a challenging task. However, stock investment carries individual responsibility, and even as an experienced person, I cannot provide specific company or stock names. Instead, I believe it's important to learn the fundamental principles and analysis methods of stock investment.
In this article, I would like to share my thoughts and advice on the perspectives that beginners can learn about stock investment and how to choose recommended stocks. I will also touch upon stocks with growth potential and biotech stocks.
Firstly, when starting stock investment, consider the first few years as a learning period and focus on gaining experience by trading with around 1 million yen. Just like professional athletes practice a lot in junior high and high school before turning pro, beginners often lose their humility in the crowded stock market. Starting investment during an overheated market might lead to short-term losses, but it could also be a good timing for long-term investment. Experiencing sharp declines early on can help you understand the importance of risk management. Managing the risk of losses is crucial.
Next, let's discuss market capitalization. Market capitalization is the product of stock price and the number of outstanding shares, indicating a company's value. Beginners often overlook market capitalization, but it's important to compare similar companies' market caps for relative assessment. For instance, if Takeda Pharmaceutical has a market cap of 5 trillion yen, Otsuka Pharmaceutical's market cap might be reasonable around that range. It's important to note that market caps vary significantly based on industry and sector.
As a rough guide for market capitalization, in the deflationary era, a company with stable performance and about 10 billion yen in operating profit might have a market cap of around 100 billion yen. In an inflationary context, market caps are usually higher due to economic evaluations.
Market capitalization differs by industry and sector. Pharmaceutical companies or firms with strong business models can have several times the average valuation. On the other hand, industries like securities or gaming can experience larger fluctuations, so they might not be valued as highly even with 10 billion yen in peak operating profit.
So, what are the aspects that beginners should consider while selecting stocks to study? In my opinion, choosing stocks with the following characteristics would be beneficial:
- Diversified conglomerates like Fujifilm are complex to analyze. On the other hand, companies focused on a single primary business, where its success or failure directly impacts performance, are simpler to understand.
- Internet companies with increasing revenue and profit are straightforward for analysis. Their simple business model and minimal required investment make financial statement analysis easier. The cash flow is also more understandable.
- Retail (and restaurant) businesses offer various elements for individual investors to learn from, like inventory assets, monthly sales, and seasonal factors. Visiting stores, experiencing services, purchasing products, observing customer flow, and assessing the company's performance through word of mouth or social media can be insightful.
- It's better to choose stocks with clear catalysts for price increase, like large-scale expansions, new marketing campaigns, new ventures, or upward revisions in performance forecasts. Learning how stock prices react to such catalysts or whether the stock is already priced in is valuable experience.
If you were to mention specific stock names, here are some examples:
- Fast Retailing (9983), the company behind UNIQLO: As a dominant player in the apparel industry with global expansion, it's expected to continue growth. While its market cap is high, around 10 trillion yen, it's anticipated to sustain growth.
- Yahoo Japan (4689): Operating diverse online services and payment solutions, it's considered undervalued due to its high ownership of its own shares. After subtracting those shares, the market cap is around 1 trillion yen.
- Yoshinoya Holdings (9861): Running restaurant chains like Yoshinoya, it's recovering from decreased dine-in demand during the pandemic by focusing on takeout and delivery. Its market cap is around 200 billion yen, and improving profit margins is a challenge.
- Benesse Holdings (9783): Engaged in education and publishing, it's known for products like "Shinkenzemi" for children and "Berlitz" for adults. With a market cap of around 300 billion yen, it generates stable cash flow despite limited growth prospects.
These are examples of stocks that are relatively easier for beginners to analyze and learn from. However, investing in these stocks doesn't guarantee success. It's important to research and make judgments on your own.
Lastly, I'd like to touch on stocks with growth potential and biotech stocks. Stocks with growth potential have promising technologies or products that could lead to substantial profits. However, these scenarios often face intense competition, and the realization of such potential is uncertain. It's hard to predict how much profit these companies will actually generate in the future.
Personally, I'm skeptical of some of these stocks, but I support others. Generally, I avoid long-term investment in stocks where it's hard to evaluate differences in technology, product quality, or service among competitors, or where analyzing future performance is challenging. It's tempting for beginners to be drawn to such stocks despite the uncertainty. However, I believe those who only invest in such stocks without proper analysis won't catch up in the long run.
Investment decisions should be based on thorough research and analysis. My opinions are individual and not necessarily accurate. I'm not a professional in stock investment, so please make your own judgments. If you have thoughts or questions about stock investment, feel free to ask.