Is the panic over Livedoor a sign that Japan’s bull market is at an end? Not at all. Stay invested, says MoneyWeek editor Merryn Somerset Webb – all the good news on Japan’s economy from last year still holds true. But there are plenty of other things you really should be worrying about…
I recently watched the CEO of a large US listed company being interviewed on TV. His life, he told the interviewer, was his work. He looked forward every day to getting to the office because of the endless amounts of fun he had. Indeed he couldn’t imagine doing anything that would be more fun or that he could do with more passion. Nothing at all.
This irritated me intensely. Why? Because I don’t want the CEOs of the companies I invest in to be fun loving men of passion. Instead I’d like them to be rational and objective individuals with adult perspectives on their work, people who see themselves as working in a serious sort of way to create sustainable businesses. And I don’t really want to see them on TV either. I prefer to think of them as sitting behind desks studying spread sheets and having strategic visions.
That’s why I don’t think that I would have ever considered putting money into Japanese internet company Livedoor. Livedoor is run by 33-year-old Takahashi Horie. Horie has spent much of the last few years on TV and has become more of what the Japanese call a ‘tarento’ than a CEO.
A quick flick through the press clippings about him reveals that he writes a daily blog, he signs autographs, he tries to buy baseball teams, he never says no to an interview, he never turns down an opportunity to deride more conventional CEOs, he publishes books (“Earning Money is Everything” claims one), and he doesn’t even consider himself to be really Japanese. No, he is “a citizen of the world.”
And the world has been loving him. He’s a celebrity in Japan and in the west he has recently taken over from Mr Son of Softbank as the poster boy for the new Japan American and European brokers and fund managers like to think they have been investing in. A dynamic, ambitious, profit-orientated Japan.
Whoops.
Turns out Horie’s firm may have been all those things, just not in a good way: earlier this month his offices (in the very swanky Roppongi Hills development in central Tokyo) were raided by Japanese officials concerned that Livedoor may have spread false information to boost a subsidiary’s share price and falsified its 2004 results to show a profit rather than a loss. The shares have been in freefall ever since and the fall out from the scandal pushed the Nikkei index down over 6% in 2 days.
This has all made many investors nervous. Does the sudden fall mean that Japan’s latest bull market has come to an end? And was the 40% rise in the stock market last year just another false dawn in the series of false dawns the market has offered over the last decade?
I don’t think so. What has happened in Tokyo this week has told us that Livedoor is probably a rubbish company (Horie could hardly have had the time to ensure that it was not what with how much time being famous takes up these days) but it has told us nothing about the rest of the market which looks just fine.
Indeed the fall in Livedoor led only indirectly to the wider fall in the Nikkei itself. It wasn’t that there was a sudden collapse of confidence across the board. Instead the many daytraders using their Livedoor shares as collateral for other trades suddenly weren’t allowed to do so any more and so had to liquidate other holdings in a hurry, something that hit the whole market.
More importantly however it is worth remembering that all the bull points that were valid last year are still valid: the economy is still recovering, wages and employment are rising, property prices have bottomed and corporate profits are rising as are dividend payouts and given the low level of Japan’s interest rates the market is not particularly expensive.
So if you are invested in Japan, I’d stop worrying about it and stay invested – even at its low this week the Nikkei was only back to the level it was at in mid December and I imagine it will soon return to the level it was at last Friday.
If you need something to worry about, or a market to sell there are plenty of other candidates about. I’d worry for example about being in the tech sector at all. Around the same time as the Livedoor story started to unfold Intel and Yahoo both annouced disappointing results, and while brokers dismissed these as being company specific problems they were fast followed by disappointments from Apple and Ebay.
So the problem is specific to Apple, Ebay, Yahoo and Intel? Which tech firms isn’t it specific to? We hear a lot these days about how the tech crash wiped out all the losers leaving only real businesses with real revenues and profits and that as a result the sector isn’t as risky as it was. I’ll accept the first bit, but not the second. Being a real business is nice but it doesn’t mean that a company is a good investment: anything trading on a p/e of 100 plus can’t really be considered one for example, revenues or no revenues.
Then I’d worry about the American trade deficit and the dollar, I’d worry about the American housing market and the American consumer as well as what might happen to the more export-orientated markets of Asia if those consumers start cutting back properly. Finally I’d worry (as I always do) about the UK housing market as unemployment continues to rise (its back at 5%). But I wouldn’t fuss about Japan.
And I certainly wouldn’t worry about Horie. His career as a CEO may well soon be cut short but there’s no reason why he shouldn’t make it into the Celebrity Big Brother house this time next year.
First published in The Sunday Times, 22/01/2006