Speech Manuscript for Index Investment Night
There is an event called "Index Investment Night" where index investors gather once a year. This year, it was held on July 8th at Culture Culture in Shibuya. It is popular every year, and tickets sell out within minutes of going on sale.
I am grateful to be invited as a speaker every year, but considering my health condition this year, I was given time for a solo speech of 10 minutes plus a little extra, rather than the usual panel discussion.
This time, I will introduce the text I prepared as the speech manuscript for that occasion. I prepared content for a 10-minute slot if time was tight, and two additional topics to discuss if there was time to spare.
I am not the type of person who is diligent enough to write down the content of every speech, but this time, depending on my health, there was a possibility that I wouldn't be able to speak on the day and would have to ask someone to read it for me, so I wrote down everything I wanted to say.
The main message was that I wanted index investors to have pride and confidence as sophisticated and rational investors.
On the day, my health was decent enough that I was able to speak directly. The following is that manuscript.
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● Index Investment Night 2023 Speech Manuscript
Good evening. I am Hajime Yamazaki. Thank you for giving me the time to speak. This time, I was not confident in my physical strength and voice, so I asked to participate in a solo speech format.
I have participated in Index Investment Night every year since the first one. This is a secret source of pride for me, Hajime Yamazaki. This is because it means I continue to be invited to the gathering of the most rational and sophisticated investors in Japan.
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Now, time is precious, so I will get straight to the point.
I want all of you index investors here and those participating online to have the pride of being the most rational and sophisticated investors in Japan and to behave accordingly. This is my hope and the message I want to convey today.
In the financial and asset management industries, there is a strong tendency to treat index investing and index investors as having lower value or as exceptional existences. They make various assumptions and complaints, such as "Index investing is for beginners, so start here and eventually challenge yourself with active funds," "Index management is a special case of investment theory," "Index funds are no good unless the market is trending upward," or even "If index management increases, the price discovery function of the stock market will be hindered." While doing so, their trick is to try to rake in fees with worthless management like active funds or ESG investing.
First of all, I want you not to be defeated by such foolish talk as I just mentioned. All the opinions I just listed are wrong, but I want each and every one of you to be able to properly refute them and be proud to be an index investor. Above all, this is my hope.
The superiority of index investing is robust, supported by the "principle of average investment advantage." For example, active management of large-cap US stocks using the S&P 500 as both a benchmark and universe is like adjusting the amount of chips placed on a roulette wheel with 500 numbers, but gamblers who pay fees to adjust active risk are designed to lose on average to the average investor who just holds the S&P 500. Thinking about it this way, active management is, at best, a hobby, and in terms of the efficiency of management itself, it is definitely inferior to index management, which is an approximation of average investment. Ultimately, it is not that the named index has value, but that there is value in investing in the average and sitting still, but the practical pros and cons are clear. Moreover, as a product, index funds have the advantage of low management fees. It should be self-evident who the smart investor is.
By the way, this logic can of course be used for Japanese stocks, and if you consider the game setting to be a global stock management competition, it can also be applied to comparisons such as the superiority of world stocks versus the S&P 500.
First of all, it is essential that you have this understanding, but I would also like to mention three things regarding behaving accordingly.
First, I want you to use your brains generously and have a clear conclusion.
Financial problems have one determined answer if you specify the conditions. Cunning experts like to say things like "the answer is different for everyone," but for the same conditions, the answer regarding profit and loss is at least not different. Also, most of the correct principles regarding management are not things that can be confirmed with data, but things where the conclusion is reached through logic.
I won't go into details one by one, but the problems of active management, dollar-cost averaging, rebalancing, the relationship between investment period and risk, and the relationship between economic growth rate and stock returns are all problems where the conclusion is reached through logic. They are not things that can be confirmed with data from just a few decades that happened to be picked out.
I want you to use your own brains to reach a solid conclusion without relying on others. And, this is the important part, you should speak your conclusion without fear and debate it. Since you are excellent index investors, I do not want you to say, even if it kills you, "I am just a beginner who buys indexes."
Second, and this is related to the previous problem, I want you to overcome your obsession with "N=1." N is the uppercase Roman letter N, which refers to the sample size in statistics. The "N" I want to make an issue of here is your own experience.
Specifically, when you are about to have a way of thinking like, "I have been doing it this way for decades and it has gone well. I am convinced that this method is good," I want you to have the intelligence to doubt the generality of your own experience.
It might be hard to think of it as your own thing.
For example, let's say a veteran fund manager with over 20 years of career is preaching the excellence of the method they have used for stock selection or rebalancing. "I have done well with this." However, considering that our asset management period spans 20 or 30 years, the experience of a "veteran fund manager with 20 years of experience" is just a single sample of a specific 20 years. Even if you can generously praise his individual experience, hard work, and the goodness of heart that invited good luck, it is better to stop generalizing and appreciating his experience. I think you will understand this if you think about it.
Please apply the same thing to yourself. The value of "I have actually made money this way" as a general theory is not much.
The impression of the experience of making or losing money using actual money is overwhelming for oneself, so one tends to put effort into talking about oneself. You should be aware that this is somewhat uncool for a rational and smart person.
By the way, among unwise investors and financial customers, there are people who sometimes puff out their chests and say, "I don't trust anything other than the stories of people who have actually made money," but let me tell you that these are the suckers in the financial industry who are easy to deceive as customers.
The third request is that since index investors are rational and smart, let's show a corresponding amount of leeway and generosity to others.
One thing I find regrettable about index investors is the reputation that "they are petty, boring people who obsess over micro differences in trust fees." This is very frustrating because it is sometimes true. Depending on the case, it is not cool to obsess over differences that wouldn't matter much unless you were managing billions of yen.
Also, since you should be confident in your rationality and efficiency as an investor, you should get along "as people" with those who have different opinions about investment. You don't need to compromise at all on differences of opinion, but it is perfectly possible to get along even if your opinions differ. It means let's interact with people with leeway.
However, this might be something I should tell myself rather than you all. I intend to get along with people who have different opinions, but the fact that the other party doesn't come near me must be because I lack human virtue. I would like to reflect on this greatly and correct it.
The story has come full circle to self-reflection.
Thank you for your attention.
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[Topic to discuss if there is time 1]
What I still remember is the first Index Investment Night held at Culture Culture in Odaiba.
When I went to the entrance about 30 minutes before the opening, there was already a line, and a participant in the line kindly told me, "The entrance for related parties is over here." I waited inside the venue, and when the time came for the doors to open, people came in, and I was surprised at this time. In normal money-related seminars, if the seating is free, there are many selfish participants, so they sit scattered, aiming for their favorite places. However, the audience at Index Investment Night sat down in an orderly fashion from the back. I thought at that time, "These people are different."
I couldn't imagine what the content of the first one would be in advance, and I headed to the venue while wondering, "How on earth can something as plain as index investing be exciting?" but when I participated, it was interesting. I thought I wanted to participate every year, and fortunately, I started getting invited from the following year as well.
As an employee of Rakuten Securities, a few years after joining the company, I stopped getting invited to large seminars such as the company's New Year seminars or anniversary seminars. This was not a small problem as a salaryman, but I somehow understood the reason. However, I was invited to Index Investment Night. If you ask which was more important, in terms of values, it was overwhelmingly Index Investment Night.
And, although it was many years later, it seems that being a person who is invited to Index Investment Night was also important for me as a salaryman. Just think about it. I was a full-fledged securities company employee. Nevertheless, I was invited every year. This was something I was very grateful for.
[Topic to discuss if there is time 2]
The reason I am speaking in this form today is because I have contracted an illness. Specifically, the cancer I had surgery and treatment for last year has metastasized and recurred. I am a so-called stage IV cancer patient. If you call it unlucky, it is unlucky, but I don't intend to talk about dark things. I will talk about two or three ways of thinking that can also be a reference for investment.
One is about the selection of information. When it comes to cancer, the world is overflowing with information, and if you leave it alone, kind people will come and give you various advice.
However, there is only one treatment policy that can be chosen, and information must be evaluated for the choice. And to evaluate information, knowledge and data that serve as the basis for evaluation are necessary, and evaluation requires ability, time, and effort. Moreover, since there is a possibility of regretting it later if you make some kind of decision, there is a mental burden.
These circumstances regarding information should be the same in the case of investment. It is not the case that more information is better. It is important how to narrow it down, and it is clear that it is important how you can digest it with your own head. Well, in the case of investment, most failures are just a matter of money, so I will say that you should feel free to try various things.
Another lesson that I think is also applicable to investment is the importance of consciously separating "expectations" and "hopes."
For example, being a stage IV cancer patient basically means that a complete cure is hard to hope for, and the progression of the disease may be fast. However, there is no need to give up hope for treatment, and as a realistic policy, one should definitely make efforts to "delay the progression, even if it doesn't cure, to make one's actual life longer" without giving up.
On the other hand, when making an action plan, it is necessary to estimate as accurately as possible how much actual "time on hand" you have as a problem of expectation. Here, you must avoid mixing in hopes such as "I want to live until my daughter enters university," or conversely, using excessive pessimism as a benchmark for comfort.
When you think about separating "expectations" and "hopes" in this way, your thoughts are organized, and your daily mood does not become surprisingly dark. Rather, it feels like there is something to look forward to each day. If you ever contract a troublesome illness in the future, please remember this.
And I think that thinking about separating "expectations" and "hopes" is probably also effective for investment.
Now, specifically, in my current case, I am estimating my "time on hand" to be from a few months to about a year, and I am thinking about using that time effectively. I feel like I could write two or three books, and I might be able to meet the people I want to meet somehow.
Thinking about it this way, I am very glad that I was able to talk to everyone today on the occasion of the annual Index Investment Night. Of course, it would be good if we could meet next year and the year after, but first of all, I would like to greatly rejoice that I was able to talk today. I am satisfied.
Thank you for your attention.
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Originally, I had the expectation that it would be forgiven even if time ran out, and I intended to talk about all the prepared topics, but I think the overall impression would have been tighter if I had skipped [Topic to discuss if there is time 1]. This is a point of reflection.
Looking at the reactions on Twitter (it wasn't "X" yet at the time), fortunately, they were generally favorable. However, there were multiple people who tweeted the impression that "Mr. Yamazaki looked like he was having a hard time speaking," and it was a speech that left issues for future speaking work. There are treatments, and there may be room for ingenuity in vocalization methods, so I will think about countermeasures.
A month and a half has passed since then, but I would like to report that fortunately, I am doing better than on the day of Index Investment Night.