In today's episode of Market Foolery, Chris Hill is joined by Brian Richards, the head of Motley Fool Asia, who talks about what he saw on his recent business trip to Hong Kong and Japan.
Find out what Hong Kong's 4-3-2-1 rule is, and why it runs contrary to so much of what we believe about investing; how Hong Kong's dividend laws differ from those in the U.S., and what that could mean for investors; why Japan is one of bitcoin's biggest cheerleaders, and just how shockingly prevalent the cryptocurrency's advertising is there; and more. Check out @MotleyFoolHK and @MotleyFoolJP to get updates on Motley Fool Hong Kong and Japan.
A full transcript follows the video.
This video was recorded on Jan. 25, 2018.
Chris Hill: It's Thursday, Jan. 25. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today, the head of Motley Fool Asia, Brian Richards. Thanks for being here!
Brian Richards: Chris, thanks for having me!
Hill: True confession: I wanted to have you on right when you got back from your trip, but I figured, jet lag being what it is, that would not be fair to you, probably not be fair to me or the listeners.
Richards: I appreciate it.
Hill: I was like, "I'm going to hold off. I'll have Brian at the end of the week." But I did want to get you in here to talk about your trip, because you just got back from Hong Kong and Tokyo. Let's start with the beginning of the trip. You went to Hong Kong, and one of the things -- and this is one of the reasons I like to follow you on Twitter. I like to follow you on Twitter for a couple of reasons. One of them is, you don't tweet a lot, and when you do, it's high-quality stuff. In this case, it started with you tweeting, "I'm getting on a 16-hour flight and there's no internet. Oh, my God, I need a drink." That kind of thing.
Richards: Yeah, actually, I had just gotten off a 16-hour flight. We went from here to Dallas and then Dallas to Hong Kong, which is 16 hours. I thought, about four hours in after I had watched two movies already, I said, "I have 12 hours to go. I'll just pop the internet on here and I can see what's going on. There's some football games going on." And the onboard Wi-Fi connected enough to accept my credit card payment and then stopped working after that. And I tried. I mean, I tried for a good 90 minutes, and it just didn't work. I don't think I've been without the internet for 16 hours in one stretch since I had a smartphone in my pocket. So it was tough.
Hill: You survived, though.
Richards: I survived.
Hill: So you get there, and this was the first thing that caught my attention after you got there, was something that you had learned from an investor in Hong Kong, what you refer as the 4-3-2-1 approach to asset allocation.
Richards: I had never heard this before, and we were speaking to an investor in Hong Kong, a really smart guy who said one of the common rules of thumb for Hong Kong investors is what they call 4-3-2-1, which is, 40% of your portfolio is in property, 30% in equities, 20% in bonds, and 10% in cash. And it makes sense from the perspective of Hong Kong being a real estate market that is hot and has been hot for the better part of four years. In fact, it's the second highest-priced real estate market in the world, behind only Monaco. The opening up of the handover from Great Britain to China in '97, a lot of mainland China money has flowed into Hong Kong property. It's become very pricey, it's hard to buy a place unless you use extreme amounts of leverage.
That struck with me, because also, while we were there, the benchmark stock index for Hong Kong, which is called the Hang Seng Index, hit an all-time high. When we were there. We spoke to another investor about that, who was a little bit less bullish on property in general for Hong Kong. He had just finished this long study of the Hong Kong markets and said, over 50 years, the Hang Seng Index has returned to 10% without dividends, so, something like 12% with dividends. And the big misconception that he sees, walking around and listening to people, is that you save your money to put in real estate. And he said real estate has only returned 8% over the same timeframe. So stocks actually beat property, and bonds and cash as well. So the whole 4-3-2-1, I'd never heard that. I've never heard anyone outside of Hong Kong ever say that, even in property-crazed markets like the one in Singapore. And it turns out, if you're going to live in a house, maybe that would make sense. But as far as investing goes, stocks are still your best long-term bet.
Hill: And I think particularly for younger people, just the idea that 70% of your approach would have nothing to do with stocks, if you're a younger person, and by younger, I mean anyone under the age of 50 --
Richards: I totally agree.
Hill: -- that just seems like ... it's the old saying of, the greatest risk is not taking enough risk. Do you think part of it is just, because there are so many people here in the U.S. and around the world who equate the stock market with a casino and think -- whether they think it's a rigged system or not, they think it's too risky? Is that part of that mentality? Or is it the fact that, even though stocks have beaten real estate, they haven't crushed real estate. If the real estate market is at an all-time high -- I at least understand that portion of it. It's the 30% that's bonds and cash that's a little bit more surprising to me.
Richards: A couple of quick responses. First, it's a shame that that's true. Here's an interesting nugget: There's no dividend tax in Hong Kong. If you collect a dividend from a stock that you own, you get to pocket all of that dividend, which is pretty attractive.
Hill: Holy cow. Does Ron Gross know about this? He's going to move there in a heartbeat.
Richards: [laughs] So you see banks like HSBC and Hang Seng Bank yielding 3%-4%. And you can collect that tax-free. And obviously, you have the underlying capital appreciation potential as well. So stocks seem to make a lot of sense, particularly if you have a long-term holding period. There is, however, a sense in Hong Kong, and this is my sense, I wouldn't say this is uber-scientific, but it does seem to be more of a speculative market than a buy-and-hold or buy-to-hold market, in the sense that investors have short holding periods.
We heard the word "day-trade" a lot. I feel like day-trade is something that's a relic of the early aughts. You think about people getting their first E*Trade account and trading Intel before lunch and then getting out of it after lunch, that kind of thing. And that, apparently, is still the mentality in Hong Kong. It's not a long-term-focused market. I guess, if you contrast that with, people typically hold bonds, people typically hold property, and cash is always a hedge, it's the most liquid thing you can have and gives you optionality. So I don't know. It's like the 30% that should be long term isn't, and that 30% should be inverted, it should be 70%, it should be more.
Hill: For anyone who thinks there's a lot of talk about bitcoin here in the United States -- and there is, in terms of the oxygen that it's taken up -- that appears to pale in comparison to bitcoin in Tokyo.
Richards: I'd read something in The Wall Street Journal in December that, something like 40% of bitcoin trading volume -- so, worldwide, everybody trading bitcoin -- 40% was denominated in yen. That's a pretty crazy stat. The Japanese government has embraced it. They've taken the regulate-tax approach. The Chinese approach or the South Korean approach is, "Get it the hell out of here," basically, "we don't want anything to do with it." It's really encouraged. And when the current prime minister of Japan took power earlier this decade, Shinzo Abe, he undertook something called Abenomics and was trying to fight this decades-long spiral of deflation and economic stagnation in Japan and was willing to take risks with the yen and the Japanese currency. Earlier in the decade, it created this culture of currency traders.
One thing we've heard is -- and not a lot of people go on and trade stocks, but a few years ago, they were trading currencies like crazy, which is something, again, you never really hear that from Americans. So, to bitcoin, walking around Tokyo, you walk around pretty much any shopping district in Tokyo, look up, and you'll see billboards for Coca-Cola and ANA Airlines and bitcoin. These are physical bitcoin billboards that are pointing you to a website where you can trade bitcoin or whatever.
Hill: That's the thing that blew my mind. You had tweeted a photo of this. If you're in our line of work, if you're an investor, if you're anyone who consumes financial news in the United States, then yes, certainly over the last year, you've run into coverage of bitcoin. It's taken up a decent amount of the oxygen. There are plenty of people who are just going about their daily lives, they're not interested in investing and that sort of thing, so maybe it comes up in conversation here or there. But it's not literally in their face, as it appears to be in Tokyo. Again, it doesn't matter if you're an investor in the stock market or not, you look up and you're being bombarded with advertisements and promotions for bitcoin.
Richards: It's everywhere. The Japanese have a real proclivity toward technology. There's a lot of great technology companies there. They're heavy users of technology, they're investing a lot in things like AI. They've created zany new inventions like a dryer that will fold your clothes for you. A machine will do it. If you go around Tokyo, or Japan at all, you see, there are vending machines everywhere, there's a big focus on automation and technology. Combining that with the anecdote I mentioned a few minutes ago, about their currency speculative streak, that's the perfect condition for bitcoin to really take off among the general population.
Hill: So, Motley Fool Japan, Motley Fool Hong Kong, coming later this year?
Richards: Coming soon. We're in the process of building out our capabilities in both of those countries. We're very excited to be able to spread our purpose and to help investors in those countries invest better. Right now, we're in Canada, Germany, Singapore, Australia, and the UK, in addition, obviously, to the U.S. We're excited to be in an enormous market like Japan, and a really smaller but really popular market like Hong Kong, where there's a very vibrant local investing culture. The Hong Kong Stock Exchange has done some innovative things with China to allow investors in both countries to access stocks on each other's markets. It's a really interesting point in the world, Hong Kong is. So we're excited. We're looking to form a team of those countries, to serve investors in those countries, talking about stocks listed on those exchanges and thinking in their language, obviously. So Fool Japan will be in Japanese. Japanese stocks are also at a 26-year high, so we're hopeful that it's a good time for people to be paying attention to the markets and to be receptive to our message of long-term, business-focused investing in great companies and letting compounding do its thing.
Hill: If you're on Twitter and you want to get the latest on Motley Fool Japan, Motley Fool Hong Kong, good news -- there are Twitter accounts. That's where the updates are going to come. @MotleyFoolHK and @MotleyFoolJP. I got that right, didn't I?
Richards: You got that right. Thank you.
Hill: Thank goodness! OK, so, it wasn't all work when you were over there. Or maybe it was. But I'm curious, and whenever anyone travels, I like to get a sense of a little bit of the local flavor, something you did that was interesting, something you observed, maybe a great meal, something like that.
Richards: It was mostly work. But we did have some fun lunches and dinners and stuff like that. I'll say, one interesting thing is, in Tokyo, you can still smoke indoors. We had a meeting inside a cafe. And if you've ever walked by an airport smoking lounge --
Richards: -- imagine sitting in there and conducting a business meeting.
Hill: Over coffee.
Richards: Over coffee, where literally everyone around you is chain-smoking. And there are humidifiers and fans and things, but it's no good. After about 20 minutes ... and I'm from Virginia, so I grew up going into restaurants, leaving and smelling like smoke, much less going into bars in college. You have to wash your clothes when you get home that night. It was a bit of a throwback. And I forgot how bad it was in those days. [laughs] So you'll be sitting at a nice teppanyaki restaurant, and --
Hill: What is teppanyaki?
Richards: It's where the chef makes the food in front of you on the grill.
Hill: Oh, OK.
Richards: So you're sitting in front of the chef, 16 inches away from the grill, and the guy next to you is just puffing away on a cigarette. It's a throwback. Tokyo is so advanced in so many ways. Smoking indoors, though, [laughs] I'm hoping they adopt the rest of the world's philosophy on that.
Hill: You would think, at a minimum, they would have the best fans. Like, "Yes, we're still letting people smoke indoors, but our exhaust systems are the envy of the civilized world."
Richards: I mean, every toilet that you see in Tokyo has a Rube Goldberg remote control attached to it. It has heated seats. They all have bidets. Every hotel I've been in in Tokyo has these highly technologically advanced toilets. And yet, no, they haven't invented the smoker's suction fan yet. I'm not going to hold my breath, but I'll cross my fingers next time.
Hill: Fair enough. Speaking of local flavor, thank you so much for the gift that you brought me. Last week on Market Foolery, I was talking to Bill Mann, and one of the things we talked about was Pringles. It came up that -- this was a topic from years ago, that every once in a while, people would do this, and Bill Mann would do this when he would travel internationally, he would bring me -- and sure enough, I get to my desk at the beginning of the week and there's a little can of Pringles from Japan. And the flavor -- this is the best part -- the flavor is party chicken.
Richards: Party chicken.
Hill: And I haven't tried them yet. I wanted to wait to talk to you first. It seems like it's fried chicken.
Richards: I think it's fried chicken, although the label is not helpful.
Hill: The label doesn't provide a lot of clues.
Richards: Sort of a dancing chicken on it.
Hill: Yeah, there's a party hat, but I sort of get that from the word "party."
Richards: [laughs] So, I got that, and I know the history of people bringing you fun flavors of Pringles, so I thought I would participate in that. There's a store in Japan called Don Quijote. It's actually a publicly traded company, and I believe the stock has done OK recently. It's like an eight-story bazaar, at least the one I went to in Roppongi. It's like Kmart mixed with Big Lots mixed with Five Below mixed with a liquor store mixed with high fashion. You can buy everything from toothpaste to luggage to fancy watches to, there's literally a bottle of 18-year-old Japanese whiskey selling for the equivalent of $600 USD. Anyway, I went there because I wanted to get some Kit-Kats and other fun Japanese candy for my kids, and I specifically went to see what Pringles they had. They had a pretty good selection. I think party chicken was the most novel flavor.
Hill: I'm very excited. And it reminded me that party is just a great word as an adjective. I was saying to our marketing team, "Have we ever thought about, not necessarily an investing service, but a report, a one-time stock report, and just calling it Party Stocks?" And they were like, "No." But at least grant me that that's a fun name.
Richards: It's a fun name.
Hill: You're going to get people intrigued. Like, "Well, I'm not saying I'm going to buy this report, but give me some more information about Party Stocks." Reminder that we're coming to San Francisco. We're having a podcast listener meet up on Wednesday, Feb. 7 at the Golden Gate Tap Room. That's on Powell Street in downtown San Francisco. I'm going to be there, Kristine Harjes from Industry Focus, Mac Greer, Dan Boyd, our man behind the glass, Matt Argersinger, Abi Malin, a whole bunch of Fools. So, if you're in the San Francisco area, we would love to see you. That's Wednesday, Feb. 7. You can drop an email to email@example.com. We're going to be sending out a reminder email right before the event. And, again, if you're on the Twitter, @MotleyFoolHK and @MotleyFoolJP for all the latest news and updates that are coming later this year about Motley Fool Hong Kong and Motley Fool Japan. Brian Richards, thanks so much for being here, man!
Richards: Thanks, for having me, Chris!
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!
Brian Richards has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool recommends Five Below and Intel and has no position in any of the cryptocurrencies mentioned. The Motley Fool has a disclosure policy.