【summary】
``Killer Horseman Dogoji'' is a story about people on the roadside who saw a running horse and got angry, and the rider got carried away and let the horse run too fast, resulting in the horse's death.
If you translate this into investment, the lesson is not to jump only to the news you see. However, this does not mean that `all news is an afterthought'' or `there is always a big scheme behind the scenes.''
What we really need to look at is not the superficial causes, but how market participants received the news and how their funds moved. In this article, we will use this story to organize ideas for reading sudden stock price drops, theme stocks, and price movements after earnings.
Meaning of “Kunkunbasha Dogoji”
`Killer horseman Dogoji'' is generally read as `If you kill a horse, you are a child of Dogo.''
The meaning is that the people who directly killed the horses were not the riders, but the people who stood up on the roadside, telling them to run faster.
Of course, the rider was actually in charge of the reins. However, it was the applause from those around him that changed his decision.
Here's the interesting part.
If you only look at the surface, it is the rider who made the horse run. However, if you look at the structure, the voices of the roadside change the behavior of riders and produce results.
The same thing happens with investing.
Stock prices fall. The news comes out. The reason is explained on social media. There are explanatory articles.
If it ends there, you'll only be looking at the ``Dogoji'' right in front of you.
The important thing in investing is to “look at the structure” rather than “looking for the cause”
When stock prices plummet, the market quickly looks for reasons.
*Because interest rates are rising
- Because the financial results were bad *Because it is a geopolitical risk
- Because the exchange rate moved
- Because a famous investor sold it
- Because an influencer mentioned it
These explanations are not necessarily wrong.
In fact, stock prices can fluctuate due to interest rates, financial results, exchange rates, and geopolitical risks. This is not to say that you should doubt all news.
The danger is to be satisfied with the first explanation you find.
What investors should look at is
Based on that explanation, who bought and sold, in what time frame, and how much?
is.
Rather than looking at the news itself, we look at the flow of funds in response to the news. This is where the meaning of using ``Slayer, Horseman, Dogoji'' for investment comes into play.
Bad application: Thinking “it’s all just a gimmick”
When using this story for investment, there are pitfalls to be careful of.
It's all about turning everything into a conspiracy theory.
for example,
- Institutional investors are dumping individuals because the stock has declined despite good results.
- The reason for the decline was due to short selling funds.
- Theme stocks have skyrocketed because traders are forcing individuals to buy them.
There are some cases in which this view is correct.
However, this is not always the case.
If the stock price falls even with good financial results, it may simply be because expectations were too high. If the stock goes down due to bad news, it may be because it really has a big impact on business performance. Theme stocks go up simply because short-term funds are collected, and there may not be a single mastermind behind the rise.
“Don’t believe the news” is another thought stopper.
Correctly,
Don't stop making decisions based on superficial explanations
is.
Good application: See who has benefited and who has had to move
The investment version of ``The Murderer'' is not about finding the culprit.
What you need to look at is the incentives and the flow of funds.
When stock prices move significantly, we divide them into three categories:
| What to see | What to ask yourself |
|---|---|
| Buyer and seller | Who is likely to buy and who is likely to sell |
| Reason for sale | Is it a voluntary sale or a sale that forces you to sell? |
| Continuity | Is the buying and selling temporary or structurally continuing |
The important thing here is not to assume that someone is manipulating the situation behind the scenes.
The market is not so simple that it can be operated by a single mastermind. In reality, individual investors, institutional investors, ETFs, hedge funds, index funds, margin trading, algorithmic buying and selling, arbitrage trading, and settlement events overlap.
Stock prices move significantly when multiple funds move in the same direction.
Case 1: Stock price falls despite good financial results
One thing that tends to trip up beginners is the decline after a good financial result.
Both sales and profits increased. The company's explanation isn't bad either. However, the next day, the stock price goes down.
At this time, the explanation that often comes up is "I ran out of materials."
However, it would be shallow to end with just these words.
What you should see is a structure like this:
- Wasn't the stock overbought due to anticipation before the settlement?
- Wasn't the balance of margin purchases increasing?
- Isn't it just a short-term fund taking profits that spanned the fiscal year-end period?
- The full-year forecast may not have met market expectations.
- Sales have increased, but are there any issues with the profit margin or cash flow?
Even with good financial results, the important question for the stock price is whether it met expectations.
Good numbers and rising stock prices are not the same thing.
The problem here is the simple surprise, "Why is the financial results so good?" What you really need to look at is the expected value before settlement, supply and demand, and the time horizon of holders.
Case 2: When there is a sudden drop due to bad news
Even when bad news comes out and stock prices plummet, it's best not to jump to conclusions.
Sometimes it can have a really big impact on performance. On the other hand, there are cases where stocks are sold simply due to short-term psychological deterioration.
What you want to check is:
| Items to check | Reasons to watch |
|---|---|
| Trading volume | How many times more buying and selling than usual |
| Decline rate | Is it an overreaction to the magnitude of negative news? |
| Credit balance | Was it easy to sell off |
| Short sale balance | Is there an increase or decrease in short positions |
| Disclosure from the company | Is there an explanation of the impact on business performance |
| Competitive comparison | Are other companies in the same industry also selling well, or is it just that company? |
It is not enough to just look at the bad material itself.
Did that bad news bring existing concerns to the surface? Is it a temporary psychological shock? Did he induce the fund to sell its risk management? Did it involve the use of margin buying?
If you look at it so far, the meaning of the same sharp decline changes.
Case 3: When theme stocks rise unnaturally
AI, semiconductors, defense, space, quantum, bio, national policy.
The bigger the story about a theme stock, the more likely it is to be bought.
However, the future potential of a theme and the company's profits are two different things.
When small-cap stocks are skyrocketing day after day, I look at them in the following order:
- How relevant are the materials to the company's sales and profits?
- Are the materials too large relative to the market capitalization?
- Is there a sudden increase in trading volume?
- Are margin purchases suddenly accumulating?
- Has there been a sudden rise or fall due to similar themes in the past?
Thematic stories tend to be boring.
The word "promising" is useful, but unless you look at how many years' worth of expectations have already been factored into the stock price, you'll end up getting a high price.
Stocks that rise due to supply and demand alone will fall due to supply and demand alone.
It's better to look pretty cold here.
The indicators you should watch are market footprints rather than “news”
Reading the news is important.
However, news alone cannot fully explain the market reaction.
When looking at stock price movements, we look at the following market footprints:
| Market footprint | Points to see |
|---|---|
| Trading volume | How much trading has increased compared to normal times |
| Trading value | Did you invest a lot of money, or did you just move on a thin board |
| Unbalanced margin purchases/unsold | Are individual positions biased? |
| Short selling balance | Is there an increase or decrease in large short positions |
| Stock price position | Was it already rising before the financial results |
| Comparison of peers | Is it a sector-wide movement or individual factors? |
| Index/ETF supply and demand | Is there any impact from index replacement or rebalancing |
If you look at this area, the way you view the news will change.
The same "sudden decline" has different meanings depending on whether it is a disappointing sell, a profit taking, a selloff related to margin calls, or an index supply/demand situation.
Differences in perspective between beginners, intermediates, and advanced users
When stock prices move significantly, where you look will depend on your investment experience.
| Investor stage | Reaction |
|---|---|
| Beginners | Search for why it went down |
| Intermediate | Read news and financial results |
| Advanced | Thinking about who may have sold |
| Pro-oriented | See where your money went from here to there |
At the beginner stage, it's not bad to just look for reasons.
However, it is dangerous to stop there.
If you think about not `why did the market go down,'' but who sold for that reason'' and `will the selling continue?'', your view of the market will change.
Checklist to use when making investment decisions
If you see unnatural price movements, instead of buying or selling immediately, check the following in the following order.
- Is the news really new information?
- How much did the stock price move before the news?
- Is the trading volume higher than normal?
- Is there a bias in margin buying and selling balances?
- Is there any change in the short sale balance?
- Are other companies in your industry doing the same?
- Are there any substantive changes to the company's business outlook?
- Is the buying and selling a temporary supply and demand situation or a structural change in valuation?
Looking at this point makes it easier to distinguish between whether someone is just reacting to the news or whether their view of the market has changed.
The scary thing about investing is that the easier it is to understand the explanation, the more people will believe it.
Summary: Don't watch the news. Don't stop at the news
If you want to use ``Satsukunbasha Dogoji'' for investment, the conclusion is as follows.
Don't jump to visible causes. Look at the incentives and funding flows behind the phenomenon.
News is important.
Financial statements are also important.
Interest rate, foreign exchange, policy, and geopolitical risks cannot be ignored.
However, these are factors that move the market, not stock prices themselves. What actually moves stock prices is the buying and selling of investors who receive the material.
The news in front of us may be voices from the side of the road.
Who took the reins in response to that voice? Who made the horse run? Where did the money run out?
Once you get into the habit of looking at things that far, the way you see the market will change a little.
Investing is not about finding the culprit.
It's about looking at the structure.
source
- `
Fuzoku Tsugi'' by Yubun (quoted inTaihei Goran'')`Killer Horseman Luoji'' - Japan Exchange Group “Margin trading balance”
- Japan Exchange Group “Information regarding short selling balance”
- Japan Exchange Group “Margin trading balance”