Is Mrs. Watanabe Already Gearing Up to Play the Role of the Greater Fool?

Analysts agree that individual investors largely sat out the pre-lower house-election, post-summer, stock-market recovery. Most also believe that they have been instrumental in the post-election bull market along with overseas investors. However, there’s dissenting opinion that claims otherwise, telling us that they have been for the most part been net sellers. So who’s right?

My money is on conventional wisdom. Individual investors had been buying and selling equities in the neighborhood of 3 trillion yen per month most of 2012. In December, the month of the lower house election, the figures jumped to 5.5 (buy) and 6.0 (sell) trillion. In January, the monthly numbers crossed the 10 trillion threshold, where they have stayed ever since. What has happened is obvious: Mrs. Watanabe is selling stock, taking out some cash, then plowing most of the money back and/or churning her equity holdings—most likely both. (There’s data to make a more educated guess if you’re interested.) Either way, the individual investor is obviously helping to drive up the stock market. The real question is: If Mrs. Watanabe is finally here, can a bubble be far behind?