The net-bubble outside investments and the Crayfish control battle (2001)

From euphoric investing to disciplined investing

The heart of this investment failure lies in pouring the money earned in the core business, and a high share price, into outside ventures with no clear yardstick. When the market was euphoric, taking a stake in a company in a growth field looked, in itself, like proof of momentum. But an investment lacking the discipline of yield or price leads straight to losses once the bubble breaks. Worse, Hikari Tsushin did not set out to rescue the company it had backed but stepped into a battle to seize control of it, and ended up bearing the sour price of a feud with the founder and a personal injection of the manager’s own money. Before any question of skill in investing, this was the price of having had no standard by which to invest.

Ironically, this wound throws the later Hikari Tsushin into relief from the opposite side. The “net investment” the company raised as it grew into a second trillion-yen company is discipline through and through: it measures its share of investee operating profit against the purchase price as an earnings yield, and sets the lower bound of the yield it will defend as a hurdle rate. Not investing that rides price rises or momentum, but investing that holds cheap, excellent companies for the long term. Precisely because it had tasted the failure of euphoric investing in Crayfish, one may say, the weight of discipline sank in. The same company’s two investments show, across a span of twenty years, how much the presence or absence of a standard divides the result.