―How did the legendary rice trader leverage his multidisciplinary trading strategy to become Japan’s richest person and live his life?
My professional career in investment management spans over 30 years. As the first CFA/CMT dual charterholder in Japan, I have been championing a multidisciplinary approach to investment management, integrating fundamental analysis, technical analysis, quantitative analysis, and behavioral analysis. I have served on the board of the CMT Association since 2020. Previously, I served on the boards of CFA Society Japan, the International Federation of Technical Analysts (IFTA), and the Nippon Technical Analysts Association (NTAA). In total, I have contributed over 20 years of service to these professional investment organizations.
In this essay, I explore the life and legacy of Munehisa Homma (本間宗久, 1724–1803), a legendary 18th-century rice trader renowned as the wealthiest person in Japan during his time. He amassed an extraordinary fortune by employing advanced trading strategies in Japan’s 18th-century rice markets, most notably at the Dojima Rice Exchange in Osaka, the world’s first organized commodities futures exchange. In his later years, he served as a financial advisor to the Shogunate government.
Homma is known as the father of Candlestick Charting. However, he actually employed a multi-disciplinary approach to trading, combining fundamental, technical, and behavioral analyses. Also, despite the absence of computers during his period, his rice futures pricing was remarkably accurate. He also devised and implemented an innovative information system that gave him an advantage over other market players.
I decided to write this essay because I feel a strong connection to his multidisciplinary trading approach and a deep resonance with the way he lived his life. Additionally, many people have asked me whether I am one of his descendants.
This essay explores how the legendary rice trader built a fortune and lived his extraordinary life.
Note: In Japanese writing, his name is written as 本間宗久. 本間, his surname, can be spelled either “Homma” or “Honma”. 宗久, his given name, can be correctly pronounced either “Munehisa” or “Sokyu”. In this essay, I use “Munehisa Homma.”
Munehisa Homma’s Early Life
Munehisa Homma was born in 1724 as the third son of a rice merchant family in Sakata, a coastal town approximately 365 kilometers (227 miles) north of Tokyo, in what is now Yamagata Prefecture. In this town, his family ran a rice merchant business under the trade name “Niigata-ya” (新潟屋, meaning “Niigata Shop”). The trade name reflected their connections with the neighboring Niigata Prefecture, which was—and continues to be—the largest rice-producing region in Japan.
At the age of 16, Munehisa Homma, then known as Hisasaku, ventured to Edo (present-day Tokyo) to broaden his horizons. Upon his return, he suggested to his father, Mitsumoto, that they engage in rice market speculation. Mitsumoto, however, rejected the idea, saying that it was not a righteous way to conduct business.
Following his father’s death, Munehisa’s eldest brother, Mitsutoshi, assumed leadership of Niigata-ya. However, he retired within a few years and designated his son, Mitsutaka, as his successor. In preparation for his new role, Mitsutaka was sent to Naraya in Himeji (in modern Hyogo Prefecture) to work as an apprentice, leaving Munehisa to manage Niigata-ya as the acting head for a few years.
Early Success and Failure
While managing Niigata-ya, Munehisa Homma allocated 20% of the family business’s capital to speculate in the local rice market. His efforts led to significant success, resulting in increased profits and expanded operations.
However, upon Mitsutaka’s return to assume leadership of the business, the two clashed over management policies. The conflict escalated, leading Mitsutaka to sever ties with his uncle, expel him from the business, and donate much of the earnings from rice speculation to public works, including the establishment of sand protection forests.
This setback marked a challenging period for Munehisa Homma. Determined to succeed, he left for Edo to continue trading in the rice markets. However, his new ventures in the capital ended in failure, ultimately resulting in bankruptcy. In despair, he returned home to Sakata.
Becoming the Wealthiest Man in Japan
However, Homma did not give up. Undeterred, he analyzed his failures, revised his strategies, strengthened his mental resilience through Zen training, and relocated to Osaka to resume trading in the rice markets.
At the time, Osaka was known as the “Kitchen of the Nation” and served as Japan’s commercial capital, acting as a central hub for food distribution across the country. The rice market in Osaka was more dynamic, with a higher trading volume than that in Edo.
In Osaka, Homma achieved unparalleled success and earned massive profits by meticulously analyzing the market, forecasting its movements, strategically taking positions, and managing them with precision.
With the wealth he accumulated in Osaka, he returned to Sakata and continued trading. Later, at the age of 50, he moved back to Edo, where he once again achieved great success in the rice market. This allowed him to further expand his already massive fortune.
Ultimately, after years of conflict, Munehisa reconciled with Mitsutaka, his nephew who had remained the head of Niigata-ya. Following this, Homma resumed spot rice market trading for the family business. In addition, he extended loans to various domains in Edo, further solidifying his immense wealth and influence.
Later Years
In his later years, Homma primarily lived in Edo, where he served as a financial advisor to the shogunate government. He also embraced Buddhism.
Highly respected for his success and humility despite his immense wealth, he passed away in Edo at the age of 78.
Homma’s Books
Homma wrote his first book, “The Fountain of Gold—The Three Monkey Record of Money” (三猿金泉秘録), in 1755. In this work, Homma emphasized the psychological dimensions of trading, highlighting how traders’ emotions significantly influence market prices. He also underscored the importance of identifying market patterns and the cyclical nature of bull and bear markets.
Other books he wrote include “A Full Commentary on the Sakata Strategy” (酒田戦術詳解), where he detailed his trading methods, and “Tales of Munehisa Homma’s Life Immersed in the Market” (本間宗久相場三昧伝), where he reflected on how he lived a life deeply immersed in the market.
The Scale of Homma’s Monumental Success
Homma’s wealth is estimated to have exceeded the equivalent of USD 100 billion in today’s terms. At a time when Japan’s GDP was approximately USD 1,500 billion, his fortune accounted for 7–10% of the country’s total. (Some estimates suggest it may have exceeded 12%.)
He was widely regarded as the richest person in Japan. His achievements were so celebrated and frequently discussed that he became a common figure in popular culture. One example was a song that gained popularity in the 18th century, which elevated his prowess above that of feudal lords with lyrics, such as:
“I can never reach the heights of Mr. Homma,
But I can at least aspire to become a feudal lord.”
Homma’s Multidisciplinary Trading Strategies and Innovative Communication System
Homma used a multidisciplinary approach to trading, integrating multiple disciplines and an innovative communication system to gain a significant competitive edge. His strategies included:
1. Fundamental Analysis
Homma conducted thorough research on rice harvests, including analyzing current conditions across the country and predicting yields based on temperatures, rainfall, and other factors.
2. Technical Analysis
Known as the father of Candlestick Charting, Homma developed techniques that remain foundational to modern technical analysis. Also, seasonality pattern analysis played a significant role in his trading strategies
3. Behavioral Analysis
He recognized the impact of human psychology on trading and codified 157 trading rules including many addressing behavioral biases, such as:
Some explicit examples included within the 157 rules are:
- Plan well before you trade.
- Do not hasten. Wait for three days.
- Do not be envious of other traders’ success.
- Do not trade by anger. Never sell or buy by being angry.
- Do not attempt to capture every market movement.
- When the market starts to move in your direction, do not get carried away; stick to your original plan.
- Do not be complacent after months of successful trading.
- After incurring a loss, do not attempt to recover it by doubling down.
- When you realize you are wrong, liquidate the position and wait 40–50 days to regain your composure before trading again.
- When market sentiment is heavily one-sided (i.e., when everyone is either bullish or bearish), a reversal is likely imminent.
- When you are bullish, others also may be bullish; consider trading on the short side. Similarly, when you are bearish, others also may be bearish; consider trading on the long side.
- Remember that there are two kinds of regret:
- Taking Profit Too Early: When you take profit too early and miss the subsequent movement, you may regret the lost opportunity. However, this type of regret is easier to laugh off and move past.
- Holding Out Too Long Due to Greed and Ending Up Losing: When you are about to secure a decent profit but fail to realize it due to greed for more profit, the market may suddenly reverse, leaving you with a loss. This type of regret is much more painful and leaves a lasting impact on your mind.
4. Accurate Pricing (Quantitative Analysis?)
Although computers did not exist in his time, researchers have found that his rice futures pricing was remarkably accurate, even by today’s standards. Recorded prices closely aligned with John Maynard Keynes’ commodity spot futures pricing formula, which was developed a century later.
5. Innovative Communication System
During the 18th century, the fastest communication methods in Japan were generally believed to be horses or couriers. To obtain market prices along the approximately 700-kilometer (435-mile) route from Osaka to Sakata, Homma established a system that relayed market information to him faster than his competitors, giving him a significant advantage over other market participants. This system utilized a semaphore-like code, communicated by informants stationed at regular 6 kilometer (4 mile) intervals between Osaka and Sakata.
Importance of Rice in Japan’s 18th-Century Economy
In 18th-century Japan, rice played an unparalleled role in society, far exceeding its current significance. Consequently, succeeding in the rice market then had profound economic and political implications.
Unlike modern Japan, renowned for its strong manufacturing industry (exporting automobiles, robots, machinery, precision equipment, and other goods), the 18th-century Japanese economy was predominantly agricultural, with agriculture accounting for approximately 70–80% of the GDP. Within agriculture, rice was the dominant crop, composing roughly 90–95% of total production. Moreover, rice served not only as a staple food but also as a form of currency and a major trade commodity.
Furthermore, during this period, in the absence of modern economic metrics like GDP, rice production was the key measure of economic power. This was reflected on the economic power of feudal lords (or “daimyos”), being measured in units of rice yield called “koku”. One koku, equivalent to approximately 180 liters (about 48 U.S. gallons) of rice, represented the annual consumption needs for one person. For instance, a feudal lord with 1 million koku could feed 1 million residents for a year, making him ten times more powerful than one with 100,000 koku, who could only feed 100,000 people.
Dojima Rice Exchange: The World’s First Organized Futures Exchange
Established in 1697, the Dojima Rice Exchange in Osaka was the world’s first organized commodity futures exchange, specializing in rice trading. It played a pivotal role in Japan’s early modern economy and left a legacy that continues to be relevant to this day.
In 1730, the Tokugawa shogunate officially authorized the trading of rice futures at Dojima, marking the formal inception of the institution as an organized entity. Dojima served as the national hub for rice trade, attracting brokers and traders from across Japan. Although it was dissolved in 1939, many trading rules and practices developed at Dojima were adopted by commodity, equity, and financial futures exchanges worldwide. Its legacy continues to shape modern financial markets.
In 1952, following in the footsteps of the original rice exchange, the Osaka Dojima Exchange (ODEX) was established as a listed derivatives exchange. Today, ODEX continues to provide a platform for commodities futures trading, including rice and other agricultural products.
Am I a Descendant of Munehisa Homma?
Many people ask whether I, Akira Homma, might be a descendant of the renowned rice trader Munehisa Homma. This curiosity arises because of various parallels:
- Our surname: We share the surname Homma (本間).
- Our profession: Like Munehisa, I am engaged in financial markets.
- Our approach to investment: As the first CFA/CMT dual charterholder in Japan, I champion a multidisciplinary approach to investment, as Munehisa Homma did.
An additional and intriguing connection that strengthens the likelihood of our shared bloodlines lies in our origins. Munehisa was born in Sakata, Yamagata, near Niigata, which is my birthplace. Niigata has historically been the largest rice-producing prefecture in Japan and had evident ties to Munehisa’s family business, which operated under the name “Niigata-ya (新潟屋),” meaning “Niigata Shop.” This suggests that the roots of his family and business were deeply connected to Niigata.
If I were his descendant, I would likely be around the 8th or 9th generation. However, without a family tree tracing back that far, this remains unverified. Perhaps one day, I will delve deeper into exploring the lineage. For now, however, the question of whether Munehisa Homma and I are related remains open.
Munehisa Homma’s Lasting Legacy
Munehisa Homma’s legacy as the developer of candlestick charting and his multidisciplinary approach to trading have had a profound and lasting impact on financial markets. By integrating fundamental, technical, and behavioral analyses, along with his innovative communication system, Homma became Japan’s wealthiest individual in the 18th century. His principles of thorough fundamental analysis, technical analysis, trading rules rooted in market psychology, accurate pricing, and advanced communication tools continue to shape contemporary trading strategies. While the question of whether I, Akira Homma, am a descendant of this legendary trader remains unanswered, the enduring influence of his contributions to financial markets is indisputable.
References
- Munehisa Homma. “Tales of Munehisa Homma’s Life Immersed in the Market” (本間宗久相場三昧伝)
- Shonai Securities. “Sakata Five Methods and the Honorable Munehisa Homma” (酒田五法と本間宗久翁)
- Katsunari Yamaguchi. “Back to the Futures”
- Osaka Dojima Exchange (ODEX)
- Nippon Technical Analysts Association (NTAA). “Comprehensive Guide to Japanese Technical Analysis” (日本テクニカル分析大全)
- Nippon Technical Analysts Association (NTAA). Technical Analysis Course Material
- Japan Securities Newspaper “Sakata Five Methods and Principles of War: The Secrets of Market Charting” (酒田五法は風林火山: 相場ケイ線道の極意)
- Terutaro Hayashi. “The Definitive Edition of the Sakata Charting Method.” (定本 酒田罫線法)
- Terutaro Hayashi. “Secret Record of the Honorable Munehisa Homma: The Origin of the Sakata Charting Method” (本間宗久翁秘録―酒田罫線法の源流)
- Kano Akiyama. “The Brilliance of Tengu: The Man Who Surpassed the Shogun – Market Master Munehisa Homma” (天狗照る 将軍を超えた男‐相場師・本間宗久)
- Wikipedia
