´´ Value Investing Japan

Thursday, May 12, 2022

10 Years Blogging: Japan Still Undervalued

 

Ten years ago I started my little Journey into the Bloggosphere. To be honest, the experience of running the blog in the current form has been rather sobering. The main reason? Limited interest in general and little engagement of the audience in form of comments, links on social media, etc. Actually, the blog vindicated my deep- rooted antipathy towards social media!

Be it as it may! I still enjoy writing about my ideas and findings for myself. And for inexplicable reasons I still publish some every now and then on this blog.

In this post I will make the case that Japan was, and still is, a wet dream for any contrarian value investor, a truly endangered species. I would even argue that the Japanese market has never been more attractive at the time of writing.

Saturday, March 26, 2022

Investing in Japan: Getting by on "Yuutai"

I reckon the readers of my blog will be familiar with my investment gurus, namely Peter Cundill, Walter Schloss, Jean- Marie Eveillard, and many others coming from Grahamanddoddsville.

But have you ever heard of Hiroto Kiritani? Until very recently me neither. Mr. Kiritani used to be a top-ranked Japanese player of shogi (kind of an east Asian version of chess). More than a decade ago Mr. Kiritani jumped ship, reinventing himself as an investment guru for retail investors in a weird corner of the Japanese investment universe called 株主優待 “kabunushi yuutai” (= “hospitality”).

“Yuutai” is a special shareholder benefit. Such shareholder perks are not unheard of in the west, but they are rare. In the UK, about 40 public companies provide special benefit plans to its shareholders. In the US blue chip companies like Ford, Carnival and Kimberly Clark are known for the handouts to their shareholders. To the “value investing” community the most familiar will be those offered during Berkshire Hathaway’s AGM: Discounts at Geico Insurance; large price reductions on merchandise from Borsheims Fine Jewelry & Gifts and Nebraska Furniture Mart.

Wednesday, January 12, 2022

J - Vids of Interest - The Story of Sony and Akio Morita

























Thursday, January 6, 2022

Dirt Cheap Japan

Something ridiculous is going on in the Yen exchange rate versus its major pairs. Although the nominal exchange rate barely changed over the last 27 Years, the real Yen/ Dollar and real trade weighted Yen has depreciated to levels not seen since before the Plaza Accord of 1985. 

Given the systematic underreporting of deflation in Japan over a prolonged period, the “real- real” Yen likely has depreciated even more, to levels just before the “Nixon shock” of August 1971. Simply put: Japan is dirt cheap!

But how cheap is Japan on the ground? Basically, Japan’s nominal prices for goods and services appear being frozen since the beginning of the 1990’s.

Friday, December 17, 2021

Would Japan's Real Deflation Rate Please Stand Up?!

Many misconceptions and faulty narratives about Japan’s economic trajectory after the burst of its bubble economy exist. The one most confusing is Japan’s Deflation.

Pundits twisting the deflation story as if Japan suffered a deflationary death spiral, are obviously getting it all wrong. But also the fraction claiming that Japan’s deflation, although prolonged, was very mild err. Busting this myth is a little tricky, because taking Japan’s CPI numbers at face value the statement is correct.

According to official CPI numbers Japan first witnessed deflation around the year 1999/ 2000. Since than inflation/ deflation has been oscillating around +/ - 2%. Average inflation since 1990 has been around 0,4 %. Nothing to write home about.

The only trouble with those numbers is they are misleading. Up until beginning of this year the Japanese methodology measuring inflation had been heavily biased upwards when compared to western methodologies, significantly understating deflation. European and Anglo- Saxon statistic bureaus have been constantly modifying their methodology measuring the index. The Japanese not so much.

Thursday, December 9, 2021

Pachinko: The Little Japanese Bastard That Beeps and Blinks

 Imagine a pinball machine having a romantic tête-à-tête with a slot machine. The result? Pachinko: An unbearable noisy little bastard that resembles a vertical pinball machine and never stops blinking.

Entering a pachinko parlor, the first thing players do is exchanging their hard-earned stash for a tray of small steel balls costing ¥4 each.

For western observers Pachinko is difficult to grasp. Parlors are smoky, swarmed and noisy premises. A strange place to recreate in a crowded and uproarious city like Tokyo or Osaka. Although parlors box customers like sardines, they are an extraordinary spot to be secluded. Players do not trouble each other. And trying to hold a conversation would be a hopeless endeavor given the loud noise. However, be prepared that breathing turns out to be just as impossible, once the chain-smoking kicks in.

Tuesday, November 16, 2021

J- Links of Interest; Week 46 2021

Bank Of Kyoto: Deep Value Japan Regional Bank With Nintendo Exposure At Major Discount by Valber (Seekingalpha.com)

Bank of Kyoto, Ltd. is the largest regional bank in Kyoto and trades at 32% of book value. Its banking business faces a challenging environment, but the bank holds a Japan equities portfolio which is worth thrice its market cap.

The myth of Japan’s warrior spirit by Ian Buruma (Spectatorworld.com)

The glorification of the samurai spirit began mostly after the samurai themselves had become obsolete

Japan Ups the Ante on Corporate Governance and Regulatory Reform by Archibald Ciganer and Jocelyn Brown (Troweprice.com)

Revised governance codes provide framework for corporate improvement.

Japan Is Nearing A Mega Breakout And It's Still Cheap: Here Are Some Ways To Play It y Jim Sloan (Seekingalpha.com)

Wednesday, November 3, 2021

J- Vid of Interest - Jesper Koll/ Oki Matsumoto/ James Rosenwald : Old Japan’s New Growth Dynamics

Highly recommended talk about investing in Japan, shareholder activism and the low hanging fruits P/E firms like KKR, Bain Capital etc. are enjoying in Japan. 

Specially enjoyed James Rosenwald! He was on fire (-;



Monday, October 11, 2021

Corporate Japan: Built to Endure

Companies like Ford, Siemens or General Electric, founded more than a century ago seem old when compared to newbies like Netflix and Google. Baretta, an Italian gun manufacture, founded in 1526, and Zildjan, a cymbal maker founded in 1623, appear even ancient.

But any serious Japan observer should not be surprised to see the country playing in a completely different league when it comes to longevity of its corporations. Japan is home to some of the oldest, continuously running businesses in the world.

Japanese companies dating back to the samurai era are so numerous that even a special term in the Japanese language exists: "Shinise", combining the characters for "old" and "store".

Sunday, September 5, 2021

The Hard Money Has Been Made in Japan: The "Iron Coffin lid" Has Been Lifted

Long- Term Japan investors, including myself, have been waiting an eternity for this event to happen. The hard money has been made and the “easy” is to come!

The so called „Iron Coffin Lid“ has been lifted finally. And, much to my surprise, the domestic and international investment community could not care less. 

The degree of ignorance resembles the one surrounding the advent of Abenomics in 2012/2013!



Basically, the „Iron Coffin Lid“ is a resistance bandwidth in the Topix Index between 1700 and 1900 points that had been formed after the Japan bubble popped in the early 1990’s. During the past 30 Years the level has been briefly touched or pierced on several occasions. It was always followed by swift reversals and brutal downtrends often leading to lower lows in the Index. It left Investors and speculators in Japanese equities badly bruised and/ or ruined. 

The “Iron Coffin Lid” should be seen as a main contributor to the narrative of Japan being a buck searching for windshield and bets on the country’s revival a widow makers trade.

Sunday, May 16, 2021

Fukuda Denshi (JP:6960) - Highly Profitable Growth Company at Bargain- Basement Price

Introduction

Fukuda Denshi is a leading Japanese medical device manufacturer. It offers a wide range of medical equipment products like, among others, defibrillators, patient monitoring, vascular screening -, ultrasound -, stress test - and respiratory systems. In addition, the company provides therapeutic instruments for sleep apnea syndrome and sells AED (automated external defibrillators).

Lately, the company has successfully expanded into the rental medical equipment for home care, including oxygen concentrator devices, which is starting to contribute significantly to the bottom line.

The Company holds high market share within Japan in several business segments that show significant growth, a duopolistic/ oligopolistic market structure and a secular tailwind due to the aging population.

The absence of promotional behavior (limited IR), low trading volume of the stock and no analyst coverage has created a stupendous value dislocation in absolute and relative terms seldom seen in my career as a security analyst and investor.

Basically, the company is a long- term compounder, trading at double liquidation value, spitting out an incredible amount of (growing) free cash- flow while investing significantly in future growth that is totally lacking attention of the Buffett style investors.

Thursday, April 29, 2021

Fax- Appeal - Japanese Still Enamored with Their Fax Machines!

Why does a nation conceived as being High- Tech can’t let go a technology of the 20th Century?

Introduction:

No dear reader, rest assured, this is not going to be another wacky tabloid story about Japan’s backwardness concerning technological adoption.

Rather, it is an investigation about ignorant western correspondents of highly esteemed news outlets like The Guardian, New York Times, Financial Times, Washington Post, Süddeutsche Zeitung, Frankfurter Allgemeine (to name just a few) trotting out stories about Japanese quirks that are nothing more than make-believe the western public. Correspondents not even located in Japan and when, barely speak Japanese, much less read and write it. 

It is not that they are spreading “fake news”, lying to their audience. That would imply they knew the truth. Unfortunately, it is even worse, as they are “Bullshitting” their readers. Pretending being knowledgeable about a region and culture when they really don’t have a clue.

Wednesday, April 7, 2021

Zen- Vesting: The Road to Graham-and-Doddsville - The Journey's End

"Two roads diverged in a wood, and I took the one less travelled by. And that has made all the difference." (Robert Frost)

Maybe there has not been anything in the investing world more talked of, and less understood, than outperformance. It is every investor's wish to outperform the peers and the relevant benchmark. And yet, the great majority of investors do not achieve it. However, do those investors live in a blind and eager pursuit of it. And the more haste they make about outperformance, the further they part from their journey's end.

Wall Street: The Beaten Track That Leads To Nowhere

Most investors are obsessed with outperformance. They follow the cry of the masses and dedicate most of the time scrutinizing the outcome of their actions, and compare it to those of their counterparts.

Investors listening to the siren sound of consistent outperformance should expect to end up on Wall Street. A place occupied by few wealthy and many filthy. They must expect to continue their days in wandering and error.

Wall Street is a beaten track that leads to nowhere and thus, is the most dangerous road to follow in investing. And their companions on this road, instead of helping, try to constantly misguide them. Sooner or later one of those investors following the way to Wall Street will stumble and fall. And then another tumbles upon him. And so they follow, one upon the neck of another, until the road is littered with the corpses of those misguided investors.

That is Wall Street. A street that turns out over and over again to be nothing else than a heap of miscarriages.

Off the Beaten Track to Investment Success: The Road to Graham-and-Doddsville

Let us now turn our attention to what it is the way we should be at in order to “outperform” the beaten track of Wall Street.

If we are on the right track, we will wonder why we are alone for such a long time. Furthermore, shall we find every day how much wisdom we have sought and attained concerning our investment process, companies, ourselves and about others, Irrespectively of the daily, monthly or yearly results of our action or inaction.

Hence, investors who have good chance to "outperform" the market on the long- run are highly concerned about their process. And they are concerned about taking along with them a reliable compass about the companies they invested in, themselves and about fellow investors on their journey. Those investors will end up off the beaten track. A track that leads them to a place of repose. To a little village called Graham-and-Doddsville.

The true felicity of life in Graham-and-Doddsville is that it is free from noise. Here the investor can enjoy the present without any anxious dependence upon the future. In this little village he does not have to amuse himself with either excessive hopes or fears. He can just rest satisfied with whatever security he is holding. Because the margin of safety is abundantly sufficient for the investor that is aware of its ignorance and does not expect anything.

Tranquillity is maybe the most important trait of a “Value Investor”. It is a certain equality of mind. And no condition of fortune and misfortune can either exalt or depress it. Nothing can make it less, because it is the state of the “Value Investor's” perfection.

The value investor that thinks independently, judges correctly, is persistent and enjoys a perpetual calm is the one that will be the most successful. Because he takes a true prospect of the companies he invests in, Mr. Market, live and himself. He observes an order and measure in investing and existence, and squares his professional and individual life in accordance with that reasoning.

He does care about his investments, about the market and life, but he does so without any trouble. And he does so with an indifference towards the wheel of fortune and the opinion of others. Most importantly does he not fear, because fear makes a discord. The investor that fears the market will serve the market. But the market will serve those who are tranquil in mind and patient.

The investor who wants to excel in the business of “Value investing” therefore should not follow the crowd, like lemmings. He must leave the crowd, and govern his actions by reason and not by example.

The question of successfully investing is not to be decided by vote. Far from it. The plurality of voices, especially when diversity has broken down, is an argument of the wrong. Common investors find it easier to believe than to judge. They content themselves with what is conventional, and never examine whether it is right or wrong.

 

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984



Sunday, March 28, 2021

Zen- Vesting: The Road to Graham-and-Doddsville (5)

 

"A great traveler was complaining that he was never better off for his travels. "That is very true," said Socrates, "because you travelled with yourself." Now, had he not better have made himself another man than to transport himself to another place?"

There are many proprieties of vice when it comes to stock market investing. One of such are exaggerated expectations and uncertain hopes when venturing into the business of stock market investing. Because the investor with elevated expectations is perpetually anxious and in suspense. And when he has taken great pains in investing to no purpose, he starts to regret his undertaking. He becomes afraid to go on, because he is unable neither to master his expectations nor obey them. He lives, and likely will die, restless and irresolute.

Elevated expectations are the reason that puts most investors upon rambling voyages when it comes to investing. The buy and hold strategy please those investors today, and trading tomorrow. The splendors of growth investing attract them at one time, and the prudence of “Value Investing” another. And all this while they are carrying the plague about themselves.

Those investors have to learn that it must be the change of mind, not of the stock he is investing or strategy he is pursuing, which will remove his inquietude. That his voice goes along with him, whatever stock he is holding or strategy following.

The successful “Value Investor” must keep on its course, independently of market volatility and the opinions of fellow investors. Only then will he get to the journey's end of satisfactory long- term results. The investor that cannot live happily with one strategy will live happily with no strategy.

The frequent changing of strategies and heavy trading in stock shows instability of mind and overconfidence. Those investors interact with Mr. Market just like children run up and down after strange sights. They do so for novelty and not for profit. And they will return from their venture neither better nor sounder.

Quite the opposite! The agitation only hurts them and their clients. They learn to call ticker symbols, name companies and executives, and to tell stories about them. But would their time not have been better spent in studying the simple framework of “Value Investing” outlined by Graham and Dodd, and then the virtues needed to pursue such a strategy, i.e. knowing oneself?



Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Thursday, March 25, 2021

Zen- Vesting: The Road to Graham-and-Doddsville (4)

“That which we manifest is before us; we are the creators of our own destiny. Be it through intention or ignorance, our successes and our failures have been brought on by none other than ourselves.” (Garth Stein)

In all our undertakings, might they be entrepreneurial or in stock market investing, we must first examine our own strength and weakness. Next, scrutinize the enterprise. And finally, the persons with whom we are dealing with.

It is my opinion that the first point is the most important when it comes to stock market investing. It is so crucial to know oneself because human beings are prone to overconfidence and to overvalue themselves and their skills. Human beings tend to reckon that they know and can do more than really is the case.

Especially in stock market investing should the investor never forget that all market participants are, to a certain extent, slaves to Mr. Market’s wheel of fortune. Some market participants, the “Value Investors”, are only in loose and golden chains. The majority, the speculators, in strait ones.

Even the people on Wall Street that bind most of the market participants are slaves themselves. Some to power, others to wealth. Some to offices, and others to contempt. Some to their superiors and institutions, others to themselves.

Even worse, is not life itself servitude? If it may so let us make the best out of it! Let us mend our fortunes in stock market investing with our philosophy to investing, knowledge about ourselves and fellow investors and virtuous behavior according to that knowledge

Let us not desire anything out of our reach, but rather content us with things we know and hopefully have at hand. Let us do so without envying the advantages and greatness of other investors. Because history has shown repeatedly that greatness often stands upon a shaky precipice.

Thus, let us never forget that it is less spectacular living upon a level, i.e. following the framework to investing outlined by Graham and Dodd and investing only within our circle of competence, but nevertheless much safer and quieter.


Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Tuesday, March 23, 2021

Zen- Vesting: The Road to Graham-and-Doddsville (3)

The framework of Graham and Dodd is simple but not easy. More importantly, is the framework, like any other, worthless to those investors who do not know themselves. It is also worthless to those who do not have an independent opinion about a stock in question. Is the stock a cigar- but investment? Is it a compounder? Or is it something in between?

To come up with a satisfactory conclusion the "Value Investor" must scrutinize potential investments one by one. He must examine them not on the ground of what they are called by fellow investors, but what they truly are.

It makes no sense to set a high esteem upon wide moat, great management etc., if the investor does not first know what old-fashioned "Value Investing" really is about. Because this investor will never learn about the nuances of Value Investing". The nuances of a stock fulfilling one or more parameters of value, or a stock having a great many of them. They will never grasp how those stocks differ.

The framework to "Value Investing" outlined by Graham and Dodd is of great importance, even for “scuttlebutt” investors. And a few useful and simple rules at hand do more toward succeeding in "Value Investing" than whole volumes of complex ones.

The salutary precepts of "Value Investing", and getting to know oneself, should be the "Value Investor's" daily meditation. Because they are the foundations by which he ought to square his analysis and actions in stock market investing.

 

 

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984