I love old writings, which show staggering parallels to todays situation. This is true on a political sphere, like George Orwells 1984 (very scary though) and the stock market sphere, with the writings of Benjamin Graham ( much more exhilarating).
Let's see what Graham has to say on the astounding situation in the USA in 1932, where at his lecture in Columbia University they covered 600 industrial companies, 200 were selling less than their net quick assets and fifty for less than cash and marketable securities alone.
In italics are my comments regarding the parallels to Japan
"...spectacle of a large and old established company selling ... for such a small fraction of its quick asset is ... a startling one." (most of the net-nets in japan I find are old established companies, in business for 30 up to 100 years)
"...picture becomes more impressive when we observe that ... literally dozens of other companies ... value less than their cash in bank." (haven't gone through the 3000+ listed companies in Japan, but my gut feeling tells me that Japan now has more to offer than the US during 1932)
".. more significant still ... large percentage of all indurtrial companise are selling for less than their quick assets alone - leaving out their plant and other fixed assets."
"... great number of American businesses are quoted in liquidating value; ... best recent judgement of Wall Street, these businesses are worth more dead than alive."
(oh yes baby; to be found on second section Tokyo and Osaka stock exchange; but also Tokyo first section; is nippon more dead than alive?)
"... it happens because those with enterprise haven't the money, and those with money haven't the enterprise to buy stocks when they are cheap."
"... situation existing today is not typical of all bear markets. ...it is new and unprecendented..." (right; situation is typical for the "mothers of all bear markets", which is a once in a lifetime phenomenen; bear market in Japan in its extent (peak to trough) equivalent to great depression; Nippon was able to give a little spice to it regarding temporal extension; 20+ must have done the last japan bull (see Jim Grant who gave up); somehow the japanese are like the germans, they always overdo things)
"Two plausible and seemingly innocent ideas, the first that good stocks are good investments; the second, that values depend on earning power -- were distorted and exploited ... which ended by converting all investors into speculators, by making our corporations rich and their stockholders poor, ... by producing topsy-turvy accounting policies and wholly irrationla standard of value -- and in no small measure was responsible for the paradoxical depression ..." (oh dude; there must be thousands of (former) stockholders in Japan being on the dole by now)
"It is doubtful, however, that the declines would have gone to the current extraordinary lengths if ... investors had not lost the habit of looking at balance sheets." (personally I look to balance sheet first and than to cash flow; earnings of minor importance for me (but not dismissed))
"but since value has come to be associated exclusively with earning power, the stockholder no longer pays any attention to what his company owns -- not even its money in the bank"
"...excessive emphasis being laid on the reported earnings ...complete eclipse ...the company's working capital position." (very strong working capital positions also to be found in japan with companies, that trade with a premium to book)
"A third reason that stocks now sell below their liquid asset value ist the fear of future operating losses ... quotations reflect not only the absence of earning power, but the existence of "losing power" which threatened to dissipate the working capital behind the shares today." (that's my favourite quote; ==> Japan = land of the rising sum; land of the setting sun; the widowmaker trade)
"In all probabilitiy it is wrong, as it always has been wrong in the major judgements of the future. The logic of Wall Street is proverbially weak." ( looks like Tokyo isn't any better in its judgements)
"... stockholders have forgotten more than to look at balance sheets ... forgotten also that they are owners of a business and not merely owners of a quotation on the stock ticker... high time, that ... shareholders ... give some attention to the enterprises themselves ...." (fortunately, this will never change; if it changed, the market would become more efficient and it would be harder for me to make money)
"The supervision of these businesse must ... be delegated to directors and their operation to paid officials. But wheter the owners' money should ... be tied up unproductively in excessive cash balances ... are question of major policy." (this question is going to be dealt with on a follow up to this post)
"These are not management problems; these are ownership problems" (true, but change has to come within Japan; hard to do for foreigners; very little cases, where foreigners succeded in bringing about a change; foreigners are (unfortunately) too clumsy in their approaches in Japan)
"What stockholders need ... to become balance sheet conscious ... to become ownership conscious. If they realized their rights as business owners, we would not have before us the insane spectacle of treasuries bloated with cash and their proprietors in a wild scramble to give away their interest on any terms they can get."
"Perhaps the corporation itself buys back the share they throw out of irony, we see the stockholders' pitfully inadequate payment made to them with their own cash" (that's an interesting one, as the problem with share buybacks also mentioned by Graham and Dodd in Security Analysisi; my experience is, that japanese companies communicate share buybacks publicly (at least within my holdings) and have you regularily briefed on the status; so anyone who sells his shares to the company does it on his own peril (he might should have had a look on the balance sheet, what he's giving away)
"...stock seller of today, who hands over his share in inventories and receivables for less than nothing, and throws in real estate, buildings, machinery and what - not as a lagniappe or trading stamp."
Inflated Treasuries And Deflated Stockholders - (Forbes)
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