´´ Value Investing Japan

Friday, September 23, 2016

J- Vid of Interest: Jesper Koll (2)

Another great presentation by Jesper Koll about the state of Japan's economy.

Key Points Made:

  • Back being the last optimist in Japan. Investing in Japan has gone full circle
  • Negative interest rates hurting Japanese Banks, but Mr. and Mrs. Watanabe are benefiting
  • In terms of NGDP we are where we were 1995
  • Empirical evidence that Japan is on the verge creating a new bank credit cycle
  • Big beneficiaries not industrial conglomerates of Japan, but private household. Mortgage refinancing is picking up
  • Profit from Japanese Banks transferred to Japanese households
  • Why should you invest in Japan? What is the best thing about Japan? It is R&D spending in Japan! There was never a lost decade in R&D spending in Japan
  • Japan is bad at marketing their products, nevertheless highly innovative
  • Japan is cheap, because of deflation in Japan vs. inflation in the ROW. Japan priced back in into competitiveness
  • From a stock market investment perspective Japan has fundamentally changed. Used to be an insider club. Governments was dominated by cross shareholders. Made up 50% of Market cap. Today cross ownership down to less than 10%. Japan is now open
  • Foreigners, owning 30% of Market cap,  getting an increasing voice in corporate Japan
  • Biggest Risk to Japan? Recession in the USA
  • What is different in Japan today? Social Forces: Japan has a rival (China)/ Regime certainty: Abe will be in power for at least 3 years. Japan today the most pro- business government in the developed world
  • Japan is now a deficit country. Normal in an aging country. It's the engine that drives corporate governance. Dividend and share buybacks highest in any industrial country. Driver is economic of scarcity. Japan is running out of (internal) funds
  • Employment in Japan is growing
  • Positive Demographics: Japan will be the only advanced Economy with a rise in the middle class
  • Last year 98% of university graduates in Japan were offered a full time job within 10 day; Japan is in a demographic sweet spot, because of scarcity of workers
  • Japanese households incredibly rich. 45% of Japanese have no debt and own the home they are living
  • Real reason for deflation is lack of productivity growth ==> no incentive to invest ==> incentive to hoard cash
  • Lack of Abenomics: lack of deregulation and support of Zombie companies
  • In two year BOJ will own 50% of Japanese Debt; will than restructure debt
  • Foreign ownership of Japanese Debt now 20% of free float
  • Dependency of foreign capital is going up, irrespectively of money printing of BOJ ==> structurally Yen is going to be weak

Saturday, September 3, 2016

Value Investing And The Art of Being a Contrarian

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

Behaving like a good Christian is paramount for a deep value investor. Because many Christian values resemble core values and believes in his philosophy to investing.
Behave like a good Christian on the stock market. Take when everyone else is giving. And give when everyone else is taking" (André Kostolany)
The deep value investor knows by instinct that he has to take when everyone else is giving. And he has to give when his fellow investors are taking. It is crucial for a deep value investor to be well aware of the fact that one aspect of successfully implementing the strategy of deep value investing is the art of being a contrarian.

Saturday, August 6, 2016

Inactivity: Why Doing Nothing Should Strike You As a Rational Behavior in Investing

Chris Brown from Tweedy and Brown once told an anecdote about an investment manager he had interviewed. The money manager proudly claimed that he made 250 company visits in one year. Gosch, Chris thought “What did this guy do? Drive by the headquater and wave?”

Shortly after, another international manager claimed that his team visited 400 companies in a year. Again, Chris thought, “What did these guys do? Fly over the headquater and wave?”

Sunday, July 3, 2016

Musings on Value Investing: The "Value Trap" Misconception Trap

"A value trap is a stock that appears to be cheap because the stock has been trading at low multiples of earnings, cash flow or book value for an extended time period. Stock traps attract investors who are looking for a bargain because these stocks are inexpensive. The trap springs when investors buy into the company at low prices and the stock never improves. Trading that occurs at low multiples of earnings, cash flow or book value for long periods of time might indicate that the company or the entire sector is in trouble, and that stock prices may not move higher." (Investopedia)

The abovementioned definition of value traps is common, outright wrong and can be extremely costly for a value investor.

A genuine value trap, which is no laughing matter and a nightmare for any deep value investor, is one where a cheaply valued company has some kind of structural issue, cannot make any positive returns on invested capital over prolonged period of time, burns its cash and will eventually fail.