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Finding Japanese Net-nets


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Hi stahleyp,

 

I've been trying to screen companies in Japan as well and found it pretty difficult. I watched the recent Pabrai/Columbia business video (hat tip to long term value for finding the video http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/1387110d-5627-4513-9626-2d9f16f1f8b4) and Pabrai mentions two ways to search for Japanese net-nets. (1) Buy the Japan Company Handbook (http://www.toyokeizai.net/shop/magazine/jch/) which is like a moody's manual for Japanese companies or (2) search through companies via CapitalIQ. Unfortunately, CapitalIQ is stupid expensive so unless you have access through university or a corporate account, no love.

 

Also one of the things I've noticed is, most of the deep value net-nets (like the one Pabrai found) are most likely located on the Osaka Exchange which is hella expensive to purchase on. At least if you have an interactive brokers account it doesn't cost an arm and a leg to buy stocks on the Tokyo Exchange, but the Osaka and Nagoya...tough luck. I called Schwarb or Fidelity once to ask them how much it would cost to purchase stock on the Osaka exchange and they said it would cost 200USD and trades had to be at least 5,000USD. You might be able to find a cheaper offer at another brokerage and if you do, please tell me.

 

Good luck on your search Stahleyp. I'm personally thinking of caving in and buying the Japan Company Handbook and I'm also hoping that the Tokyo Exchange and the Osaka Exchange merge soon, so I might be able to purchase stocks on the Osaka exchange without having to sell my first born son.

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James Grant ran a fund that had tried investing in Japanese net-nets that shut down in 2010 after having operated for 10 - 15 years due to the inability to realize the value of its holdings. I think he talked about this either in his stint on King World News or Wealth Track.

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FT.com global equity screener is key, along with screener.co.  The problem is there aren't that many amazing net-nets out there, on FT.com there are 10 Japanese companies selling for below cash that are profitable, the problem is most have market caps of $5m or so, very tiny companies.

 

Screener.co turns up a few more, maybe 30 or so.  I do a lot of writing about international net-net's on my blog, and the reality is there are not many out there, especially companies that have a fighting chance of survival or a market cap above $10m.  I've profiled 7 net-net's so far, and I plan on diving into Japan next, I write at http://oddballstocks.blogspot.com.

 

I found a few decent beat-down companies in Portugal, I just went through the exchange (Lisbon Euronext) site, and looked into each listing one by one.  I know it's tedious and manual, but sometimes that's the best you can do.

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I uploaded my spreadsheet to googledocs, I have the link below.  I screened for stocks selling below NCAV with no debt, I believe all of the ones in the list are on the Tokyo exchange as well, I'm pretty sure that was a criteria, but I'm not positive.

 

If anyone digs into some of these please post what you find, I haven't had a chance to trawl yet.

 

Also if any of these issue english reports can you post the name and a link in this thread?  Most of what I've seen is all in Japanese, and I've used Google Translate to dig through, but this is cumbersome, english would be much nicer!

 

https://spreadsheets.google.com/ccc?key=0AvGl-iAW49IldHBwaVJVNjk5a1BqZ3U0dnJ3ejlDekE&hl=en

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dual_bid - Do you have a link, I did some googling and couldn't find many notes from the recent VIC, especially about 6357

 

I finally watched the Pabrai video, and he suggests just finding a basket of statistically cheap Japanese stocks and buying the whole lot and sitting tight.  I know the performance of this was profiled by SocGen a few years back, and they showed that even Japanese net-nets as a basket turned out well for an investor.  The best performance was profitable stocks for less than cash, I'm finding 21 of those right now. 

 

I've really been mulling this over as a portion of my portfolio, just buying a nice chunk.  I've also noticed for most of these stocks, even the smallest ones Fidelity has a foreign ordinary available, so purchase is possible in retirement accounts.  For some I plan on purchasing directly on the exchange, but purchasing the foreign ordinary can get you around the block size requirements the TSE requires.  So I have the choice of paying $60 to buy the foreign ordinary, or $30 directly on the exchange, except I'm locking into a minimum order size, it's a pick your poison.

 

Has anyone been buying any Japanese net-nets? Anyone purchase that book?  I looked at the sample page they provided and I can get the same and better data on FT.com it seems.  I don't know if it's worth buying that book, thoughts?

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Honestly I am sticking with Grant. I would rather get fleeced in America, Europe, the UK, and other parts of Asia then deal with the Corporate basket case that is Japan. People are going nuts because a market is down 20% or so.

 

Good Luck guys. Value is sometimes not enough, in terms of a catalyst.

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I've not purchased any of these yet. With that being said, you guys should check out Greenlight's last letter.

 

They state "For a couple of years we have speculated about a possible economic disaster in Japan. Of course, we did not expect a horrific earthquake, tidal wave and nuclear catastrophe. After the disaster, some economists have pointed to improved growth prospects as Japan rebuilds. To us, this seems like “broken-window” economics, and reflects a bias in how we keep score rather than economic progress or wealth creation. Japan has the worst positioned fiscal situation, demographics and growth prospects in the developed world. The “optimists” have maintained that Japan could carry on as long as it had a trade surplus and domestic savings to finance its fiscal deficit. The recent events put these two variables in doubt. In the aftermath, Japan will be unlikely to sustain a positive savings rate or a trade surplus. We will see whether the recent events prove to be a tipping point towards an economic crisis."

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I just wanted to say that you can trade all Japanese exchanges (Osaka, Jasdaq, Tokyo) through Fidelity online for 3000yen per trade.  So the price has dropped considerably, the order size is limited to the block size the exchange sets, but otherwise it isn't a problem. 

 

I have a few companies I've been looking at, I'll probably ease into a few as a basket approach. 

 

I'm fascinated by all the doom sayers on Japan.  I know it's a terrible situation there economically, but it seems if everyone has written it off maybe we're nearing a bottom?  Are all these fund managers giving up there the "Death of Equities" type of signal?  I keep thinking how low can it go, you have a slew of companies selling for less than cash that are profitable and growing and throwing off dividends.  At worst the stocks are completely dead money and don't go anywhere for a few years, I get 4-5% in dividends.  That's essentially the same or greater than a bond fund, except I'd argue lower risk because the companies are operating, profitable, and selling way below liquidation value giving me a big margin of safety.  Thoughts?

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  • 3 weeks later...

Not sure if anyone is still interested in this but I wanted to follow up, this thread seems to be the appropriate place to post some of this stuff.

 

I've continued to post writeups on my blog about some good Japanese net-net stocks:

http://oddballstocks.blogspot.com/2011/05/international-net-net-8-ryoden-trading.html

http://oddballstocks.blogspot.com/2011/05/evaluating-margin-of-safety-on-dainichi.html

http://oddballstocks.blogspot.com/2011/05/another-profitable-japanese-net-net.html

http://oddballstocks.blogspot.com/2011/05/buying-company-for-less-than-net-cash.html

http://oddballstocks.blogspot.com/2011/05/dainichi-redux.html

 

I have purchased three in my personal account so far.

 

 

If anyone is out there researching or buying some of these companies I'd love to hear from you.  

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Not sure if anyone is still interested in this but I wanted to follow up, this thread seems to be the appropriate place to post some of this stuff.

 

I've continued to post writeups on my blog about some good Japanese net-net stocks:

http://oddballstocks.blogspot.com/2011/05/international-net-net-8-ryoden-trading.html

http://oddballstocks.blogspot.com/2011/05/evaluating-margin-of-safety-on-dainichi.html

http://oddballstocks.blogspot.com/2011/05/another-profitable-japanese-net-net.html

http://oddballstocks.blogspot.com/2011/05/buying-company-for-less-than-net-cash.html

http://oddballstocks.blogspot.com/2011/05/dainichi-redux.html

 

I have purchased three in my personal account so far. 

 

I also put together a full writeup of what I think are the three most promising Japanese net-nets for purchase:

http://oddballstocks.blogspot.com/2011/05/special-report-three-profitable.html

 

If anyone is out there researching or buying some of these companies I'd love to hear from you.  

 

Should you charge for your own report you advertised above? 

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Twacowfca,

 

  Why not?  I have given away a lot of information, the companies in the report I actually listed earlier on this thread on the link of net-nets so there is nothing secret in there.  I did a lot of work researching the companies picking out the best and putting together a lot of information that could be useful to an investor.  I'm not sure what the problem charging for that is if the report is valuable and saves an investor time.

 

  If someone wants to save the money they're welcome to research Japanese net-net's on their own.  What I found when I started was that no one else was really doing this and I wish something like this had been available.

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Twacowfca,

 

  Why not?  I have given away a lot of information, the companies in the report I actually listed earlier on this thread on the link of net-nets so there is nothing secret in there.  I did a lot of work researching the companies picking out the best and putting together a lot of information that could be useful to an investor.  I'm not sure what the problem charging for that is if the report is valuable and saves an investor time.

 

  If someone wants to save the money they're welcome to research Japanese net-net's on their own.  What I found when I started was that no one else was really doing this and I wish something like this had been available.

 

You have the perfect right to charge for your work, but you should get a waiver from Sanjeev to advertise it here.  Generally, advertising for sale is frowned on if not prohibited.  We post ideas or analyses we care to share without charge.

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I didn't realize it would be such a problem, I removed that line from my post all that remains are links to free posts.  I enjoy this forum and would rather not be banned.

 

So what is the rule, if I didn't create the work but it has a price attached am I allowed to post about it?  Am I allowed to post a link to my blog if the post is free?

 

I'd actually like to steer this thread back to the main topic finding Japanese net-net investments.  I'm interested in it as evidenced by some of the work I've done.  This is a very cheap area of the world market but it seems that value investors are just staying away.  My sense is that Japanese net-nets are a bit of a novelty, it's cool to see a writeup but not many people are actually investing over there.

 

I ended up going to Japan because of the lack of good dirt cheap stocks in the US, I started looking worldwide and ended up in Japan.  There aren't many places you can buy profitable companies for cash or less. 

 

Japan seems similar to the US in the 1930s, everyone has given up on the market and believes it will never recover.  My money isn't beholden to any clients so I've moved a portion of my portfolio over there and will sit on it for a few years.  Even if this is dead money and the stocks go no where I'm getting between a 2 and 3% dividend which beats the rate on idle cash in the states.

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oddballstocks I can only speak for myself, but I think you are fine and also believe whatever error may have been committed has been correct. I would PM Parsad or create a new post because this is an interesting and new thing which as far as I know hasnt been discussed. Thanks for posting the free links.

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  • 2 years later...
  • 9 months later...

Time for a bump. 'West' brought up a couple of very nice Japanese companies the past few weeks. In a couple of his threads there was some interesting discussion going on about investing in Japan in general, currency hedging and what approach to take when building a Japan basket. I was initially going to reply in a couple of different topics but maybe it's easier if we start dumping all our thoughts in a single topic again.

 

In one of the threads somebody asked when to sell. I have no good answer for that. In general my strategy is to buy stuff very cheap and to try and sell it around book value. But due to terrible corporate governance in Japan I'm not sure if a lot of these companies should be trading at or above book. However, I don't really think it's that big of an issue at current prices and I excel at deferring all difficult decisions :) . Especially if TBV is growing at a nice clip I don't mind holding on for a while if the stock price doesn't go up. Nate pointed out something interesting in another thread: maybe it is better to avoid the cheapest net/nets and to buy slightly more expensive stocks that look good on other metrics too (ROIC, P/E, FCF).

 

@west and others: what does your current basket look like approximately? How many companies and how big a part of your total portfolio? Mine is still work in progress but I am considering the following companies primarily:

 

Car Mate - 0.9x NCAV, 0.45x TBV, 6x 5yr avg P/E, CAGR 9% for the past 5 years (topic).

Isamu Paint - 0.7x NCAV, 0.4x TBV, 8x 5yr avg P/E, CAGR 6% for the past 5 years, shares outstanding decreased 5% the past few years.

Fujimak (bought already) - 0.5x TBV, 6.5x 5yr avg P/E, CAGR 10.5% for the past 5 years, expanding in Asia. (topic).

Okayama Paper - 0.7x NCAV, 0.3x TBV, 6.5x 5yr avg P/E, CAGR 7.5% for the past 5 years, shares outstanding decreased 14% (!) the past years.

Murakami - 0.46x TBV, 5.8x 5yr avg P/E, CAGR 13% for the past 5 years, 0.7x EV/EBITDA. Looks actually like a decent company (topic).

 

This is a second tranche of companies that look slightly less attractive at first glance:

 

Sugimoto & Co - .07x NCAV, 20x 5yr avg P/E. Not too enthousiast about this one at first glance. Has run up quite a bit already.

KSK - ~1x NCAV, 0.6x TBV, 11x 5yr avg P/E, buying back small amounts of shares.

Namura Shipbuilding - Still have to look at. Already some shipbuilding exposure, also have some preliminary doubts about the competitive position of Japan in this industry (topic).

Global Food Creators - Still have to look at. Looks like it ran up a bit already.

KG Intelligence - Still have to look at. Already have some magazine exposure. Not sure I need more.

Maruzen - Still have to look at. Kitchen equipment, Fujimak looks cheaper at first glance.

Hakuseisha - Still have to look at.

Maezawa Kasei - Still have to look at.

Riken Keiki - Doesn't look extremely cheap at first glance anymore.

 

Any interesting additions?

 

Each position will be around ~1 to 2%. I am looking to allocate approximately 10% of my portfolio to Japan, around 8 different companies. I'm splitting between some traditional net-nets and a couple of companies that are slightly more expensive but (I hope) make up for that in quality. By the way, I would like to do something similar with Korean preferreds. Packer had some great ideas but I have no decent broker for these as of yet.

 

I'm mostly jotting this down for myself. Feel free to ignore. Probably contains horrible errors.

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