Uguisu Value to feature net-net in first ed. of 2016

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Update 31 Jan. 2016: The first 2016 edition of Uguisu Value has been published and emailed to subscribers. See latest details in original post below. Note also the new one-time subscription offer for investors that would like to gain access to the current issue featuring a net-net and the three other issues from 2015 (the maiden issue has since been made available as a free sample).

Original post:

2015 proved to be a difficult year for many value investors, Uguisu Value (focused on value investing in Japan) included. While the four best ideas in Uguisu Value all achieved near-term upside, they all managed to end the year below their share prices compared to the time of publishing. At 3 of the 4 companies, their intrinsic value has grown, so the value gap has also widened.

With patience (acknowledging opportunity cost meantime) and an ability to arbitrage time (it would be great, yes, if value is realized in 15 or 18 months rather than 24 months or more), I continue to expect significant upside potential supported by solid assets and ongoing profitability.

For 1 of the 4 companies, its operating environment has intensified drastically. However, it has owner managers, a patient value investor as its largest shareholder and a strong balance sheet (without giving away too much information, it has a real estate development whose value approximates the company’s market capitalization).

For potential subscribers to Uguisu Value, note the following:

  • the first edition of 2016 is scheduled to be published on Sunday, Jan. 31
  • this first edition of ’16 will feature a profitable Japanese company whose cash along with investment securities and investment real estate (minus all liabilities) exceeds its market capitalization; a net-net by this definition (not a 2/3 NCAV, but a massively undervalued co. also on NAV basis)
  • new subscribers get free access to the 4 best ideas from 2015
  • for more background on Uguisu Value see: http://steventowns.com/uguisu-value-newsletter/

Uguisu Value Newsletter Update

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*Update 10/31: The fourth and final 2015 issue of Uguisu Value published for subscribers’ review over the weekend ahead of the market open in Tokyo (on Monday, November 2nd). See most recent update below or click the Uguisu Value Newsletter link here or in the left-menu area for additional details. 

Previously on 10/7 and 10/15:

Many friends, family members and colleagues agree that 2015 has been flying by and somehow mid October is already just around the corner. For the Uguisu Value newsletter, that means the fourth and final issue of the year will be published soon (current target publish date of month’s end). I launched Uguisu Value in January as a means of offering one deep conviction, heavy portfolio concentration write-up for value investors based around the world seeking smaller-cap Japan equity ideas that feature asymmetric reward v. risk: upside of at least 2x and minimal downside due to solid margins of safety and historical/current profitability.

It has been somewhat of a roller coaster ride with interim upside of 30%+ for two of my best ideas. Presently (updated 10/15), however, share prices of all three are down since publishing: by 5% or less in two cases and about 13% in another. Having thoroughly researched these companies, it is now, essentially, a matter of time arbitrage. Founding subscribers as well as subscribers from Q2 and Q3 have been excellent, demonstrating the indispensable value investor virtue of patience and in some cases as I’m aware, taking advantage of Mr. Market.

I am fully invested in my best ideas and in some cases have sizable allocations. My Japan portfolio typically has less than six positions. If I were managing external permanent (or patient) capital or a private equity investment fund, all three best ideas to-date are ideal acquisition candidates of which I would love to own much larger stakes or outright.

  • For my maiden issue (request a sample via email: contact [@] steventowns.com), I maintain my valuation upside of a baseline 200% correspondingly with a solid margin of safety. This company is the epitome of deep value (rich balance sheet assets) opportunities in Japan. Having written-up two higher-ROE companies subsequently, I look forward to sharing another company whose balance sheet assets alone make it investment worthy, not to mention also being attractive with regards to profitability.
  • My Q2 best idea was among those with 30%+ interim gains, but the company’s stock price has undergone a sharp reversal that is excessive considering the company’s earning power (and history of profitability) and strong balance sheet. I maintain my original 100% upside target, but full value realization may naturally take longer due to the lower valuation from which it must increase. I will be watching the company’s execution in its core business segments and management’s capital allocation decisions (i.e. will there be further share repurchases?) in the coming months and next year.
  • My Q3 best idea is a micro-cap that has made significant investments and is poised for top and bottom-line growth that I expect will drive its valuation higher conservatively by 2x. Execution risk is low (e.g. new warehouse construction is complete; deliberately accumulated inventory is quickly ramping up for sale), while monthly sequential and year-over-year revenues have all been increasing. This is another case of time arbitrage. The valuation is extremely attractive and although it could temporarily decrease somewhat due to exogenous factors such as any China news of late and selling induced by broader market selling, the reward v. risk profile leans (heavily) asymmetrically in favor of the former.

I hope this update is helpful both to those who have been considering subscribing and newcomers to my website that learn of Uguisu Value. Given the ongoing availability of excellent valuations in Japan, I fully expect to continue featuring Japanese smaller-cap equity best ideas into 2016. One of my investing circles-of-competence is this very segment of smaller-cap and domestic/consumer-oriented Japanese companies that have a combination of attractive valuations with growth opportunities or other value-unlocking catalysts. Japan clearly lacks the equity culture found in the U.S., however, as much as efficient markets are found to be inefficient in New York (let alone Japan), the candlestick charting momentum proclivities not uncommon in Japan are also to the advantage of value investors. Furthermore, the seemingly innumerable self-proclaimed macro pundits and Japan experts continue to misunderstand Japan and again that is ultimately to value investors’ benefit.

Link for Uguisu Value additional information: http://steventowns.com/uguisu-value-newsletter/

Email for Uguisu Value maiden issue sample: contact@steventowns.com.

Some thoughts about investing in Japan

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I recently published an exclusive article at Seeking Alpha, “Thoughts About Investing in Japan.” I like how SA has incorporated the summary bullet points atop its posts. I’m posting them below here with the original article linked in the aforementioned title. It’s not easy writing about Japanese stocks on SA when fewer and fewer Japanese ADRs trade in the U.S. (you can’t link Tokyo-listed ordinary shares on the site), let alone the matter that I’m focused on smaller caps. Have a look at the SA article and by the way, if you missed it, I launched a small/micro cap quarterly best-idea Japanese stock newsletter (Uguisu Value) in January.

Summary

  • Nomura’s latest investor survey shows Japanese individuals remain long Japan.

  • Demand for Japanese stocks seen exceeding supply.

  • Most-watched stocks include many usual suspects.

  • Thinking of Soros, Templeton, and Marks for Japan 2015-20.

  • Japanese stock idea generation.

Uguisu Value Newsletter: micro and small-cap Japanese stocks

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The Uguisu Value newsletter, focused on micro-cap and small-cap Japanese stocks, has launched! The first edition features a micro-cap (>$50M <$300M) with a conservative 200%+ upside; an asymmetrical risk/reward profile with multiple value-unlocking catalysts including potential for the editor and private investor, Steven Towns, to engage management/BoD.  Steven’s portfolio is highly-concentrated in thoroughly researched deep-conviction equities targeting baseline 2x(+) returns. Each quarterly edition of Uguisu Value will feature one in-depth writeup: such focus comes from Buffett’s “20-hole punch card” mindset and the fact that the best investors tend to have concentrated portfolios. Fluent in Japanese and a specialist in smaller-cap, domestic-demand focused Japanese companies, Steven’s research uses original Japanese language sources, often of companies that have little or no analyst coverage and no English (language) securities filings; all newsletters are published in English. Click for additional details and to subscribe. We look forward to welcoming you as a subscriber.

Japan-focused portfolio performance versus select benchmarks:

2013: 34.1% (40.1% in yen-denomination) | TSE-2: 44.2% | Jasdaq: 87.1% | Nikkei 225: 56.7% |
iShares MSIC Japan ETF (EWJ): 24.2% | WisdomTree Japan Hedged (DXJ): 38.1%

2014: 32.6% (49.1% in yen-denomination) | TSE-2: 23.0% | Jasdaq:   1.9% | Nikkei 225:    7.1% |
iShares MSCI Japan ETF (EWJ): -6.4%  | WisdomTree Japan Hedged (DXJ): -1.9%

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The Uguisu Value newsletter has been reviewed and is endorsed by:

John Mihaljevic, CFA, and Oliver Mihaljevic of The Manual of Ideas

Guy Spier, Aquamarine Capital —“Excellent thinking and ideas for investing in Japan.”

Nate Tobik, 
Oddball Stocks —“Steven Towns is an expert on Japanese small caps.  If you want exposure to cheap and safe Japanese stocks with a value-bent then Steven’s letter is the ultimate resource.”

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Interested in a free copy of the first edition? Email us your name and affiliation (indiv./private investor or company name) and we’ll email you a copy prior to releasing the second edition scheduled for early April. Email: contact@steventowns.com.

Recap: Debt, JGBs, Value Investing Simplicity, and Japanese Stocks

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I’m going to see how posting a daily summary of my tweets goes. I’ve always felt that tweets are too ephemeral and despite the excellent information and leads that do get shared,  there’s far too much action/noise/distraction on Twitter. There is at least a “favorite” button, but the weak search function and inability to bookmark and sort, is something I hope Twitter gets right, soon. I’m starting these summaries for my own benefit — a quick recap of what I tweeted, retweeted, and favorited — and I’m fine if it remains for an audience of one and would of course be thrilled if others benefit. Highlights:

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ビーピー・カストロール株を利益確定

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先程のツイート

アベノミクス開始約一ヶ月前ビーピー・カストロール()の株を買い始めた。日本にしかない全体市場と銘柄の割安度。しかも黒字でROEも割高の会社は珍しくない。更にビーピー・カも高配当だった。いよいよ5015の人気・株価が行き過ぎて完全に利益確定した。 

利益確定:

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Nomura’s Individual Japanese Investor Survey

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The results of the latest Nomura survey of individual investors in Japan (August 14th) show Japanese investors are slightly less bullish — naturally given Ukraine/Russia, Iraq, Israel/Hamas, etc — though they are not getting spooked out of equities. Investors remain upbeat on the yen (correspondingly bearish on the euro) and they say they like Japanese equities best again (most bullish on capital goods and bearish on consumer goods).  Continue reading

What to like about investing in Japan

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In a recent article by IBD about the attractiveness of foreign stocks, Dennis Stattman (a manager of the $60 billion BlackRock Global Allocation — ticker: MDLOX), commented that there is a lot to like in Japan. Dennis cited upward earnings revisions; corporate managers starting shareholder-friendly policies; and attractive valuations. He believes Japan is in the very early stages of a multi-year bull market. Continue reading

Nomura’s Individual Japanese Investor Survey (June 2014)

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Nomura’s (NYSE: NMR) (TYO: 8604) monthly “Individual Investor Survey” was released yesterday. (Here’s my walk-through for May). Japanese investors are slightly more bullish, while they remain concerned about international affairs with a particular interest in forex developments, naturally. Their top sector focus (most appealing/unappealing) was unchanged: they like capital goods and autos, somewhat surprisingly in my opinion; bearish on transportation and utilities, unsurprisingly. Japanese investors seem to always have a place in their heart for higher yielding currencies, hence their fondness for the Australian dollar, though they also like the yen, which is interesting because 65% of respondents see a weaker yen on the horizon. So what investment do Japanese investors like most?  Continue reading

Nomura’s individual Japanese investor survey (May 2014)

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Nomura’s (NYSE: NMR) (TYO: 8604) monthly “Individual Investor Survey” was released late last week. This is worth an investor’s time to flip through for a read on the psychology of the Japanese investor. Nomura also lists participants’ most-watched stocks (keep reading for a screen cap) and includes questions that deal with current developments (this month’s concern the consumption tax hike impact and shareholder meetings). I discussed Nomura’s survey as a resource in my book, Investing in Japan. The survey is one of a few resources that will enhance English-language access to, and understanding of, the Japanese market. Continue reading