What’s on your bookshelf, inspired by Morgan Housel

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I was pleased to see that Morgan Housel of Collaborative Fund included a couple of investing books within his “23 Books That Changed My Life” (May 12, 2017) that I happened to have on my shelf. John Train’s Famous Financial Fiascos is one of them. I serendipitously found several Train books at the Friends of S.F. public library’s massive annual sale years ago as a recent grad going through the obligatory investment learning cycle (e.g. books by the Gardner brothers, founders of The Motley Fool — Housel was previously with MF —  progressing to Train and Benjamin Graham — I found Security Analysis and The Intelligent Investor waiting for me at the same book sale, and thankfully had the latter to lean on before taking the plunge on the former). I have written about Train a few times over the years.

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Uguisu Value Q2 Updates

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Looking for Japanese smaller cap stock ideas? The Q2 edition of Uguisu Value publishes this weekend [update: published May 14]. If you’re new to my website or if you’ve been considering subscribing, now is a timely opportunity to receive updates on the 5 best ideas published to date and 3 new watch-list ideas. For important background on the newsletter see this newsletter link or click via the left menu and you can also scroll below for past posts. In short, Uguisu Value is focused on small and micro cap Japanese stocks trading at significant discounts whether or both to net asset value and/or earning power.

Four of the five best ideas remain very attractively valued and as is common with value investing can be trying on the patience of investors — they have all increased their book values and three of them trade at an even bigger discount to market value. The lone exception has encountered unexpected operating challenges that have resulted in lower revenues and a sharp drop in profitability, but the company/management has a strong track record, solid balance sheet, and there is a very valuable fixed asset component.

More details of these five companies with their latest earnings updates as well as three watch-list ideas appear in the Q2 edition of Uguisu Value.

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.

Third issue of Uguisu Value features Japanese micro-cap

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The third issue of Uguisu Value is now available. My best idea featured in this third issue is a micro-cap that I think can easily double over the next year. I continue to find the best value and upside (MOS with 100%-plus upside potential) among Japanese smaller cap companies. Uguisu Value embraces fundamental research, portfolio concentration and looks for asymmetrical (reward/risk) opportunities typically relying on Japanese language sources (also, featured companies may not have English securities filings or financial reports). See this link for subscription details or scroll below for recent updates.

Why Value Investing Works

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Here’s an alternative view of why value investing works (see indented quote below). It’s obviously not the only reason, but it strikes me as something that’s likely to perpetuate (at least in the U.S.). I’ll elaborate by adding a generalization that few people read and who knows how much they gain/retain. Thus, for investors, the competition is fundamentally guaranteed to be fairly limited. Combine the above with the interesting studies of Horizon Kinetics (see @HorizonKinetics on Twitter), for example, as well as with the long recognized reasons why value investing works, and our chances are even better yet. Google this post’s title and for those who haven’t seen Tweedy, Browne’s related report, include its name in your search. In last week’s Barron’s editorial, “Commencement Address: On diminishing the value of a college education,” by Thomas G. Donlan, the following excerpt caught my eye:

The U.S. tried this before [reducing “barriers” (to college completion)]. A broad movement arose at the end of the 19th century to bring more Americans to a higher level of education. Fewer than 15% of Americans had graduated from high school, so high school was made into a free entitlement, with lower academic standards. By 1999, 83% of Americans had graduated from high school, but they had to go to college to get something like the education that high school grads received in 1900.

 

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.

Berkshire Beyond Buffett: Final Chapters

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This is the final post of my live-tweeting and highlighting of professor Larry Cunningham’s book, Berkshire Beyond Buffett. I’ve practically run out of superlatives…. ValueWalk (dot-com) reported Berkshire Beyond Buffett was among the top-10 books purchased in 2014 by its readers. I suspect the momentum will continue this year. If you’ve missed any of the tweets or posts, see them in order here: IIIIII, and IV (and follow on Twitter: @ActiveInvesting).

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Berkshire Beyond Buffett: Modesty and Simplicity

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This is my fourth installment of notes and summary tweets of Larry Cunningham’s perspicacious book, Berkshire Beyond Buffett: The Enduring Value of Values. If you’ve missed any of the tweets or posts, see them in order here: I, II, and III (and follow on Twitter: @ActiveInvesting). I’ve selectively shared nuggets from Larry’s book and I’m finding Twitter’s 140 character limit to be just-right for capturing some of the highlights to share with others that will also spark my memory of the greater detail in the book; this also preserves the bulk of Larry’s hard work.

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Berkshire Beyond Buffett: Values

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Here’s my latest installment of notes I’ve compiled while I continue to read Larry Cunningham’s wonderful book, Berkshire Beyond Buffett: The Enduring Value of Values. Chapter 6 (“Kinship”) is one of my favorites thus far. It seemed to come alive and really epitomize “the enduring value of values.” I will continue to shares notes in this way as it’s much more efficient (posting a summary of my live-tweets) than trying to go back and put my notes into prose. One-third finished reading, I can already say that Berkshire Beyond Buffett is a keeper for me and should be on your reading list if not already. See my earlier posts (I and II).

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