Investing in Japan
Japan's opportunity is not growth. It is companies trading below the cash on their own balance sheets being told to do something about it.
Understand why Japan is a governance story rather than a growth one.
How Investing in Japan works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
What a 2% fee costs over thirty years
Both lines earn the same 8%. One pays 0.07% a year, the other pays 2%. The gap is not a rounding error, it is most of the point of the exercise.
- 1
Start with the balance sheets
A remarkable number of Japanese companies have traded below book value, sometimes holding more cash and securities than their entire market capitalisation. On paper you could buy the company, take the cash, and keep the business for nothing.
- 2
Understand why that persisted
Cross-shareholdings, deference to management, and a culture in which returning capital to shareholders was seen as an admission of having no ideas. The cash sat there for thirty years and nobody was embarrassed.
- 3
The reform is the catalyst
The Tokyo exchange began publicly pressing companies trading below book to explain themselves and fix it. Buybacks and dividends have risen sharply. This is the unlock, and it is a policy event rather than a business one.
A cheap company with no catalyst can stay cheap forever. Japan spent thirty years proving it.
- 4
The yen is doing a lot of the work
A weak yen flatters exporters' earnings and inflates the index in yen terms. In dollars, the same rally can look far less impressive. Always check which currency the return is quoted in.
Ordinary. The market expects steady, unremarkable growth.
You can explain why a Japanese company trading below its own cash pile stayed that way for decades.
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Japan's opportunity is not growth. It is companies trading below the cash on their own balance sheets being told to do something about it.
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