Thinking Points

  • If visiting management teams is part of your investment process, you’ll find today’s post meaningful.
  • One of my clients and I went to Tokyo for a week and met with a few companies.
  • Here are some of my observations from this trip.

If you visit management teams as a part of your investment process, you may find today’s post meaningful. Particularly so if you’ve never visited companies in Japan.

During the final week of June, I spent about a week visiting companies with one of my clients. This is actually something I’ve never done before. Here are a couple of my observations.

You can arrange a meeting too

We didn’t use a local broker to arrange meetings. In fact, we cold emailed investor relations departments. Yes, cold emails. My emails were, of course, in Japanese. But apparently you can get a good amount of traction with the help of Google Translate, as my client did.

Unsurprisingly, some of the companies never responded. But many of them did, emphasizing that they don’t speak English. And then half of the companies that emphasized their lack of English proficiency had someone speaking decent English at the meeting.

I guess this is pretty descriptive of Japan’s reserved culture. That said, I was genuinely surprised. Even with a context heavy culture and language where the spoken word shouldn’t always be taken at face value, when a Japanese person says “we don’t speak English” they usually mean it. Apparently English isn’t so foreign now, and hearing five different languages (spoken by foreigners) on the way to the train station in Tokyo is the new normal.

 

Liquidity… What?

If you’ve been to company meetings in Japan or elsewhere, I’m interested to hear your thoughts on this.

To give you some preliminary context, the companies we met were all small/micro/nano caps in deep value territory. Many of them have huge piles of cash. Piles so high that it doesn’t really matter whether they were an industry-leading robotics maker or just selling ramen splash protectors. At least as long as they figured out ways to use the cash appropriately.

Source: Just Something

By the way, if you’re looking for a good laugh, click on the link above for some of Japan’s greatest inventions.

Back to business now. The general impression I got with the few companies we’ve visited is this. Most of the folks we met, of course, were highly familiar with the intricate details of the environment in which their company operates in. The industry, key players, overall direction, their place within the industry. That sort of stuff.

Then you start talking about capital allocation and you get two types of responses. One describing a plan on how to deploy the mountain of cash and another describing all the reasons they need to keep it (which really only justified keeping something like one-third of cash, but anyway…).

Now, when you start swimming around small/micro/nano caps in Japan, it’ll soon be clear that there isn’t a whole lot of trading volume. For a fund manager, particularly for one that is a concentrated value investor, it can be incredibly difficult to build a position of material size. And so, on a couple of occasions, we talked about stock splits. And then we got the blank stare.

I would say we might as well be speaking English to them, but since decent English is a common thing now, we might as well be speaking French. I guess this shouldn’t be so surprising given that doing something with cash is certainly within the domain of expertise as a business operator while liquidity of company ownership is not a concept commonly discussed. I’m curious to know if other small/micro/nano cap investors met with management teams in other countries and had a similar experience.

In other news

I also had the opportunity to grab coffee with Steven Towns, the modern original gangster when it comes to Japanese stocks. He researched and wrote up Japanese stocks before it was cool. I’m pretty sure I’m the only guy with a Japan-focused investment newsletter now, but Steven ran a quarterly Japan-focused newsletter called Uguisu Value for a while. You can find him on Twitter too.

In any case, I thought I’d share a couple of the observations I had during my trip to Tokyo. If you had a similar experience with me about the liquidity discussion with management teams of small/micro/nano cap companies in other countries, I’d love to hear what that was like!

Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.