lessons from 2013 #3

3. The yen will not save you. This holds true unless you are Mitsubishi motors or Mazda. The yen has weakened, but halfway through the 2013 fiscal year, very few companies are blowing the lights out with surprising profits. Instead the diversification of production over the last 5 years has insulated many companies from the vagaries of foreign exchange. 

What we have here is a failure to inflate. So you get what we had here last week. Which is the way he wants it. Well he gets it. 

The yen cannot save japan. It is now undervalued and thus will have a tendency to strengthen barring outside interference. 

We have entered the knowledge economy, whether japan wants to recognize it or not. 

The smartest country wins. The more you send kids to graduate school the better chance of survival. The US knows this already. Japan thinks it can provide a quick fix with the yen. It can't.

If japan wants to compete with china at its game, good luck. But this is low stakes poker compared with what is out there for the intelligentsia to take. 

Boys, be ambitious. This still holds true. 

lessons from 2013 #2

2.  Early stages of a rally are powerful, violent and extremely profitable. 

Taking a position in monex or Mazda or any of a hundred other stocks geared to a cyclical upturn would have been prudent at the start of the rally in December last year rather than sticking to value stocks with limited downside risk and stable earnings through 16 years of deflation. I will have to remember this in another 10 years when the next such opportunity arrives. Such is the lament of a value investor; to watch the greatest party in years erupt and be stuck with your cousin for a date. 

lessons from 2013 #1

Success in investing is measured in years and decades rather than in the short term. And in order to get to the ray dalio stage of perfect clarity and benevolent omniscience we must from time to time autopsy the past and gird ourselves for the future. 

So with that in mind I present the 10 things I learned, relearned and possibly have already forgotten in this past year. 

1. Monetary policy trumps all - Abe has arguably done nothing of significance since taking over with the notable exception of appointing Kuroda as the boj governor. The nikkei movement can nearly all be explained by yen weakness, which in turn can nearly all be explained by QQE from Kuroda. 

so in 2014 my eyes will be on Kuroda first and foremost, with Abe assigned a footnote in this japan revival white paper

Nafco 2790

Been spending a good part of my Sunday looking into Nafco, a Kyushu based home center operator with dreams of expansion nationwide. 

The stock has lagged the recent rally significantly after a downward revision in November which they blamed on the weather. 

Now, I am of the mind that rather than talk about the weather one should do something about it. If that isn't possible then don't bother to talk about it at all. 

I suspect nafco's problems may run a bit deeper than cloudy skies. As they expand into new territories they are bumping heads against formidable rivals such as komeri. A scan of the message boards also indicates the level of service customers receive leaves something to be desired. 

Now if this is not a spectacular business, it is at least a spectacular price. Assuming he company undershoots this year's guidance and only earns 200 yen eps, it is still trading at 7.5x PE. And with a dividend payout of 36 yen or 18% of eps, the potential for an increase is formidable. 

Oh, and it trades at 3x ev/ebitda. 

And the founding family owns more than 20% of the stock. Say what you will about Japanese management, it is clear when the person running the company has their fortune on the line, the results are positively affected. 

It may not be sexy, but considering the boom in new home ownership in japan, you could be in a lot worse stocks than a DIY and interior design company. 

I will be placing my order to buy on Tuesday. 

reset, relax, rethink

The tax rate rise has given me a wonderful opportunity. I have sold nearly everything I own and have now cleared the proverbial mental slate to allow for a fresh approach to my portfolio rather than hanging on to a few dogs that were hurting a rather decent year. 

So goodbye and good riddance Watabe wedding, the cost impact of the weaker yen was not offset by a wealth effect send ing young couples to overseas weddings as anticipated. 

Sayonara Kawasaki Kinkai, you run a great operation in a structurally weak industry and so we must part. 

Au revoir Geo holdings, you are supremely cheap, but tsutaya has you beat and video stores do not have a bright future. 

Now, some of you stellar superstars that have aided my bank account in 2013 may make a reappearance in 2014, but there are no guaranteed spots. That means you Sakai moving, maruzen Kitchen, Roland dg, dic, mitani and Fukuda denshi! Consider yourselves warned. 

There are a number of bright starry eyed candidates knocking on my door. With a little investigation I hope to be back in in full from early 2014. 

If you are going to invest in Japanese stocks, you sure as hell better be invested from January to April. It's just about the most outstanding seasonal pattern of anywhere I have ever encountered. 

Happy hunting and if you want my thoughts on individual stocks just drop a comment and I will respond.