Made in Japan 🇯🇵

Everything on Japanese Culture & Investing 🌱 Local market insights 🗺️ Quality 📈 Hidden Gems 🔍 Unique mental models 🧠 Views my own. Not investment advice.

[Made in Japan 🇯🇵 @InvestInJapan]

The First episode of the Made in Japan podcast is finally out. (Link in reply)

We felt our interview with Philip was going to be the perfect first episode as an introduction to Japanese markets.

Over the last 2 decades, he’s seen the country as a lawyer, investment banker and now an investor. He’s worked with truly the pioneers of Japanese activist investing like Yoshiaki Murakami of M&A Consulting and Seth Fischer of Oasis.
Through his adventures not just in Japan but in East Asia, he has so many interesting stories to tell!

We learnt
⚪︎Why Activism Struggled in the past and why that’s changing
⚪︎Why Activism, and Japan, is still a huge opportunity today
⚪︎Some of the misconceptions of Activism
⚪︎Japan’s unique business culture and how Japanese companies think about M&A
⚪︎And some of his favourite things to do in Japan!

We still have alot to improve on so we’d love to hear your feedback, thoughts or suggestions if you have any!! Or even any guests that you’d want us to interview!

We hope you enjoy this conversation. If you liked it and want to hear more, we would really appreciate it if you like this post, retweet, and subscribe!

Thank you for your interest and support ♥️🎌

Finally a special thank you to the people around us who’s been so encouraging and supportive for this project. Ben and I still have no idea where this’ll go but we hope to bring some unique perspectives!

[Made in Japan 🇯🇵 @InvestInJapan]

This completely misses the point, they are very open about how they operated during the bubble, they invested more like a careless VC. Getting into trouble then is exactly why the founder found religion in Value investing/Berkshire and had become a disciple since.
People make mistakes, you can’t blame them forever for it if they’ve corrected it and subsequently succeeded.

[Made in Japan 🇯🇵 @InvestInJapan]

💯schools (at least in my time) was all about just remembering stuff and not actually understanding.
And then you go to a good school and tell people you go to a good school. But its mostly virtue signalling.
The smartest guys I've met from those schools never mentioned that they even went there.
The smartest/most successful investors I know in Japan today (better than me by several factors) almost all have non-traditional career paths (never went to university, had an unrelated job etc) which is probably like 2% of the population today.

Hikari was seen as a bad company over the decades and yeah it was a bit culty at some point but it was also just a feature of meritocracy. Either you performed or you were out. The cool thing is that even if you were 'out' they always gave you another shot. You just had to climb back up from the bottom. This is not something Japanese society was/is used to and It gave every one the chance to have a shot at succeeding regardless of your background/where you're from. There's even foreigners working there now.

[David Orr @orrdavid]

Hikari Tsushin employs a lot of people. They're a pure meritocacy so anyone can thrive. If someone shows promise playing the stock market, they'll get to do that, too. Their team is a tiny % of the people working at the company, who happened to be good at it. I'd point out this scales damn well, too.

This is completely different from the traditional finance world. There, a kid gets a high quality tutor growing up who helps them memorize the assignment. And they have someone brilliant to write their university entrance essay for them. They then get into the "great" school and automatically get hired. Their real job is to seem professional and serious, not even to perform well. That is Hikari's competition in the stock market - and Hikari's mission is to actually perform well.

[Made in Japan 🇯🇵 @InvestInJapan]

@DaBao_ ok I get it you won too much and got expelled DaBao the last Airbender

[Made in Japan 🇯🇵 @InvestInJapan]

Btw this divergence could go longer than people wish too, if the AI trade really has legs going out into 2030, I see a world where it's possible to get uber screwed for not having any exposure as well. I dunno. Investing is hard.!!!

[Made in Japan 🇯🇵 @InvestInJapan]

I guess everyone is starting to see this but at least for the fund managers around me focused on Japan, quite consistently there's been a divergence in performance between those that are betting on AI and those that are not in recent months.

It's starting to remind me of 2024 where all the money and attention went to large cap value and some of the cheap growth names were left by the way side. It's not just institutions but retail which are the main constituents of small/micro caps that drove this.

Feels similar where all the attention/flows are going to AI at the moment. All the money/attention from retail are also moving to this theme. At least in years past, such trades in Japan can get crowded fast.

I also continue to have exposure into AI but increasingly more cautious, There are quite some non AI/Semi companies that are growing fast trading at single digit earnings, some even improving shareholder returns that's simply not getting as much attention.

[Made in Japan 🇯🇵 @InvestInJapan]

@MikeFritzell Oh not at all, but maybe I can plug my original SaaS Piece from March here ;)

[Made in Japan 🇯🇵 @InvestInJapan]

Interesting comment from a CEO: in contrast to what the media makes it seem, the entire Semiconductor industry was not necessarily strong. It's only the AI related part that was strong and said to represent about 30% of the market. Other segments like for EV has been struggling and some of these end markets are finally making a turn.

[Made in Japan 🇯🇵 @InvestInJapan]

@CompaCompu 🙇🏻‍♂️

[Made in Japan 🇯🇵 @InvestInJapan]

So there's a Japanese company that is a hidden AI beneficiary, and a key bottleneck in the Data Center value chain, trading below book value. They serve a niche critical function that no one in the world can do... because MLCC something something Memory.

Anyway, this is not a post about that. (lol sorry, don't block me) But since you're here, here's an update on Kyowa Corp $6570.JP, my salty revenge play on Genda. It's an expression of Japanese IP/entertainment - and specifically in a segment where I believe we're starting to see a structural acceleration with the entrance of retail majors like Lawson and Family mart wanting a piece of the action.

Sometimes old ideas can be good new ideas and I continue to like the risk-reward profile of this company at 8x P/E and 2x EBITDA.

This has performed decently since I wrote about it initially. And so far, the results have been strong. Earnings grew 40%+ last quarter and guidance looks good. After some discussions, I decided to share my thoughts on why I'm happy to remain long.

Here I share:
- Why I think it’s still cheap, and the structural changes we're seeing
- Where there are emerging opportunities that didn't exist before
- New potential risks
- Some thoughts on valuation

Enjoy!

[Made in Japan 🇯🇵 @InvestInJapan]

@BlownUpCapital Truth

[Made in Japan 🇯🇵 @InvestInJapan]

Not sure where they say 19% for 20 years but seems about right. Even in the last 9 years Hikari's IRR has been 18% pre-tax. What's impressive is that they've achieve this with a book of 700+ Japanese equity positions run by people who have zero traditional finance experience.

[Michael Fritzell (Asian Century Stocks) @MikeFritzell]

Didn't realize it was that high? 19%. Actually very impressive. They were at the Berkshire AGM

[Made in Japan 🇯🇵 @InvestInJapan]

@sightspinner But also that there are stupid, cheap companies and you can make money without any professional experience. In fact, I'm starting to think this might even deter you from it.
Their strategy is too simple for intellectuals to admit to want to do it.

[Made in Japan 🇯🇵 @InvestInJapan]

Now investors can get access solely to Hikari's Equity Investment strategy. They are launching their Hikari High Quality Value Equity Fund with SBI!

One to watch for sure. $9435.JP

[Made in Japan 🇯🇵 @InvestInJapan]

@sightspinner CIO is from Accounting and others are picked from unrelated departments.

[Made in Japan 🇯🇵 @InvestInJapan]

@holden_commodor 🫶

[Made in Japan 🇯🇵 @InvestInJapan]

@RogueWayve Lol sorry pls dont hate me

[Made in Japan 🇯🇵 @InvestInJapan]

@UnintelligentI2 😅😅

[Made in Japan 🇯🇵 @InvestInJapan]

All the liquidity is leaving anything thats not AI and going to Kioxia and friends.

[AltayCap @AltayCapital]

Japan deep value getting clobbered last few days. Rough out there!

[Made in Japan 🇯🇵 @InvestInJapan]

This exact problem applies to Japanese family-owned companies, where we have the highest inheritance tax in the world. Former Hedge Fund PM Kiyohara-san saw these as good shorts as it led to forced selling by the owners' families. (He did this for Lasertec at one point)

This new Korean policy is interesting.

[Michael Fritzell (Asian Century Stocks) @MikeFritzell]

Korea's inheritance tax is calculated off the market value of the shares at the time of passing. This provides strong incentives to suppress the share price.

But it looks like sub-0.8x stocks will soon be taxed at book value instead. We'll see much fewer stocks trade below book

[Made in Japan 🇯🇵 @InvestInJapan]

@puppyeh1 🔥🔥🔥