A Different Perspective on Japanese Stocks
Someone who reads my blog sent me this email:
I came from Japan to US for business school in 2001. I became extremely intrigued by Buffett’s value investment philosophy. I wanted to read everything available about his philosophy and became more and more familiar with his investment philosophy. And I personally pick stocks too.
Anyway, about investment in Japan, I read your “Japanese stocks: Now 34% of My Portfolio – Plan to hold Them For At Least 1 Year“, I see one part in “Buy Japan“, you are talking about “Japan is barely a capitalist country.” I see that you see Japan pretty well. They care much less about generating profits to shareholders than people do here in US. I imagine, that US investors who invest in Japan would feel slighted. They should be the boss, but not in Japan actually.
Here is the key point why I wrote. You say “It’s definitely the most investor unfriendly place on the planet – excluding a few countries that seize private property”. In my view, Japan is a country that would seize private property away from you. Not by legitimate ways, but more subtle but practical ways. Who has the largest control over Japanese economy? The system of capitalism? Absolutely no. Bureaucrats have. They have tremendous control over businesses with both explicit laws and implicit powers.
They have ways to drag down companies performance that they don’t like. If a business is strong enough and brave enough to openly fight against bureaucrats, like Softbank did in the past, there is chance to win. But most businesses are afraid of this structural, chronic bully that deprives Japan of economic flexibility over the years. But interesting thing to me is, this chronic inefficiency sometimes works well, but sometimes doesn’t. Like it worked in our 70s to 80s. But not in the later decades. My father always tells me that this is just like fascism that drove Japan in WWII all the way to final disaster. When it works well, we are invincible, but once the ship turns to a wrong way, we are unstoppable. Being said that, I wonder how, like you mentioned, pre-war southern states unraveled their woven bonds and connections and became part of the rest of the capitalism world. Losing the war changed their way of business life completely? Then, maybe Japan also needs dramatic change like that.
In my view, the Japanese have strong fear of sticking out. If you stay in a crowd, you are invisible and no one would say anything. But if you stick out too much, bureaucrats will get you. Rising stars in business are always the easiest to go after for bureaucrats who are influenced by competitors. In US capitalism holds the power. This is the rule of the game and it seems that even the government cannot defy this rule. In Japan, bureaucrats rule the market most definitely.
And most obviously, this system is not working for our prosperity.
So, I just wanted to point out your assumption that Japan is not a country who seizes private property may not hold.