Geoff Gannon April 15, 2011

Japanese Stocks: Now 34% of My Portfolio – Plan to Hold Them For At Least 1 Year

Just a quick update on Japanese stocks.

A while back I wrote a post entitled “Buy Japan”. A little later, I put out a report on 15 Japanese net-nets.

Some readers are curious about whether I’ve been putting my money where my mouth is.

Yes. Over the last couple weeks, I’ve been buying some of the smallest, most obscure – and least liquid (that’s why it’s taken weeks) – Japanese stocks.

So far, I’ve put 34% of my portfolio into a total of 4 Japanese micro cap stocks. There’s a fifth Japanese stock I’d like to buy. I’m willing to put 10% into it. If I get that order filled, I’ll have about 45% of my portfolio in Japan.

No. I’m not revealing which Japanese stocks I bought. Over the last couple weeks, I’ve been buying most of the volume of these stocks. They don’t trade much. So I have to be very patient. And very quiet.

All 4 stocks had negative enterprise values. In fact, I got my shares in each of the 4 stocks for less than 60% of net cash. Over the last 10 years, 3 of the 4 stocks had no losing years. One of the 4 stocks had an operating loss exactly 10 years ago. None had any losses in the last 9 years. And 3 of the 4 stocks were bought at less than 10 times normal after-tax earnings. All pay dividends.

Despite my feeling that the Yen could be overvalued against the dollar by as much as 25%, I decided not to hedge the currency.

All my other assets are in U.S. dollars. And I have no view about inflation in the United States. So having anywhere from a third to half of my assets in another currency isn’t the worst form of diversification.

I’ll hold my 4 Japanese micro caps for a little over a year. I plan to re-evaluate them in July 2012. I don’t know enough about Japan to evaluate their business performance in between.

I think it’s probably better to impose a trading ban on myself for a full year so I’m not tempted to sell based on headlines. I didn’t buy these stocks because of headlines. I bought them because they are the cheapest stocks I’ve ever seen. It would be a mistake to sell on news what I bought purely on price.

If any fat pitches come along they’ll have to be funded through sales of the 50% of my portfolio in U.S. stocks (which is actually only 2 stocks).

Right now, having more ideas than money is definitely not my problem. There are almost no good net-nets in the U.S. I mean literally almost zero decent net-nets. Don’t believe me? Ask Jon Heller.

But nothing lasts forever. One day, American net-nets will return.

Until then, at least we have Tokyo.