I’ve sold some holdings in Japan this week. I’ve updated the premium post with my Japanese basket of stocks yesterday to reflect the changes. The post has also been updated with the most recent financial data about all the companies that are in the basket.
This is the first time since 2013, when I started investing in Japan, that I’m taking some money off the table there and not reinvesting the sales proceeds back into other Japanese holdings. The main reason for doing so is that the investments have done well over the years and they have become a bigger part of the portfolio. I’ve been reviewing my portfolio and felt that it didn’t make sense to have a substantially larger allocation than when I started, while Japanese markets are a lot higher now. After selling some holdings, I’m now back to a level that I’m comfortable with.
Howard Marks said the other day that the easy money has been made. He wasn’t talking specifically about Japanese stocks of course, but I think that it is true there as well. They were extremely depressed five years ago, but the opportunity set is much smaller today. I think most investors who have run a few stock screens for Japanese stocks in the last few years will agree with that statement. So I think it is time to be more cautious than before in Japan, and elsewhere.
I’m trying to find some more special situation investments and merger arbitrage ideas that will turn back into cash relatively soon. I don’t want to be in a position where I can’t take advantage of more attractive opportunities when fear and volatility return in the markets. I’m also finding a handful of opportunities in stocks that have already been beaten down, because the entire sector they are operating in is depressed. For example: automotive retailers in the UK and companies with some exposure to the energy sector.
What I’m not finding are large areas of undervaluation, like Greek microcaps in 2014 and 2015. As you’ve not heard in the news, most of those have moved up a lot. Even the Brexit announcement hasn’t created a large number of opportunities in UK stocks so far, in my opinion. Of course Japan still qualifies, which is why I’m still investing there, but not to the degree it did a few years ago.