Just a short update on my Japanese holdings. A month or two ago, I sold most of the holdings in my Japanese basket of stocks.
I now have only three small holdings left: Isamu Paint (4624), Fujimak (5965) and Broadcasting System of Niigata (9408). For now, I’m holding on to these three, but I’m not especially partial to these holdings either, so I will sell these as well if I find some better opportunities.
The Japanese part of my portfolio is not material anymore. In 2018 I already scaled back my holdings there. This year basically marks the end of the Japanese adventure for the time being.
So, why did I choose to sell now? There are two reasons. The main one is valuation. Unfortunately I don’t mean the increased valuations of my Japanese holdings. Other parts of the world have gotten a lot cheaper this year and they now look like better alternatives to Japan. I’m thinking about Hong Kong in particular, but I’m also finding opportunities in Singapore and one or two other countries.
I think Hong Kong is a minefield for investors and I generally feel safer investing in some unaudited pink-sheet companies in the US than buying stuff there. But the Hong Kong market was already beaten up due to trade-war worries last year and then got hit by the COVID sell-off as well. Many old-economy type companies haven’t recovered much since then and are still selling at what I think are attractive valuations.
With this in mind, it seemed better to sell my Japanese holdings. I think I’m able to find some Hong Kong and Singapore listed stocks that will probably perform better as a group. It is currently possible to find Hong Kong listed companies that are trading at comparable extreme discounts to book value to those that you can generally find in Japan. In addition, many of these Hong Kong listed companies have a long history of large dividend payments, while in Japan the valuations are often depressed because management hoards cash.
The second reason is that I feel like I never figured out how to pick Japanese stocks in a way that works somewhat consistently. If I had, then I could make an argument for holding on and expecting good things to happen to at least a few of my Japanese holdings. But to me investing in Japan has mostly felt like a crapshoot. I’ve had a few companies in my basket that were acquired (generally at bargain prices), but I don’t think I’ve been especially successful at picking those. I think I can do a better job in other markets, particularly if the relative valuations of these become more attractive compared to Japan.
This doesn’t mean that I will not increase my holdings in Japan at some point again. If other opportunities dry up and Japanese companies stay depressed, I might put some more money to work in Japan again. Currently I think the opportunities are better in other places.
Disclosure: long Isamu Paint (4624), Fujimak (5965) and Broadcasting System of Niigata (9408)