Just a quick update on Japanese stocks.
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.