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Investing in Japan: There is no stock market as undervalued and as misunderstood as Japan Paperback – March 14, 2012
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About the Author
Steven is a private investor and shareowner rights proponent with a successful track record enhancing value and engaging management/directors in Japan. He has also done extensive proxy-related work in the U.S. Steven is the founder of Uguisu Research LLC. He was previously a principal of Nippon Value Capital, an activist hedge fund specializing in small-cap Japanese equity investments. He has lived in Japan for over 12 years and has the highest level of Japanese language proficiency certified by the Japanese government. Website: http://steventowns.com and Twitter: https://twitter.com/ActiveInvesting
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I have been working in investment banking industry in Japan for long time. I have never seen a book like this which well explains the Japanese undervalued stock market and Japanese corporate governance. I totally agree Steven's argument (i.e. significant undervaluation of Japan equities, unique corporate governance) and believe in the significant opportunity in investing in Japan.
However, I believe it is easy to understand the Japan's undervalued market but it is not so easy to unlock such undervalued stocks. Many activist investors tried to acquire Japanese companies in a hostile way in the past but most of the attempt were not successful. I believe people like Towns who understands the Japanese corporate culture very well may possibly take right investment strategy.
In the book, he also addressed typical concerns/ misconception by foreign investors (e.g. decreasing population, large government debt) . His arguments for such concerns are also quite persuasive. Japan is not a growth market but still in quite stabile economy and significantly undervalued compared to US or Euro companies.
The author, Steven Towns, by his own account has lived and worked in Japan for over 12 years, speaks the language and knows the society and business culture. He is here to say tell the world in definitive terms and with solid evidence in support (7 pages worth of citations), what we who have lived there all suspect: Japan is the most misunderstood, under-rated and undervalued stock market there is.
Towns is an old-school value investor in the vein of the Graham-Dodd "Superinvestors". He quotes and uses methodologies from the likes of, off the top of my head, Warren Buffett, Walter Schloss, Peter Cundill, Martin Whitman, etc.. to plead his case. If these names mean anything to you, then it behooves you to read this. The Japanese stock market has so many companies trading near cash value and under book value it would make any value investor see stars. Benjamin Graham, were he alive today, would probably be pounding the table over Japanese stocks.
The entire book is a great read, but if nothing else, Chapter 6 and Chapter 8, the ones that deal with his Bullish Japanese Premise and Corporate Governance respectively are the most important in that they outline Towns' answers to all the Japan detractors arguments for being bearish on Japan's stock market and Japan as a viable economic leader-nation in general. I especially appreciate the fact that Towns managed to address the recent news concerning the Olympus scandal that is still fresh on everyone's mind. He also includes the largely ignored, coincident news of Warren Buffett's visit to Fukushima on his very first trip ever to Japan for the groundbreaking of a newly built factory for his Iscar division in the nuclear-disaster stricken area and his endorsement of Japan as an incredible opportunity for value investment. So suffice it to say Towns is not alone in his thesis -- he has the support of arguably the greatest (and probably gutsiest) investor in U.S. history, who has put his money where his mouth is and opened a factory in the heart of the disaster and invested in its people as a viable labor-force.
The other chapters deal with some of the inner-workings of the Japanese stock market, including a chapter dealing with Japanese mutual funds that could very well save some prospective investors a lot of money and stress. He also includes several examples of value investors within Japan, some of their holdings and some of the trials, tribulations and successes when it comes to shareholder activism within Japan. Changes are slow to happen in Japan due to the conservative nature of its people, but it is coming and the recent disaster has sparked some political change in the Osaka region where a populist governor with a free-market libertarian streak is creating his own aftershocks that is threatening to ripple across the entire nation. If this movement gains force, we could very well see a catalyst for the Japanese stock market to realize its implied valuation.
All-in-all an eye-opening book and probably the first of its kind, which makes the book well worth its price.