Skip to main content

Current Net-nets in Japan

As I write this at the beginning of September, the SnP-500 index - the index representing the 500 most valuable companies in The United States- marches on toward all time high levels. Other world stock indexes have rebounded rather quickly as well. The SnP-500, the FTSE100 (England), the Euronext index, and broad Canadian ETFs have all recovered most of the value that they lost after the catastrophic month of March, and now seem to be heading toward highs.






Although many traders subscribe to the idea of buying something at a high price and selling it for an even higher price, riding the market's momentum can hardly be considered investing in my eyes. I would prefer to look into opportunities that have a lower chance of losing their speculative valuations, even if I am at risk of missing out on the gains of the Apples and Teslas of the world.

So where is there value for nimble investors? 

Carrying on with my discussion of net-nets from the previous posts, there is plenty of value for investors who are adaptable enough to look beyond the green pastures of the SnP. The following is a list of 22 companies that are trading below the book value of their current assets minus their liabilities. These are companies that are trading for a lower price than their liquidation value. You are looking at companies that are demonstrably trading for lower than they are worth in a fire sale. On top of that, all of these companies are both profitable and cash flow positive. Although the potential of these companies to lose money from continuing operations is real - especially during a worldwide pandemic- the individual risk is minimized if one is to buy into the group as a whole. As a group, the potentially losing investments would be vastly compensated by the gains from the stocks that get recognized by the market and trade up to a more accurate valuation.

As can be seen below, this portfolio as a whole is valued at a Price/Net Current Asset Value (P/NCAV) of 0.71. So, not quite the famous "dollar for fifty cents", but the discount to real value is still quite large. The lighter green portfolio is even cheaper but your risk of owning losing stocks increases as you reduce the number of stocks in the portfolio. 

Disclosure: I am invested into Ticker numbers 6346, 5900, 5971, 7297, 6496, and I am looking to build positions in other stocks in this list. Many of these equities are extremely illiquid and orders may take weeks to fill. I recommend always using LMT orders!

Comments

  1. Hey Cantina, how much time did you wait for a fill on those names you’ve invested in?

    ReplyDelete
    Replies
    1. On average they can take a few weeks to fill. I would say it helps if the market is falling and there is heightened volume in big names in Japan. Thanks for your comment!

      Delete
  2. Nice list you've got over here. I own some of the stocks as well. There are also quite a number of net-nets in Hong Kong as well if you ever need some diversification.

    ReplyDelete
  3. Good list - did you use a screener?

    ReplyDelete

Post a Comment

Popular posts from this blog

There's Always Something to Do - The Investment Methodology of Peter Cundill

I am currently going through a list of must-read value investing books. I will continue to post summaries with passages and notes that I take away from these books and post them here as I finish them. Although rarely known outside of value investing circles, Peter Cundill is likely the most famous Canadian value investor of all time. I recommend his book for any aspiring investors to get a glimpse of the mentality needed to build a career in investing management as well as his thinking in regard to financial markets. The reason I was drawn to learn about him is two-fold: Peter is a Canadian investor like myself.  Peter has been recognized for his ability to find value in markets beyond North America - often investing in developing countries that many investors will not even consider. Although finding value in publicly traded stocks has gotten more competitive with increasing globalization and access to data, there are bound to be neglected opportunities if one is to look beyond the com

Performance of Net-nets as an investment strategy

One of my friends who is not well versed in investing recently asked me what I thought was the easiest way to make money in the stock market without doing much work. For this same reason I focused my previous blog post on introducing net-net opportunities as investments.  I have recently been investigating various studies that document the performance of net-nets in different countries. All of these studies report that portfolios of net-nets picked at random significantly outperformed the market indexes over the sampling periods. Most famous among these studies is the one by Henry Oppenheimer, conducted over the 1970-83 period. The most notable findings that should be interesting to investors are as follows: -Portfolios with an average of 35-50 stocks were constructed every year of the study with US stocks that were trading for 2/3 Net Current Asset Value (NCAV - or "net-nets") or lower. - Annual Geometric Mean Return from investing into this strategy was 28.5% per year. -Por