Never buy anything that one would feel uncomfortable holding after less than a 50% increase in market price. Assuming unchanged fundamentals, if one feels that one should sell after say, a 30% increase in price, one paid too much for the asset in the first place.
It’s always ok to sell something for a cheap price if someone else is willing to sell one an equivalent asset for an even cheaper price. However, the perceived value difference should be large, both because of transaction costs, and more importantly as a disciplining tool to encourage rigorously determined initial decisions that avoid the need to trade out into even cheaper positions at a later date. The selling decision in this case (selling cheap to buy cheaper) should be made regardless of the current market price relative to the price paid. i.e. one should not give heed to whether the sell action generates a capital gain or loss, nor should heed be given to the magnitude of such gain or loss.
Commodities are not investments. Over the extreme long term, the value of all commodities has been dropping towards zero.
The profit is made when one buys very cheap assets, not when one sells. Gains are locked in the instant an asset is purchased at a large discount to a conservative valuation of said asset.
Rigorously resist price anchoring (though this will be almost impossible). In your spreadsheet summary of securities, only display ratios and historical movements in said ratios, never directly display the market price.
Something that has increased dramatically in market price may still be an incredible bargain, and something that has fallen dramatically in market price may still be terribly overpriced.
If you find the big whale, harpoon it with everything you have. The big whale will double in price and still be ridiculously cheap. One will need fortitude to continue buying it at this point.
Do not build the overall strategy around tax minimisation. Expend all of ones energy and fury on finding the cheapest assets.
Do not waste time trying to understand any of the underlying businesses that one invests in. Even the people running the businesses, the people who understand the businesses the most, will not be able to make any usefully accurate prediction about the future.
The value of an asset is determined by the dividends, interest payments and other cash flows generated, as well as the balance sheet metrics such as net cash, net current assets, book value etc. and the historical movements in such things. The market price has nothing whatsoever to do with the value of the asset.
If one desires to track progress, do so by tracking the receipt of investment income or by the change in book value of ones holdings.
The market price of a security does not command anything. The market price is an option to engage in a voluntary exchange. Utilise this option when it is advantageous to oneself, ignore it at all other times.
A good investment is an investment made when rigorous analysis indicates a clear discount to a conservative valuation is present. The ultimate profitability of the investment does not change this classification. Good investments can ultimately result in a permanent impairment of capital and still be good investments, because the investment was rigorously justified by the facts available at the time of investment. Equally, bad investments can be profitable, but the unjustifiable logic that they were initiated with stands eternally unchanged. It should be expected that, using the above definitions, overall, good investments will tend to result in better outcomes than bad investments.
Ownership of an equity security should be understood as actual ownership of the underlying entity and balance sheet. Ownership is not a slave to the market price, it is precisely the opposite. The balance sheet is real, the cash is real, the cash flows are real, the dividends are real. The market price is just an empheral, formless option.
A general fall in the prices of all investment assets is a highly desirable occurrence for any individual who expects to be a net purchaser (a net saver) of investment assets in the future. A general rise in prices of investment assets is an unmitigated disaster, but there is nothing an individual can do about this.
The concept of mean reversion is not useful. Waving the principle of mean reversion around as a wand to justify the purchase of a cheap asset with no clear exit strategy is an unnecessary rationalisation of a course of action that requires no rationalisation. The need to appeal to the future agreement of others with ones decision as manifested through a rise in the market price of the asset in question as a justification merely displays a lack of conviction and true understanding of the actual real value of the asset. One does not need an exit strategy when paying ¥5,000 for a ¥10,000 note.
Don’t talk oneself out of paying ¥5,000 for a ¥10,000 note. This is not a useful skill to have or develop.
In the case of two equivalently cheap securities with the only difference being the scale of the entities (as represented by say, an order of magnitude difference in the market capitalisation), always favour the smaller entity. Smaller entities are more likely to be bought out, have a larger limit to ultimate growth and depending on the size of ones empire, may be small enough that one can directly exert some form of control/influence (limited or otherwise) on the mechanical realisation of value.
Net current assets growing much faster than book value is a good sign of a semi-self liquidating business that is refusing to make poor return investments in real capital. Good things happen to people who own such entities.
Demand an additional margin of safety (cheaper price) for securities that do not pay a dividend, or pay only a low rate (less than 2%). An old aristocrat would rightly believe that If it doesn’t cash-flow, it’s not really an investment.
Don’t pay more than 90% of book value for anything.
People spend too much time looking for businesses where additional capital can be invested at high rates of return, and spend too little time looking for businesses where large amounts of capital can be extracted and returned to owners without significant negative impact to the business itself.
Nobody can find the cheapest assets for you. Start shoveling, start turning over rocks, start checking the numbers. It’s the only way.
Don’t read the news, or if you have to, read it with a 40 year delay. Ignorance of the vomit warblings of others is an advantage that one should refuse to give up.
There is no tradeoff between risk and return. The lowest risk assets, such as historically profitable equities trading at less than net cash, are also the highest return assets.
No asset is inheritantly low or high risk. The price paid for the asset determines both the risk and the return.
Sun, March 10 2013 @ 18:03 » Investing » 1 Comment
Fujishouji (藤商事, security code 6257) is a public company trading on the Jasdaq stock exchange. I found this entity by trawling through a hundred or so quarterly reports of different companies. I ran an initial share screener set to filter out shares that were unlikely to be scandalously cheap based on some balance sheet metrics.
The company is headquartered in Osaka and makes Pachinko and Pachislot machines. Interestingly, one machine they sell is an adaptation of the anime 地獄少女 (Jigoku shoujo, probably best translated as “Hell girl”) which particularly appealed to my aesthetic tastes. They have a lovely site dedicated to it that one can peruse. In any case what sparked my interest in the shares of the company was not any appeal of their products nor any bullishness on their industry, but the unusual amount of value contained within their balance sheet and the relatively steady improvement of said balance sheet since listing on the Jasdaq in 2007.
According to calculations I have made from the company’s quarterly figures there is net cash per share (that is, cash minus total liabilities) of ¥67,084, net current assets (current assets minus total liabilities) of ¥118,740 per share and book value of ¥172,039 per share. Book value has grown from ¥140,006 per share in the December 2005 report to the aforementioned ¥172,039 in December 2011, a modest 3.49% compound annual growth rate. Of course this rate of growth is yen denominated, so the trend of flat to small increases in the yen’s purchasing power must also be taken into account, as well as the very low interest rates obtainable among yen denominated fixed income securities. Furthermore, dividends amounting to ¥4,000 per year were paid in the fiscal years ending March 2006 and March 2007, while in each of the years following this ¥4,500 per share has been returned to shareholders.
There have been two modest share buybacks occurring in Q4 2010 and Q1 2011. Both buybacks reduced share count by 3,000 shares, from 254,955 shares before the buybacks to 248,955 shares following the completion of the second buyback, a cumulative reduction of 2.33% of outstanding float.
Considering the security recently traded at a price of ¥89,900, it would seem to be an investment with a significant margin of safety. Using the net cash position of ¥67,084 per share, it should be possible to pay a dividend of such magnitude were one able to gain control of the company, and that is after all liabilities have first been extinguished. Following payment of this massive dividend, one would still retain the historically profitable operating business, including all related inventory, accounts receivable, machinery, land and buildings. There are even some marketable securities in other companies to be found in possession by Fujishouji, which would also remain after the huge dividend payment had been distributed. At a market capitalisation of ¥22.93 billion, only the greater of mercantile princes among us are likely to have the resources to stage a takeover attempt, so the above value realisation scenario remains quite unlikely. However, at recent prices the dividend on the security alone yields a massive 5%. Provided the dividend is maintained at this level, as it has been for the past several years, a long wait to unlock the full value held within this balance sheet need not be an unduly unpleasant experience.
As mentioned above, I have no insight to offer on the future business prospects of neither Fujishouji nor the industry it operates in. It is certainly a possibility that conditions could rapidly deteriorate, as is the case for any enterprise. However, the increase in book value over several years, the past steady payment of dividends, the case of two relatively recent minor share buybacks, and most of all, the mind blowing wall of cash held by Fujishouji would lead me to believe that the margin of safety present when acquiring an interest in the entity at current prices is as sufficient as even the most prudent of enterprising gentlemen could demand.
Sat, May 5 2012 @ 18:05 » Investing, Japan, net nets, The Fires of Industry » No Comments
Having been employed for less than a year, I still have not entirely succumbed to the madness of
battery humans. As happens, many of the people I work with have recently had or are about to have
children. In fact, there are only two of us in the particular group of the machine that I labour in that do
not know the joy of ownership of a screaming, insentient, ravenous resource consumer.
Before the Bosses Boss got promoted (to the Bosses new Bosses Boss) I had the privilege of
visiting Bloomberg’s office in the Marunouchi building with him. It is a most beautiful office, enough
to shame me into wanting to at least clear out the several cubic meters of crap that myself and
another accomplice hid under several unused desks at our own office. Apparently their magnificent
fish tank cracked during the earthquake and spilled all over the place, but such is the price of mind
fucking your customers with grandeur.
We were talking to a most engaging man, gainfully employed/enslaved at Bloomberg, and the topic
turned to children. He had recently had a child, as had the Bosses Boss. He asked me if I had any
children, to which I replied “No, I’m still happy.” The Bosses Boss then exclaimed “You don’t know
what happiness is yet!” I then got to hear how awesome it is to have a mini version of oneself run
around the place and bump into things.
But what is this happiness that they speak of? I see exhausted, sleep deprived men snap at each
other over trivialities. Empty gazes at pictures of their offspring as a man driven insane in the desert
might look upon a mirage, filled with false hope. Years of additional slavery to acquire the resources
to feed the helpless thing.
There is significant statistical evidence that people who have children report lower life satisfaction than those who do not. But more than this, what troubles me directly is seeing people forget and give up on their own dreams and pile their hopes and aspirations onto their children, ever before the child even becomes properly sentient. I am starting to believe that in many people (but certainly not all), some fire within them is quenched when they have a child. Why make the effort to chase some mad dream or quest or aesthetic or adventure, why go to the trouble building a tower into the heavens when one can just sink into the lazy subconscious delusion that ones child will achieve everything that you gave up on. But the child is just the same as the parent. In time the child will come face to face with the drudgery and relentless demands of intellectual vigour required to chase its own dreams. If it flinches and abdicates the aspiration of building castles in the sky to its own offspring, then 15 – 50 years after its parent it will have fallen into the same trap and repeat the selfless folly in an endless cycle.
I myself used to actually think in a way resembling the above, and in a more indefensibly conscious
manner than most people. I grew up in Ireland, but hated the place. I planned out my dream to move
to Japan, a country that is much more suited to my mentality and preference set and is filled with
awesome shit that I was told wasn’t possible and continues to blow my mind to this day. I told myself
if I just got to Japan, got a job, got married and had a few children, I could then leave the
responsibility of thriving within Japan and attempting of greater things to my future children and
grandchildren. I figured that I’d never be able to get my Japanese to high enough a level to be able
to properly achieve my full potential and my intellectual laziness lead me to push the hard work onto
my dreams for my future children.
Looking back at my thought process now, I can say I am pretty disgusted at my past self for
displaying such a lack of vigour. I achieved my dream of escaping to Japan, and it has turned out to
be even slightly better than my excessively high hopes. I must admit, as anticipated by my
unvigourous past self, raising my language ability comprehensively to the point of being able to
have proper intellectual discussion and to truly thrive is really hard. But that is no excuse to
surrender the most exciting and worthy quests to false hope for my potential future children.
Everything cannot be put on hold because of an unfortunate, but correctable with enough heroic
effort, case of illiteracy. I have spent much of the past months in a sort of catch up phase, as the
realisation came upon me that voluntary failure is a disgusting way of life. I may even still have
children, but if so it will be a side quest of merit in its own regard and not a glorified tool for
surrendering to mediocrity.
Before I get lynched by a mob made up of every human who is considering having or has had a child, I would stress that I am not making some ridiculous condemnation of the decision to procreate. Rather I am giving a sincere warning against losing oneself to false hope and false comfort, which will end in profound disappointment in oneself. I am sure there are many wonderful experiences related to having offspring. But if you want to live in the place of your dreams, if you don’t want to work as a slave for your whole life, if you want to create something beautiful, if you dream of having an elegant tea party with top hats and cigars made of ￥10,000 notes on top of a mountain, you have to get the hell out there and make it happen yourself. Your future children cannot live your dreams for you, and you will end up feeling empty and disappointed to the extent that you remap your own hopes and aspirations on to them.
Mon, January 23 2012 @ 08:01 » Uncategorized » No Comments
This post is largely unreadable but would make things more awesome.
Assuming the exact same conditions as of today:
1. Change the electoral system to a single transferable vote system with the entire country as one constituency. All voting would be electronic and for convenience it would be possible to also put a party block for any numbered preference. E.g. one could vote for an individual in the DPJ as 1, put second preference as the LDP bloc, third preference the Communist Party bloc, fourth an individual from the Komeitou etc. This would encourage a broader country based mindset, instead of one mired in trivial local lobbying, while still allowing individuals or parties with primary support in narrow geographical areas to be elected. It would also give an extremely proportional outcome. I won’t clog this post up with the detailed mechanics of the system.
2. I would merge the Ministry of Finance and the BoJ and proceed to cease issuing government debt. Outstanding government bonds would be paid as scheduled. Government payments would be made by crediting bank accounts while taxes would be taken by debiting bank accounts. The government would not match the net credits pushed into the private sector (the budget deficit as it is called) by issuing an equal amount of self replicating government liabilities (government bonds), rather it would allow the reserves to pile up in the banking system. The Finance Minister would set the interbank rate (the interest rate at which the government is effectively willing to lend unlimited overnight funds to members of the banking system) though primarily macro economic management would be carried out through adjusting tax rates.
3. The vast majority of exemptions and deductions from income tax would be abolished and rates would be significantly lowered but a highly and steadily progressive structure would remain. Corporate tax would be reduced to a token level, probably around 5% but the separate taxation of dividends and capital gains would be ended and they would be taxed as regular income. As the present rates on dividends and capital gains are flat and relatively low, the changes in the tax code (lowered rates, no exemptions, including dividends and capital gains as regular income) would equalise the burden on equivalent incomes. Thus rich workers and poor capitalists would benefit significantly, poor workers would benefit slightly and rich capitalists as well as those able to exploit present exemptions and deductions would lose significantly. On a net basis there would be a significant fall in tax revenue.
4. To offset large reductions in corporate and income tax rates I would implement a very high land tax, taxing the unimproved assessed value of the land. This would encourage the development of land, as the value of improvements (such as gigantic skyscrapers (…which will probably fall over in a big earthquake…)) would not be included in the calculation of the tax liability incurred from ownership of the land. Zoning rules would be greatly relaxed to encourage massive developments and driving down the cost of rent.
5. Sub-national government entities would be funded directly and banned from issuing their own debt. The level of funding would be determined by the central government as that necessary to implement all the responsibilities and development goals of the government in an efficient but rigorous manner. Local taxes would be abolished. Existing prefectures carrying debt would receive a one off per capita cash infusion equal to the level of debt per capita of the least indebted prefecture. Those prefectures with debt remaining (all but one) would be required to implement a temporary local tax until such time as the remaining debt is paid down. The same system would be applied to cities.
6. The level of government spending would not be used as a macroeconomic tool. Rather, the government would spend whatever necessary funds in order to create or acquire the real resources needed to carry out its obligations to the populace and development goals. Rates of taxation would then be adjusted in a counter-cyclical manner to manage the macroeconomic condition of Japan. Should inflation and supply capacity constraints manifest themselves, the government would raise taxes to extract purchasing power from the private sector. This would reduce the private sector’s ability to command real resources and hence extinguish inflationary pressures and preserve the relative purchasing power of the government liability used by the private sector as a unit of exchange and account (the Japanese Yen). Similarly should a chronic shortage of demand cause a slump in activity the government would cut taxes and push large amounts of Yen into the private sector (some people would call this running a large budget deficit, but the important point is that the size of a budget deficit is irrelevant for an entity that issues in its own liabilities and it would be utter foolery to target a specific level of deficit/surplus as the policy goal).
7. Outrageously large incentives would be created to have children. In addition I would formulate a propaganda campaign encouraging people to have children highlighting various different positive aspects from multiple different angles. E.g. some parts of the campaign would emphasise “oh aren’t children so nice”, while others would appeal to young women by showing babies as a glorified fashion accessory, while yet more would play to the patriotic duty of continuing the existence of Japan etc. etc.. Also, though it would not be a practical measure and may indeed be somewhat reckless, as a sort of publicity stunt/effort to sear into the minds of the populace the need to reproduce, I would implement a special tax on condoms.
8. Measures would be implemented to consolidate Japanese farms into super-large argri-businesses in an effort to raise efficiency to the level found in other developed countries. Tariffs on food imports, including that of rice, would be gradually cut as the consolidation process progressed in order to maintain strong competitive pressure and a feeling of momentum behind the reforms.
9. Related to this, the population is declining and urbanisation continues relentlessly. In such a situation it is foolish and hopeless to attempt to maintain rural populations at the present level. I would take an “organised retreat” mentality towards this process and actually plan and encourage migration away from unsustainably small villages and towns into cities. High density population results in much greater efficiency and economies of scale as well as positive network effects. Since the agricultural reforms would be improving efficiency and reducing employment in the countryside in any case, such a planned urbanisation makes even more sense. Of course any individuals would be free to remain in their homes in the countryside, but should they wish to join the migration to the technotopian cities, the government would actively assist them.
10. The alliance with the USA would be scrapped and all of their bases would be removed from the country. A defense pact would be pursued with South Korea, Taiwan and possibly Singapore obliging each of the powers to come to the defense of the others. This pact would be primarily based on the threat from North Korea, though unfortunately there is always the possibility that a conflict with China could also arise. While the Chinese have much more in common with the Japanese than the Japanese have with the USA (the society in the USA and the outlook of the American people is the polar opposite of Japan’s), such as a desire to build a harmonious society like Japan and little desire to impose its own cultural preferences on other countries, the Chinese government has unfortunately insisted on holding two absurd positions in regards to the occupation of Tibet and the denial that Taiwan is an independent country, of which it clearly is. Both of these positions have the capability to cause international conflict and in both cases the Chinese government is so clearly in the wrong that they must be opposed should such situations arise. However over time I would hope that the Chinese government will back away from such absurdity so that the whole of East Asia can concentrate on building Japan-like utopias without having to worry about potential military conflict.
11. While homelessness and unemployment are already low compared to other countries, I would not relent until both were annihilated. Jobs would be provided to any that could not find employment in the private sector or in the regular section of the public sector, doing various socially useful work. The wage would be poor but basic accommodation would also be provisioned (similar to how some Japanese companies have company dormitories and such) if necessary. Should an individual be unable to work because of lack of education and training, then such training would be given. Suits would even be provided to give dignity and encourage discipline and a sense of solidarity.
12. Prohibition would be abolished. All drugs would be heavily regulated and heavily taxed. Smoking in public would be banned. Though it is already rampant, prostitution would be legalised, regulated and taxed.
13. Taxes on fuel would be increased to at least the levels found in many European countries. Taxes on cars would be gradually increased in an attempt to tax the majority of people off the road in the long run, similar to what is currently done in Singapore. Public transport is already excellent, but it would be expanded moderately to offset the decline in private vehicle ownership. As Prime Minister I would also appeal to Japanese companies to stop wasting their ingenuity developing cars and to instead expend their efforts on something that does not result in the output of a grossly inefficient murderous death wagon that leaves the nation dependent on fuel imports.
14. Home ownership would be discouraged, as it is more efficient to have a sub-segment of the populace specialise in providing and managing accommodation for the rest of the populace. As previously mentioned in the general comment on tax deductions and exemptions, any properties of the tax code that artificially increase the incentive to own a home would be removed.
Sun, May 29 2011 @ 16:05 » Economics, Japan, Solidarity » 1 Comment
I meant to post a review of this manga last August but never got around to it. The title translates to “Penguin girl”. This is the first volume in the second set for this series. So it’s actually the fourth volume from a story perspective. Since the first three titles covered the storyline that I had already watched in the anime version I just started from this one. It’s also interesting to note that stylistically the author has progressed massively, to the extent that compared to the first volume, this volume looks like it was written by a different person.
The story revolves around a 14 year old girl called “Nankyoku Sakura” (Sakura being her first name) that is the eldest daughter of a Zaibatsu family. Zaibatsu is the term used to refer to the pre-war conglomerates in Japan. In the post war period the intra group relations have become less tightly bound and they are now referred to as Keiretsu. Anyway, Sakura is basically an extreme Otaku who frequently gets overwhelmed by the cuteness or moeness of someone/something and ends up doing something outrageous. The whole thing is riddled with fanservice based gags.
The above is her “normal clothes.”
The rival Zaibatsu’s eldest daughter (Mari) is also in Sakura’s class. Sakura just wants to be her friend but previously Sakura also somewhat inadvertently bankrupted them so not only does Mari hate her, she also doesn’t have enough money to buy a school uniform so has to come wearing the school swimming apparel. The moeness of this sends Sakura into an uncontrollable frenzy:
In this scene she declares her tomboyish friend Etorofu as being her “future husband”:
Sakura and Etorofu go the their friend Nene’s shrine to help out. But Sakura makes herself a custom Miko outfit with appropriate mini-skirt, knee socks and gigantic ribbon. This is the type of modern reinvention of beautiful old culture that all countries should be aiming for!
Sakura is frequenly scolded by her younger sister (Kaede) for squandering her pocket money on figures of anime characters. Sakura tried to get a job doing a paper round so she can buy the figures out of her own money, but she gets caught when her sister gets up early for a school trip. After that she goes to work in a clothes shop (as usual dragging along Etorofu) but invariably gets caught up in various disasters.
But for all the scolding and constant giving out to her older sister for embarrassing the Zaibatsu, Kaede still comes looking for advice after a guy in her class asks her out. I found this quite moving, at least until Sakura screws it up by giving “advice” that is just direct quotes from the anime she watches.
As for the difficulty of this manga, it is certainly much tougher than Tsukiyo no Furomaaju. On a chapter per chapter basis there was probably three times as much vocabulary that I didn’t know. If one was just starting out trying to learn Japanese through reading manga, I would strongly suggest looking elsewhere for beginners material. There’s also the issue that alot of people learning Japanese aren’t so interested in “this kind of thing”!
Anyway I must say this left me thoroughly entertained. I’ve already gone through the second volume and have the third and fourth bought and ready. Will post up reviews when I get the time.
Sun, January 23 2011 @ 21:01 » Japan, Manga » No Comments