Don’t try this at home: The Paradox of Jan in Japan and other weighty issues

by admin on April 8, 2013

Don’t try this at home

You know what really fascinates me about human behaviour? It’s when you are standing in a queue to get your passport inspected at an airport and a guy in uniform opens up a new counter next to you. What happens then? There is a moment of perhaps a few seconds when people are looking around at each other to check whether it is okay to join the new queue. This lag varies by situation, of course, and it also varies by the type of people in the queue. Amongst Japanese people, I find, the delay is particularly long.

That is why I did something unusual last week.

I was just peacefully checking a translation of a Japanese financial statement, when I received an e-mail in the afternoon saying the following:

Nikkei update email - wow Nikkei update email – wow

Monetary base to double (!)

And, after checking to see what stock prices were doing, I immediately did something that I am ashamed of, but which was profitable.

What I did was that I entered into a short-term speculative transaction.

I put most of my uncommitted yen into companies paying solid dividends, such as Itochu:

Musical chairs with Itochu Musical chairs with Itochu

Why would I want to betray my value investing roots like this?

Indeed, after I did this, I felt that I needed to have a shower.

The reasons are:

1. The news in the e-mail was particularly large, but the market correction was very slow

2. Most of the action in the Japanese market has been lately driven by foreign investors

3. The itchy-finger investors were asleep when this happened

As expected, when the source of the hot money woke up, there was a jump in share prices.

I then sold, and took my money and put it into other stocks that I am building positions in and which are more under the radar.

But, despite making money on this form of musical chairs, there was something that was bugging me, and I was thinking about it all weekend.

I concluded that the reason why I have been jumping around like a cat on LSD is, ironically, due to usually having a value investment thesis on stocks that I get involved in. In Japan, since the best risk-reward appears to be in so-so companies with highly depressed valuations, and not companies with competitive moats that will grow over extended periods of time, the entry thesis is based on attractive prices more so than attractive businesses, and therefore a sharp increase in price is a strong signal for you to reverse course, jump out of the repriced stock, and search for something else to put your money into. Thus, starting from the best of intentions, you end up looking like a CNBC-addicted, FX-gambling teenager on crack.

And, without the slightest hint of modesty, I have decided to refer to this as the Paradox of Jan in Japan.

Of course, this does not justify the kind of shameless daytrading – there, I said it! – described above, but at least I feel better for having documented my decline into the den of gambling that I feel we are all falling into one way or another…

{ 1 comment… read it below or add one }

Kojak April 10, 2013 at 8:41 am

True, I had to sell all my net-nets. What’s the point in having net nets when prices rise 20%, valuations of the operative businees double or triple and the cash is theatened to be devalued over time?

I think we will see a huge crash in Japan where foreigners will dump their export stocks and the Yen shorts put on as hedges against currency losses will be closed. So Yen cash is the place to be.


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