FAQ for beginners
1. What broker do you use?
I use Kabu.com.
You need a bank account in Japan to set up an account, as far as I know.
The other major brokers Japan are Rakuten and SBI.
Unless you are managing say $10 million or more, the most practical way to transact in Japanese stocks from outside Japan, in my opinion, is to open and Interactive Brokers account.
I have an IB account, but I do not use it for Japanese stocks. Apparently, the charges are massive relative to those in Japan, but commissions in Japan are very low. If you want to trade small amounts (e.g. less than $10,000 per transaction) or if you want to trade relatively frequently, then there appears to be no good solution for you. Sorry.
2. Is it worth buying the ADRs of Japanese stocks?
I would hope that you knew better than to ask that.
There are only about 20 or so ADRs available (excluding on the pink sheets, which, I have heard are abominable in terms of liquidity).
All the ADRs are large caps, where there will be relatively few inefficiencies that can be exploited through good research and analysis.
This is the antithesis of the whole point of buying Japanese stocks.
If you have missed it, then the point is that there are some 3500 stocks listed, about the same as the UK, France, and Germany combined, and much fewer brokers than in Europe, leaving lots of free space for exploration of uncared-for stocks (some would, perhaps unkindly, add that there is a difference in the quality of research at brokers in Japan vs. Europe & the US; however, I have never felt there was a deficit of stupidity amongst UK, European, or US “helpers”).
Of course, Japanese stocks have been cheaper since 2009 for a reason. That reason is that they are, on average, crap. Of course, there are good quality stocks too, but they are expensive. My view is that you should buy stocks that are cheap given their quality, meaning that you have to trade off some attractiveness, as long as you can get a huge discount for it. Restricting yourself to the ADRs will basically lock you out of this kind of strategy.
I cannot really comment on individual large cap stocks, because they are generally very offputting, and I cannot motivate myself to analyze them. However, newcomers to the Japanese market should be aware that large-caps have premium valuations even though they mostly involve business models that argue for discount valuations (cyclical and highly operationally-leveraged industrial companies, such as capital equipment, vehicle, chemical and electronics manufacturers), and that is even before you consider the ridiculous lack of real corporate governance. You should be aware that Japan is basically a socialist country and is highly hostile to foreigners. Shareholders, and particularly foreign ones, are irrelevant when placed next to the employees of the company and the primary goal of maintaining the enterprise (or, more accurately, the ecosystem thereof) as a going concern. Big companies are seen as part of “society”, and shareholders are just an afterthought. Therefore, the margin of safety attendant to investing in anything in Japan must necessarily be much higher than elsewhere, but with ADRs this appears to not be the case.
3. What will you do when all of the cheap stocks disappear?
I will invest where there the market is crying out for investment.
The Japanese market was too expensive for something like 20 years. I did not keep track of it until the bargains started to slap me across the face. And then I started to pay a lot of attention.
In a slightly similar way, the crisis in Europe has been surprisingly drawn out, it is nowhere near finished yet, and stocks in European countries are not yet exactly slap-me-in-the-face bargains. It is quite possible, however, that they will eventually discount all kinds of disaster. If that happens, then I will start doing intensive research into the relevant stocks.
4. What is it like living in Tokyo?
It is expensive and difficult. If you are an expat then everything is done for you. But setting up a company here is something like a Kafka red tape nightmare. I would not recommend it to anybody, even if they speak Japanese. Having said that, as long as you very precisely follow the very complicated procedures, then you can get it done, and you tend to get some leeway for being a foreigner that a Japanese person would probably not get. You can also do it without speaking Japanese as long as you pay sufficient amounts to a number of middlemen, but it is not cheap – we are talking maybe tens of thousands of dollars.
The good news is that once you get some customers, then they will tend to come back to you again and again. The bad news is that making new sales, particularly with the poor economy (even now) is very, very hard. Even getting in front of the decision-makers could take some time. Everything is painfully slow.
The city as a place to live itself has several advantages. It is clean – you will never find any rubbish anywhere. Service is just on a separate level to the rest of the world. If you do not get perfectly-executed service at a restaurant, for example, you will never go back there again. Yes, I mean you. This happens to foreigners as well as they get used to the perfect service. I have left my iPad in my bicycle basket on busy streets about five times, and it has not been stolen yet. Whereas when I lived in China I had four bicycles stolen.
In terms of food, I have to be honest and say that Osaka is much better. Having said that, the baseline quality for food anywhere in Japan is much better than in most places. NB: If you want to spend a year of early retirement living in Japan as a dosser, consider Osaka or Kobe before Tokyo.
There are insufficient parks – some places labeled as “parks” on maps are in fact just patches of concrete with benches on them. Every time I see them it makes me think of what North Korea must look like.
If you need to get to the other side of town it might take ages. I hate getting on the subway, so this means I have to live right in the center. Getting to know people is hard. The culture itself values keeping a distance from (basically alienating) other people. It is not strange to get blanked by someone you know walking along the street.
The weather is excellent – this is very important. The amount of sunshine seems to me to be much more than in Europe, and winter ends much earlier.
And the seasons really are well-defined. The Japanese calendar has something called setsubun (lit. “season division”), and basically every year the season changes almost exactly on that day, as if somebody threw a switch. In autumn the leaves are really beautiful and red. And I’m not even somebody who marvels at this kind of stuff normally. Of course, you need to experience sakura season (mid-Mar to early Apr) once in your life – it is the largest man-made arrangement of nature (visible from space) – the Japanese have spent centuries developing these trees so that they will synchronously bloom for a few weeks of the year. Just incredible.
5. How hard is it to learn Japanese?
When I hear people like Tim Ferris so that they learnt Japanese in a few months, then I have to laugh. A great number of young Japanese people themselves cannot speak Japanese properly.
The reality is that Japanese is a language designed to obfuscate. The philosophy behind Japanese is the opposite to that in English. Latin-based languages require clarity and logic. Japanese requires demonstration of subservience and distance, and logic is not a consideration.
I learnt Mandarin Chinese, and then went to work in Shanghai as an engineer. It took me about three years of extreme effort to become fluent so that I could manage a factory.
I think that you could learn Japanese for 10 years and still have major problems.
The good news is that newspapers such as the Nikkei Shimbun are very easy to read, because they are well-written.
The bad news is that the amount of well-written text in Japanese is extremely limited. If you ever have the opportunity to read a government ordinance, your mind will explode.
I’m not joking – most government ordinances are largely unintelligible, at least in part, to Japanese people themselves.
This is because the government makes their text ambiguous on purpose.
I believe that they are trying to make rules unclear so that the general plebs will be more dependent on their ruling masters.
Anyway, when you start learning, you will think that it is easy. Only after you have got to the stage where you would normally be fluent if you were learning another language, do you realize that actually you know nothing at all.
Translating Japanese is like solving a murder mystery in every sentence. The writer will normally not be so kind as to tell you what they are talking about. They will assume that you know what they are on about and then just give you a verb or an adjective with a bit of a flourish, and leave it to you to piece together what they want to say. Add to that the tendency for people to believe that longer sentences mean more cleverness, and you have a recipe for complete disaster.
I translate together with Japanese people who work for me. They often do not understand what the text is trying to say, and we have to think of two or three possibilities, and work through the likelihood of each. Admittedly, with financial translation of Japanese into English it is less difficult, because there are only a limited number of possibilities for what the management is trying to communicate. Nonetheless, this does not stop them from laying on large amounts of platitudes and inane sentences such as ubiquitous and meaningless “despite the difficulties in … we are working hard on …” and “we want to create a better society by providing precise and high quality … products”.
Six months … yeah right.
6. How to get information about Japanese companies without speaking Japanese?
The simple answer is: with great difficulty. You can either get onto the company’s website and search for either “IR” or “投資家”, and then try to use Google Translate to translate their filings, or you can use Edinet.
The advantage of looking at the website is that you can also find company presentations that are not on Edinet.
How to use Edinet:
a. Go to http://info.edinet-fsa.go.jp/
b. Select the blue arrow saying 有価証券報告書等
c. In the 提出者名称 field, enter the name of the company in Japanese (no spaces)
If you do not know the name in Japanese, get it from Yahoo Finance Japan:
Enter the code into the big text field, hit enter, and then the big text displayed will be the company name in Japanese – copy that and paste it into Edinet
Note: leave out the “(株)” at the beginning
d. Hit the button at the bottom of the page (“検索”)
e. Select the blue link under EDINETコード
f. Select one of the following:
四半期報告書 = Quarterly report
有価証券報告書= Annual report
g. Use Google Translate to understand
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