Responses to readers’ questions, and new forecasts

by admin on February 9, 2014

1. The question is:

“I got a good run up in ISJP and was stopped out yesterday-in at 14.23 in august 2012 and out yesterday at 17.

I am sure many would appreciate a view right now on PBV on Japan smallcaps.”


I cannot give you specific stock details anymore, and I am generally anti-ETFs. This is because, firstly you cannot select what you are buying, and secondly, you cannot feel the joy of owning cheap stocks.

My view is that P/BV of small companies in Japan is on the whole good, but in places outrageously good. I also think that this is a long-run bull market, and small companies will do better than large ones for several reasons, the best of them being valuation and liquidity as share prices rise.

If you are serious, I would recommend opening a brokerage account where you can trade small Japanese stocks, bidding for some which are really cheap, and then just sit and wait a long while.

There are long-term forces at play, including the yen – cheapening the currency does not have an immediate positive impact on a country (it takes time for businesses to shift preferences, exports do pick up in the short term, but the negative impact of increased import prices tends to be greater at first), including increasing retail investment, more wasteful spending by the government, inflation starting to move in the right direction, many companies benefiting from growth in SE Asia, and lots of little things going slightly better. On a historical view (spanning c. 200 years) Japan tends to move in the same direction until it hits a hard object, such as deflation or the black ships of America, and then it undergoes fairly rapid change. Also, for most investors, it appears to have so far been a “trade” on yen weakness only, and that is likely to change into a more nuanced view, in my opinion.

Further, just think about this – Japan is the third largest economy in the world, has more listed stocks than the UK, France, and Germany combined, and yet nobody is genuinely interested in investing in it still, and its markets are very inefficient. I do not think this will last for ever.

Every so often I find I need to re-read this passage of Reminiscences, the first book I ever read about the stock market:


“No! No! I can’t do that!”

“What?” yelled Elmer.

“I simply can’t!” said Mr. Partridge. He was in great trouble.

“Didn’t I give you the tip to buy it?”

“You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But ”

“Hold on! Let me talk! And didn’t that stock go op seven points in ten days? Didn’t it?”

“It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that stock.”

“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers.

“No, I couldn’t.”

“Why not?” And Elmer drew nearer.

“Why, this is a bull market!” The old fellow said it as though he had given a long and detailed explanation.

“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”

“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now I’d lose my position; and then where would I be?”

2. What is the mystery country?

It is Vietnam. The valuations of many stocks have run up quickly, and if you are managing hundreds of millions then it is getting harder to find any room below the foreign ownership limits. But, there are still some really great valuations there.

In fact, foreign individual investors visit brokerages quite rarely.

When I went to set up my account, not only did they treat me like royalty, but a journalist was there to record the story!

And I appeared on two Vietnamese finance websites.

Here is a picture of me on a Vietnamese website getting excited about net current asset value:

Vietnam account set-up Vietnam account set-up,Chung-khoan-trai-chieu-nha-dau-tu-lac-quan.ttm

Where else in the world would this happen?


3. My updated macro view and new forecast

My new macro view is summarized by this:

My macro view in a picture My macro view in a picture

Here is my new forecast:

Great fortune lies ahead, but the seeker of wealth should tread carefully, for prosperity shall not be achieved without certain reversals

Here is another prediction:

You have certain anxieties about your finances. Do not worry, they shall improve with time.


4. The benefits of going too far

In my last post I mentioned that I was very cautious and that I was short the PLN against the USD. This position quickly moved against me, and I had to reevaluate my understanding of the world at that point, which I found flawed, and reversed my position by closing out most shorts and buying some stocks. The reason I could do this is due to the psychological thorn in my side of the PLN short – without it I would not have brought my mind to concentrate on the problem so clearly. I have still kept shorts in the most outrageous US stocks (internet-related), but closed the others.

Meanwhile, another tool I find very useful is to place bids way under the current market price. Sometimes I trim marginal positions if necessary, and bid to buy them back if they fall enough. When I start getting emails from my broker saying that I got filled on these low bids, it is usually time to start buying some more. This is a very helpful technique in that it takes a lot of the difficult psychology out of buying and selling in a rapid market. Do not do this for core positions, meaning stocks that you are anticipating to hold through a full bear market.

{ 2 comments… read them below or add one }

catsick March 20, 2014 at 11:41 am

So how are the vietnam stocks going for you ? I also have the Maybank account to trade them , there are some excellent bargains over there, I would be interested to see what you like !


admin April 15, 2014 at 7:48 pm

I can’t actually say, in fact. But basically, anyone who has read Graham should be able to figure it out pretty quickly. Having access to a data provider helps, because the data you get from those broker websites is pretty hard to use. As you already know, a lot of the large caps are already too full of foreign investors and have reached their allocation limits, but small caps are still mostly fine. JP


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