Idea Brunch with Japan Guru
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Japan Guru!
Japan Guru is a professional investor who shares ideas with 2,000+ followers under the pseudonym @japan_guru_x on Twitter and on the free Japan Guru substack. Japan Guru is a solo trader in Japanese small caps & special situations, previously worked at Goldman Sachs, and previously served as a public company CEO as part of his activist process. Japan Guru also operates JapanGuru.me, a free English-oriented website providing notes and more on public Japanese companies.
Editor’s Note: If you enjoy this Idea Brunch interview with Japan Guru, be sure to check out our other Japan-focused interviews with “Made in Japan” and Altay Capital.
Japan Guru, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and your love of the Japanese markets?
Honored to be here:) I was born and raised in Japan. But I did all my degrees in the US – from high school to college to law school.
I started my career as an equity sales trader at Goldman in Tokyo. Then I went back to the US to finish my law degree. Later, I practiced law at Sullivan & Cromwell doing M&A & IPOs. After another year or so at a PE firm in Japan, I became a solo investor. I was making a couple of angel investments in startups and had one lucky exit – 144x-ing my position in a few years. I trade Japanese public equities ever since.
I love markets because it is a great equalizer. The rich can get poor and the poor can get rich, depending on your ability and some luck.
I love the Japanese market in particular because of my familiarity and the unbelievable opportunity set. I will save the details for later. Suffice it to say that the traditional “value trap” at Japanese companies is finally getting unlocked. The investors have yet to grasp the full extent of the opportunity.
As you know, there are a lot of very cheap stocks in Japan. Beyond screening for low price-to-book and price-to-earnings, what else do you look for before investing in a Japanese company? And why is now a good time to be investing in Japanese companies?
I look for several “short-term” catalysts. I only manage my own modest capital, so why not take some risk and shoot for max absolute return in the shortest timespan, right?
I look at the shareholder structure. Is it sufficiently dispersed such that an activist can come in and pressure the management? Is it part of the construction or logistics sector where TOB-led consolidation is accelerating due to structural reasons? How cheap is the company in terms of net cash/equity market cap? Is the stock price testing a new high accompanied with a good trading volume? What are the current/former employees saying about the management and the competitive landscape on online discussion forums like Openwork?
I do review regulatory disclosures, essentially trying to imagine what sort of conversations might be happening at the Board meetings, and offsite director dinners. If the company is a Toyota-affiliate auto parts wholesaler and held by a Murakami family (basically Japanese version of Paul Singer) by a large chunk, I will look for indicia of imminent shareholder returns, such as unwinding of its crossholding shares.
Now is a good time to be investing in Japan because of the historic changes the economic society is going through.
Everyone knows the government / TSE push for shareholder friendly reforms. But arguably the single biggest change is death. With 65% of Japanese CEOs being age 70 or over today, the founders of many “value trapped” companies are leaving us, unshackling the control block of shares. Mr. Nakamura, a 90-year-old former executive and founding family member of 9036 Tobu Network, recently transferred his 25% ownership to a trust. We will see these moves at an accelerating pace going forward. Steve Jobs was right in that human mortality is the single best change agent.
You are well attuned to shareholder activism in Japan. Is shareholder activism effective in the Japanese markets? How do most executive teams in Japan view activists, and more broadly, their responsibility to deliver returns to shareholders?
I think shareholder activism is only effective if the activist could actually sway the AGM outcome. This doesn’t mean that the activist must have 50.1% of the votes. The activist may have 8% when the management only has 1%.
If the AGM outcome cannot be influenced, such as where you are a retail activist that hold ~1% stake and the founder controls 35%, your activism is unlikely to succeed. In fact, some managers may refuse to do the right things for the shareholders just because it was activists that told them to do so.
I think that most executive teams in Japan still view activists as a near-sighted group of corporate raiders who fail to see the nonmonetary value in a corporation. As I tweeted before, many executives here believe that their enterprise value, encompassing things like “social value” like employee families’ livelihood and contribution to the economic value chain, is far greater than the equity market cap, and that activists “just don’t get it”.
Also, for decades after decades until recently, the traditional investment banks like Nomura approached the management propagating this notion that “You have to repay the debt you owe. But with equity, you get to keep.” It’s a very wrong way to describe equity, but that is how the bankers sealed equity offering mandates nonetheless.
So, I think many public company managers feel somewhat “betrayed” by the government. The government enabled cross shareholdings in the postwar era to defend against foreign takeovers while nurturing domestic industries. From the Abe administration some ten years ago, the government did 180 on them and suddenly re-interpreted the Japanese capitalism in the orthodox way, in the name of achieving a global financial hub for Tokyo and leveraging the foreign capital to expand overseas.
So how do the managers feel about their responsibility to deliver return to the shareholders? They now get it, slowly embracing the responsibility. But those who can delist via TOB/MBO will likely choose to do so. After all, capital raise is the ultimate purpose of an IPO, and most public companies here are net cash.
You are engaged in multiple ventures raising awareness around Japanese small-cap stocks including your Twitter account, substack, and JapanGuru.me. What are you trying to accomplish with your growing following and what is your long-term vision for JapanGuru.me?
I want this website to become an English version of Yahoo! Japan Finance Discussion Board – where the investors contribute unique insights and breaking news. As you know, many Japanese stocks lack analyst coverage due to its small size, much less English disclosure.
Everything started out of a necessity for myself.
I started my twitter account in January to memorialize my thinking on stocks. I also get to learn from Japan investors there who are much smarter than me, like @AltayCapital, @travislundyasia, @InvestInJapan.
Later I started substack because I didn’t want to clutter other people’s timeline with my mega threads.
Then I started the website “japanguru.me”, because I wanted for myself a cloud-based, insights collection folder organized around each specific stock. Have you ever encountered an interesting post about something on 𝕏, and a few months later you really want to revisit that post but you can’t find it? This has happened to me so many times and my website solves that. I manually populate the site with insightful investor posts on 𝕏 and other public sources.
5 years from now I might still be the only guy using the site lol. But I know I will be gladly using it.
As a longtime participant in the Japanese equity markets, who are some of the investors and operators you admire most? And what publications have you found are the best sources of information?
Let me introduce you to two people. One is Tatsuro Kiyohara. He is former Nomura / Goldman, and a legendary fund manager from Tower Investments who 93x-ed his fund. He declined George Soros’ money twice, in order to keep his fund at the optimal size.
The way he made bold contrarian bets amidst the market downturn, like buying REITs during 2008 Lehman collapse, or buying 5% of Olympus in the face of heavy selling amidst its accounting fraud scandal and rumored ties with yazuka, and emerging a big winner almost every single time, is just admirable.
If I were to recommend a book about Japan equity investing, I’d say read Kiyohara’s “My Investment Strategy” (waga-toushi-jutsu). Maybe an English version is not yet available, but I bet LLM AI would solve that soon.
I respect one more person. Going by a pseudonym “cis”, he is a legendary Japanese retail trader. Cis started trading since high school age. Avid gamer, he would work shifts, make some money on pachinko slot machines, and put those money into stocks. Initially, he lost almost all his money and came close to quitting.
But he persevered, and gradually developed his unique day trading strategy. The bedrock principle of his trading style can be summarized as “Buy high and sell higher. Sell low and sell lower.” This is starkly different from Kiyohara’s approach. But he has grown his personal net worth from less than 100K USD to 250 million USD – all through short term trading of stocks and futures, without ever managing other people’s money.