Tokyo Deep Value

Japanese stocks are the last great deep value trade on earth. Rock solid balance sheets. Monster cash flows. Dirt cheap prices. I find them, trade them, and do it all over again. Follow for the best deep value plays in Japan nobody else is talking about.

June 29, 1994. Almost 2,000 Japanese companies held their annual meetings on the same day. More than 10,000 police were sent out to watch. The reason was the sokaiya, racketeers who threatened to disrupt meetings unless companies paid them. Before a 1982 law, there were an estimated 6,500 of them. After it, about 1,000. By 2023, about 150. Japanese companies scheduled all their meetings together so the gangsters couldn't attend them all. The shareholders couldn't either. That was the other effect.

As of August 10, there were 109 companies listed in Japan whose net cash was worth more than their entire market value. Net cash here means current assets minus all liabilities. Ben Graham's net-net test. 36 of them had a market cap under ¥5 billion. 18 had net cash worth more than 1.5 times their price. That last group is where I'm spending my week. Names next week. Follow so you don't miss them.

I'll admit something. I took a four-hour train to Takamatsu to attend the shareholder meeting of a company that makes rope. I was the only person under 60. I asked one question, about the cash pile. The chairman thanked me for my "valuable opinion" and moved on to the next agenda item. On the way out, an employee handed me a bag with a towel, a pen and a pamphlet about rope. Best ¥14,000 I ever spent.

One small Tokyo stock, in three prices: ¥1,699: where Broadmedia closed on December 9, 2025. ¥2,200: what Asset Value Investors offered in a partial tender offer a year ago, about 29% more. ¥2,500: what an investment vehicle of Nippon Sangyo Suishin Kiko offered on October 29 to take the whole company private. The board supports it. AVI's funds hold 40% and have agreed to sell. That's about 47% above where it started last December. Sometimes an activist makes money by making the company impossible to ignore.

Overheard on the last train out of Shinbashi: Salaryman 1: "Our company has more cash than it's worth on the stock market." Salaryman 2: "Is that good?" Salaryman 1: "Nobody upstairs has asked." Salaryman 2: "What happens if somebody asks?" Salaryman 1: "Then we form a committee to study the question until I retire."

What some of Japan's famous companies did first: Sumitomo: a copper refinery in Kyoto, opened in 1590 by a 19-year-old. Yamaha: a reed organ, 1887. Torakusu Yamaha repaired a broken one, built his own, and carried it about 250 km to Tokyo to be judged. Nintendo: hanafuda playing cards, founded in Kyoto on September 23, 1889. The Tokyo Stock Exchange: first trading day, June 1, 1878. Japan's best companies are mostly second acts.

The math nobody does on a Japanese takeover: Wednesday, October 21: circlace, a small company on Tokyo's Growth market, closes at ¥885. The next day, Hillhouse, an investment firm based in Singapore, offers ¥2,020 a share in cash to take it private. ¥2,020 divided by ¥885 is about 2.28. That's a premium of about 128%, overnight. The offer runs from October 23 to December 7. This is why you own the boring little stock nobody talks about. Eventually somebody else does the math for you.

Myth: futures trading was invented in Chicago. Fact: merchants in Osaka were trading rice futures at the Dojima Rice Exchange by about 1710. It was licensed in 1697. In 1735 the shogunate set a floor price for rice in Osaka: 42 momme of silver per koku. The shogun was nicknamed the Rice Shogun. Japan had a futures market, a price floor and a market-obsessed ruler more than a century before the Chicago Board of Trade existed.

Yoshiaki Murakami made his first investment at age 10. ¥1 million, into a brewery. He spent 16 years as a bureaucrat at Japan's trade ministry, MITI. In 1999 he started his own fund. By 2006 it managed about $5 billion. In 2007 he was convicted of insider trading. The prison sentence was suspended on appeal. October 2026: a fund in his group, together with his daughter Aya Nomura, discloses 5.06% of TV Asahi Holdings. They want bigger dividends, buybacks, asset sales, even a management buyout. Twenty-seven years later. Same playbook. Next generation.

In 2007 an American fund called Steel Partners tried to buy Bull-Dog Sauce, a Tokyo condiment maker. Steel owned 10.25%. It bid ¥1,584 a share, then ¥1,700. Bull-Dog responded with a poison pill. 83.4% of shareholders voted for it. Japan's Supreme Court upheld it that August. Steel got paid cash for its warrants and went away. That was the old Japan. Today foreign funds are the largest shareholders in famous Japanese companies, and boards answer the phone.

My daughter asked why I wake up at 2am. I said the Tokyo stock market is open. She asked what I'm waiting for. I said a 78-year-old man in Nagoya to decide to pay a dividend. She asked how long I've been waiting. I said three years. She asked if he knows I'm waiting. He does not.

Kongo Gumi was founded in the year 578 to build a Buddhist temple in Osaka. It survived 40 generations of the same family, the samurai era, World War II and the 1989 crash. What finally took it down was ¥4 billion of debt from the real estate bubble. In 2006 a bigger builder absorbed it. 1,428 years. Taken out by a balance sheet. Net cash matters.

Americans this week: Debating whether Alphabet's $51.4 billion quarter of capex will pay off. Me this week: Reading the yuho of a 40-employee Japanese parts maker that spent ¥80 million on a new press machine and paid for it in cash. We are not the same.

For every ¥100 you pay for this Japanese manufacturer, ¥41 is net cash sitting in the bank. Market cap: ¥3.83 billion. Cash: ¥2.04 billion. Short-term debt: ¥0.46 billion. Net cash: about ¥1.58 billion. It trades at 0.51x book. So you pay about ¥2.25 billion for the factory, the machines, the customers and decades of know-how. Meanwhile Alphabet just spent $51.4 billion on capex in one quarter and the stock fell 10%.

3 cheap Japanese stocks I'm looking at this week: - Small manufacturer. 0.51x book. Net cash = 41% of market cap. - Electronic components maker. 0.90x book. ¥1.69 billion net cash. - Auto accessories wholesaler. Just got an unsolicited bid at a 106% premium. Tickers tomorrow.

Date: "So what do you do for fun?" The official answer: "I like to travel." The truth: I flew to Gifu to attend the shareholder meeting of a 40-employee fastener maker that trades below net cash, asked one question about the dividend, and got a tote bag. There was no second date. There was a 4% dividend.

You're telling me I can buy a Japanese manufacturer at 0.51x book, AND 41% of the market cap is net cash, AND activists are circling the whole sector, AND another small cap just got bid at double its share price. And you're over here waiting for the Anthropic IPO at 55x sales. Unfathomable behavior.

Japanese stocks are the last great deep value trade on earth. This week a company offered ¥3,000 a share for a small car accessories wholesaler. The stock closed at ¥1,458 the day before. That's a 106% premium, and the board didn't even ask for it. Rock solid balance sheets. Trades below book. Activist campaigns at 265 companies since February. I find them, trade them, and do it all over again. Follow for the best deep value plays in Japan nobody else is talking about.

Hotel front desk in Gifu: "Business or pleasure?" Me: "Pleasure." The truth: I flew 13 hours to ask a 79-year-old chairman one question about ¥6 billion of idle cash at an annual meeting that will last 22 minutes, in a room with 9 other shareholders, 7 of whom are retired employees, 2 of whom are asleep. He will bow and say "we will consider it carefully." I will buy more on the way to the airport.

Benjamin Graham spent his life looking for companies trading below their net cash. In America they mostly disappeared by the 1970s. In Japan there's still a whole exchange of them, filed in a language most American investors won't read, with annual meetings held at 10am on a Thursday in June. If Graham were alive today, he'd be learning Japanese.