Generating Outsized Returns In Japanese Net-Nets

Johnny HopkinsPodcastsLeave a Comment

During his recent interview with Tobias, Nate Tobik, founder of CompleteBankData and author of The Bank Investor’s Handbook discussed Generating Outsized Returns In Japanese Net-Nets. Here’s an excerpt from the interview:

Nate: So, I just decided I’m going to just research a couple of hours every night. And I started Oddball Stocks because– I’m not a structured person. So, it was like, “I needed some place to store this information, so I could go back to it and get to it anytime.” And so that’s what it was. I started writing on there and started doing value stuff, the spinoffs eventually. There’s no juice left to squeeze from those, those became popular. You used to write about the–

Tobias: Net-nets.

Nate: The net-nets. I did a bunch of those. Also, the stuff where it’s a company doing the reverse split. Those were awesome for a while. And I was scalping a couple hundred dollars to—

Tobias: That’s where Odd Lots–

Nate: Yes, the Odd Lots. Some of those were phenomenal. You can make thousands on them. I just kept changing. I always thought it was like little pools of water, they would dry up and you just had to move on to the next thing. So, I did Japanese net-nets. Those were a funny investment because Mohnish Pabrai was talking about those and I thought, “Oh, this sounds awesome.” And he gave this really compelling talk. So, I started to invest in them, and I thought, “This is great. I’ll buy a bunch of these Japanese net-nets.” I was riding a bus to the office every day and so I bought the Japan company handbook. I actually went through that stinking book, like every page. I made a list and I had, I don’t know, 150 tickers and then I just bought a selection of them. I did so well on those that it paid for the down-payment on the house I’m in now.

Tobias: Congrats.

Nate: Thanks. The irony is, right around that time I was doing well, I was at a corner of Fairfax meetup in Toronto. Mohnish was there talking about how terrible his Japanese net-net investment worked out and it was the stupidest thing he’d ever done, and he wished no one had done this. I was sitting right by him and I’m thinking, “It worked out well for me.” [laughs]

Tobias: How did it not work out for him? What was the difference?

Nate: I think sometimes people overthink the deep value stuff. You could have paralysis by analysis where you’re trying to find the cheapest or you want to find something with a good business. I started buying stuff that was a net-net that had over a 10% return on equity or was below 50% of book value with a 10% return on equity. And I just bought them. I went from the Japan company book, and it would have a description like, “Makes refrigerators, toaster, and radiators for cars.” And I thought, “Okay, that’s what they do.” I knew nothing about these companies.

Tobias: That’s a business–

Nate: Yeah. It was just a statistical thing and it worked out really well. It worked out so well– I did not hedge my yen exposure. If I would have, I would have had– so I was working against the wind really because–

Tobias: The yen was striking against the US dollar most of the time at that period.

Nate: Yes. My investment overcame the strengthening. If I would have hedged, I would have done even better. There’s probably still an opportunity there now, but that worked out great. It was one of those, like you don’t have to be a genius to do this. You just need to be able to execute.

Tobias: You’ve just got to be able to actually go through and do what you’re supposed to do, which is buy them at a big discount to their net current asset value. And then, not think too much about the business because you’re only getting an opportunity because it’s a terrible business.

Nate: Yes. Well, some of them were good. I guess they were good businesses.

Tobias: [unintelligible [00:12:36] unusually had some good net-nets.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts Logo Apple Podcasts

Breaker Logo Breaker

PodBean Logo PodBean

Overcast Logo Overcast

 Youtube

Pocket Casts Logo Pocket Casts

RadioPublic Logo RadioPublic

Anchor Logo Anchor

Spotify Logo Spotify

Stitcher Logo Stitcher

Google Podcasts Logo Google Podcasts

For more articles like this, check out our recent articles here.

FREE Stock Screener

Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:

unlimited

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.