Just a primer: The human tragedy in Japan is awful. My heart and prayers go out to the victims. The best people can do is donate to the red crossRed Cross Japan Relief Effort. Living social is having a match on your contribution. If you donate $5 to Japan, living social will match the donation to make it $10. The deal expires at 1 PM EST. If you are interested in contributing through Living Social click on the following link http://livingsocial.com/redcross. I get absolutely no compensation for any donations or for this paragraph, I am just trying to help people suffering. Since my grandparents suffered the awful genocides of Stalin and Hitler, it has been ingrained in heart to always try to help people.
Back to investing: Although, there is a massive tragedy there is an opportunity to invest in Japan. It also does help the economy recover as more capital inflows will help companies put the money to work.
The whole situation in Japan is outside my circle of competence. There are two reasons why:
A. I do not understand Japanese companies enough. To my knowledge Japan does not use GAAP or IFRS accounting standards (although, they are switching to IFRS sometime this year I believe). Since I do not understand the accounting standards, I do not think I could invest in the stocks except for perhaps buying a basket of stocks. I own JOF, which is a close ended fund that invests in small cap Japanese stocks. I bought it as a contrarian play and it was trading below book value and at a discount to NAV at the time. I did not buy it after the earthquake but rather last year. In general, I do not own close ended funds, or ETFs; except for JOF, RSX (Russia), and KIE (ishares insurance ETF)
There is also another factor with Japanese companies. They operate far different than companies in America. Many are family controlled and the interests of the company might not be the same as shareholders (of course this problem exists in countries all over the world including the US, but to my knowledge it is more prevelent in Japan). Japanese companies instead of paying suppliers with cash will buy stock in the supplier. This is common in Japan and although it is not necessarily a bad thing it simply is a different culture, and I do not yet feel comfortable investing there.
B. The nuclear situation is also far beyond my level of competence. I only discuss topics that I know about. I do not understand nuclear science, and cannot access the risk it will pose to Japanese companies.
There is a lot of noise about whether ot invest in Japan right now. I am going to list the approach that I see some colleagues who are value oriented taking on the situation. Therefore, I am posting a few links that I think will be helpful in investors thinking about investing in Japan. There is a wide divergence of views but I think all these articles should be helpful in coming to a decision whether to invest and if so where.
A lot of sophisticated investors visit the site who know more about Japan then me and might be able to find bargains. The index lost 10.2% for the week so there might be some gems out there.
This is the best article I have found on the topic from a great value blogger. This is required reading Is Japan really cheap? Not quite… but there is huge divergence in specific stocks via Can Turtles Fly?
Buy Japan via Geoff Gannon
Investing in Japan Questions and Answers.html via Geoff Gannon
The problem with Japanese companies via the Value Institute
How Should Investors Assess Worst Case Scenarios in Japan via Rational Walk
Japan is not a Bargain via Old School Value
Fundamental problems with investing in Japan: James Grant interview with BNN
Nassim Taleb on The Earth-Quake in Japan via Value Walk
Feel free to leave comments or other good links in the comments box.
Disclosure: Long JOF
