How to Find Japanese Net-nets ?

Want to boost your investment returns? Japanese net-nets might be your ticket. Here's the quick rundown:

Net-nets are stocks trading below their net current asset value (NCAV)
Japan is a goldmine for these undervalued gems
From 1985-2007, Japanese net-nets beat the market by 15% annually

Here's how to find them:

Screen for stocks with:
- Price to Book Ratio < 0.5
- Return on Equity > 10%
- Low or no debt
Dig into financials:
- Check cash, debt, and dividends
- Look for positive EBIT and net income
Assess company quality:
- Rising dividends
- Share buybacks
- Strong market position
Do your homework:
- Understand Japanese accounting
- Get local insights
- Use math models for faster screening

Remember: Spread your bets across multiple net-nets to manage risk.

Metric	Japanese Net-Nets	Japanese Market Average
P/E Ratio	13 or less	Often higher
Dividend Yield	~3%	Lower
Earnings Retention	High	Varies

With smart research and discipline, Japanese net-nets can supercharge your portfolio. Ready to dive in?

Key features of Japanese net-nets

Japanese net-nets are a goldmine for savvy investors. Here's why:

Common traits of Japanese net-nets

These companies often have:

Tons of cash
Few debts
Solid profits
Dirt-cheap stock prices

Plus, they're feeling the heat. The Japanese government wants them to boost their return on equity (ROE) to at least 5%, aiming for 8%.

Japanese vs. Western net-nets

Japanese net-nets are a different beast:

Feature	Japanese Net-nets	Western Net-nets
Availability	Plentiful (200+ out of 3,500+ stocks)	Rare
Market inefficiency	Higher	Lower
Language barrier	Often Japanese-only reports	English common
Government influence	Push for higher ROE	Less direct

Possible gains from Japanese net-nets

The numbers are jaw-dropping:

20% compound annual growth rate (1985-2007)
Beat Japanese index by 200% in the same period
25-30% average annual returns

Real investors are cashing in. Nate Tobik's strategy?

"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."

It worked so well, he funded his house down payment.

Another investor struck gold with Twinbird, a Japanese electronics maker. Despite a earnings dip, it was still profitable and growing its NCAV by 10-15% yearly. Buying when the stock was 59% below its 2011 high, they cashed out with a 77% gain in about 4 months - a 308% annualized return.

These stories show the potential, but remember: do your homework and spread your bets to manage risks.

Getting ready for Japanese net-net investing

To find Japanese net-nets, you need the right knowledge and tools. Here's what you should know:

Basic Japanese market knowledge

Japan's stock market has been trending up for over a decade. The Nikkei 225 index has grown strongly, making it attractive to investors.

Key points:

Highly regulated market
Companies must provide quarterly and annual reports
American investors often use ADRs for Japanese stocks

Japanese financial reporting basics

Understanding Japanese accounting is key for spotting net-nets:

Standard	Description
J-GAAP	Japanese Generally Accepted Accounting Principles
Designated IFRS	International Financial Reporting Standards
US-GAAP	United States Generally Accepted Accounting Principles
JMIS	Japan's Modified International Standards

Over 30% of Tokyo Stock Exchange companies use or plan to use IFRS. The typical fiscal year runs from April 1 to March 31. Companies must publish balance sheets, profit and loss statements, and changes in net assets.

Research tools and resources

You'll need the right tools to find Japanese net-nets:

1. Stock analysis software

These help you research and analyze stocks:

My Stock Scanner: From $35/month
Uncle Stock: From $15/month
Stock Rover: From $7/month

2. ETFs for broader exposure

Consider these Japanese ETFs:

iShares MSCI Japan ETF (EWJ)
WisdomTree Japan Hedged Equity Fund (DXJ)
Franklin FTSE Japan ETF (FLJP)

3. Advanced research platforms

For deeper analysis, try:

AlphaSense: Free two-week trial
YCharts: 7-day free trial
Morningstar: One-week free trials for products

How to find Japanese net-nets: Step-by-step

Want to find Japanese net-nets? Here's how to do it:

1. Screen for potential net-nets

Start by looking for stocks that:

Trade below their Net Current Asset Value (NCAV)
Have positive EBIT and net income for the past 10 years
Are debt-free
Pay dividends
Have stable or decreasing share counts

Use tools like My Stock Scanner, Uncle Stock, or Stock Rover to make this easier.

2. Dig into the financials

Look at the balance sheets and adjust NCAV calculations. Check these key areas:

Statement	What to Look For
Balance Sheet	Current assets, liabilities
Income Statement	Revenue, net income trends
Cash Flow Statement	Operating cash flow, FCF

For example, Ryoyo Electric (8068) had an NCAV of ¥2183, no debt, and an EV/EBITDA of 1.73.

3. Assess company quality

Look at:

Management's track record
The company's competitive edge
Market share and industry position

Choukeizai Sha (9476) is a good example. It's been profitable with positive cash flow for five years straight.

4. Do your homework

Don't skip this step. Check:

Asset quality
Hidden liabilities
Industry-specific risks

Take Shinko Shoji (8141). It had 10 years of positive EBIT and net income, but its cash flow was all over the place. That's why you need to dig deeper.

"Net net stock investing is both simple and profitable, so long as you have the temperament required to buy into deeply depressed situations." - Evan Bleker, Author

Tips for successful Japanese net-net investing

Want to make money with Japanese net-nets? Here's how to do it right:

Spread your bets

Don't go all-in on one stock. Nate Tobik, who founded CompleteBankData, made a list of potential net-nets and picked a few to invest in. It worked so well, he used the profits for his house down payment.

"I started to invest in them, and I thought, 'This is great. I'll buy a bunch of these Japanese net-nets.'" - Nate Tobik

How long should you hold?

Your holding time can make or break your returns:

Holding Period	Potential Return	What to know
1 year	31%	Many experts like this
2 years	32.5%	Slightly better, but watch for missed chances
3+ years	Less and less	Not great unless NCAV is shooting up

Benjamin Graham says don't hold net-nets for more than three years. You might miss out on better deals.

Handle the risks

Go for quality: Pick net-nets with over 10% return on equity and priced under 50% of book value.
Don't overthink it: As Nate Tobik puts it, "You just need to be able to execute."
Check your portfolio: Switch out stocks at least once a year. Sell when they hit full value.
Learn from your mistakes: Be ready to cut your losses. One investor learned the hard way with Sears: "It took me a 66% loss and 8 YEARS to admit that!"
Watch the currency: Tobik did well without hedging yen exposure, but keep an eye on currency risks.

Common mistakes and how to avoid them

Investing in Japanese net-nets? Watch out for these pitfalls:

Misreading Japanese accounting

Japanese financial statements can be a minefield. Just ask Mizuho Securities:

In 2005, they tried to sell 610,000 shares at 1 yen each instead of 1 share at 610,000 yen. Oops.

That's a HUGE mistake. And it shows how easy it is to mess up with Japanese financial data.

So, how do you avoid this?

Learn Japanese accounting standards
Double-check your math (then check it again)
Use solid translation tools for financial docs

Missing cultural business differences

Japanese companies march to a different drum. They're all about long-term relationships, not quick profits.

Here's how it breaks down:

Western Companies	Japanese Companies
Obsess over quarterly results	Care about long-term stability
All about shareholders	Consider all stakeholders
Grow fast or die trying	Slow and steady wins the race

To navigate this minefield:

Get to know Japanese business culture
Look at the big picture, not just last quarter's numbers
Think about how culture might impact growth down the line

Spotting false bargains

Some stocks look cheap. But they're cheap for a reason.

James Grant, a big-shot investor, puts it like this:

"Companies that should've gone bankrupt often didn't. They were propped up by banks that were themselves on life support from the government."

In other words: some "bargains" are actually money pits in disguise.

How to avoid these traps?

Don't just look at the price-to-book ratio
Check out the company's debt and cash flow
Do your homework on the industry and the company's place in it

Remember: if it looks too good to be true, it probably is.

Advanced methods for finding Japanese net-nets

Finding Japanese net-nets isn't just about basic screening. Here are some advanced tactics to up your game:

Industry know-how

Knowing an industry inside out can help you spot hidden gems. Take Nate Tobik, founder of CompleteBankData. He used his banking expertise to find Japanese net-nets:

"I bought net-nets with over 10% ROE or below 50% of book value with 10% ROE. And I just bought them."

Result? These investments helped him buy a house. Not too shabby.

Local connections

Japan's business culture is unique. Local contacts can give you an edge. Aberdeen Standard Investments says:

"Being local is key. Japanese corporate culture has its quirks. Speaking Japanese and understanding the etiquette is vital in judging a business."

How to tap into local knowledge:

Join Japanese market investor forums
Hit up Japan-focused investment conferences
Network with Japanese business pros

Math models

Statistical tools can help you find promising net-nets faster. Here's a simple model to start:

Metric	Target
Price to Book Ratio	< 0.5
Return on Equity	> 10%
Debt to Equity Ratio	Low or zero

This model helped Evan Bleker find winners like Twinbird, a Japanese electronics maker. Its stock jumped 77% in just 4 months after he bought it.

Conclusion

Finding Japanese net-nets can boost your investment returns. Here's how to do it:

1. Screen for potential net-nets

Look for:

Price to Book Ratio < 0.5
Return on Equity > 10%
Low or zero Debt to Equity Ratio

2. Review financials

Focus on:

Cash
Debt
Dividends

3. Check company quality

Seek:

Rising dividends
Buybacks
Low debt

4. Do your homework

Use industry know-how
Talk to locals
Crunch the numbers

Japanese net-nets have outperformed:

Metric	Net-Nets	Japanese Market
CAGR (1985-2007)	20%	5%
Excess Return	15% per year	-

Some winners:

Natoco (4627): 9.84% earnings yield, 2.22% dividend
Excel (7591): 13.31% earnings yield, 3.92% dividend
Kitakei (9872): 11.88% earnings yield, 2.83% dividend

Don't put all your eggs in one basket. Spread your bets across multiple net-nets.

Ben Graham, the value investing guru, said:

"Our experience with this type of investment selection – on a diversified basis – was uniformly good ... It can be affirmed without hesitation that it constitutes a safe and profitable method for determining and taking advantage of undervalued situations."

With smart research and discipline, Japanese net-nets can pump up your portfolio.

FAQs

What are Japanese net-nets?

Japanese net-nets are stocks that pack a serious value punch. Here's what makes them special:

P/E ratio of 13 or less
About 3% dividend yield
They keep enough earnings to maintain that P/E ratio, even without counting dividends

Tee Leng from ValueEdge puts it this way:

"A Japanese net-net is retaining enough earnings that it would trade at a P/E of 13 even if you didn't count the dividend as part of earnings. In that sense, you're buying a stock with a P/E of 13 and getting a 3% dividend yield for free."

That's like getting a bonus on top of an already good deal. Value investors, take note!

Here's how Japanese net-nets stack up against the broader market:

Metric	Japanese Net-Nets	Japanese Market Average
P/E Ratio	13 or less	Often higher
Dividend Yield	~3%	Lower
Earnings Retention	High	Varies

When hunting for Japanese net-nets, keep an eye out for:

P/B ratio under 0.5
ROE above 10%
Little to no debt

How to Find Japanese Net-nets ?