A Real Buy-and-Hold Portfolio for Japan

Today, I’m sharing my wife’s buy-and-hold portfolio. It’s a real-world example for anyone who wants to own great assets in Japan without the stress of active management.

Like some of you here, my wife wasn’t initially interested in finance. She was taught to hoard cash and rely on the national pension. To get her on board, I pointed out two harsh realities:

• With over 30% of Japan’s population aged 65 or older, relying on the state is a massive financial risk.

• As prices rise, uninvested cash loses purchasing power every single day.

She listened and started maxing out her NISA in 2022.

The way she sets up her portfolio is that I pitch individual Japanese value stocks for her approval, and she personally selects her funds.

My Wife’s Stock Portfolio:

Here it is mostly my strategy, and it is simple: I look for companies where the market overreacts to short-term noise and ignores long-term structural advantages.

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It feels strange to complain about making money. As I sit in Hibiya, looking out over the Christmas illuminations surrounding Tokyo Station, the Nikkei 225 has just reached the 50,000 mark, an unprecedented all-time high.

Since 2020, I have maxed out my Japanese NISA allowance every single year, scaling from the old limits to the new 3.6 million yen cap. While this constant influx of fresh cash naturally dilutes the headline percentage, the underlying engine is massive: my holdings from the 2020–2023 cycle have generated a +114.1% total return. This confirms that my deep-value strategy is compounding at a rate that significantly outstrips the market, creating a Money-Weighted Return (MWR) that beats the Nikkei 225 by roughly 5 percentage points annually.

The Problem: Portfolio Bloat

When everything looks cheap, you buy everything: “Oh, a fire truck monopoly at 8x earnings? I’ll take it.” “A train manufacturer trading at 0.3x book? Why not.” “The creator of Sonic the Hedgehog for <P/E 10x? Essential.”

Even after selling some positions this year, I still hold 14 stocks.

I am now suffering from what Peter Lynch called “diworsification.” Furthermore, the KonichiValue philosophy is about ownership. You cannot effectively own, monitor, and steward fourteen different businesses while working a day job.

Therefore, I am initiating The Great Purge.

Every single holding has been audited against the Five Pillars of KonichiValue:

1. The Narrative (物語) 📜: Is the macro-story intact? Does the company have the wind at its back (inflation, labor shortage, tourism)?

2. The Castle (城) 🏯: Does it have a moat? Is it a price-maker or a price-taker?

3. The Shogun (将軍) ⚔️: Is the leadership aligned capital allocators fighting for shareholders, or salarymen bureaucrats guarding a fortress of hoarded cash?

4. The Foundation (石垣) 🪨: Valuation, Piotroski F-Score, Balance Sheet health.

5. The Verdict (目利き) ⚖️: Keep or Kill.

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The Stocks I’ll Keep

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Friends and fellow investors,

It’s been a long time coming, but I have finally made a massive portfolio update!

This update comes after years of trying to grasp what makes Japan special…

My thesis is that:

For three decades, the investment world has gotten Japan wrong. They have relentlessly pitched “Cheap Japan,” armed with spreadsheets of low P/E ratios, only to be caught in one value trap after another.

They bought cheapness, not quality.

My mentor taught me that the foundation of real wealth is not buying a fair company at a wonderful price, but buying a wonderful company at a fair price. A wonderful company has an economic moat, a durable, competitor-killing advantage, that protects its profits and allows it to compound capital for decades.

The real opportunity in Japan, the one the headline-chasers are still missing, lies in the world-class operating companies that Japan cultivated while the world was busy calling it “lost.”

As it is my job to analyze stock data, I have created this fantastic quantitative screen of the 59 most interesting Japanese companies, which I have included for you to review alongside this analysis:

Japan's 59 Most Undervalued Companies

18KB ∙ XLSX file

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Before continuing, please understand the Pitrovski F-score, as I use it heavily in my evaluation.

But a screener is just a list of “what.” My job is to find the “why.”

After applying the KonichiValue framework, and incorporating the crucial filter of business model certainty, I have curated the ten best.

From those ten, I have selected five extraordinary “Fortresses”.

The KonichiValue Top 10

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First off, from the bottom of my heart, I, the founder of KonichiValue, would like to wish each and every one of you a truly joyous Christmas.

While everyone else is busy posting gratitude lists and discussing their “core investing philosophies,” I know what you really want: Cold, hard results.

So without further ado, let’s jump straight into the numbers and see how the portfolio has performed, stock-by-stock:

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Dear KonichiValue Premium Subscribers,

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A fellow patron recently reached out, asking me for my thoughts on his stock holdings. Instead of a short reply, I found myself diving deep into each company’s financials, prospects, and risks.

After all that, he kindly agreed to let me share my detailed analysis with all of you in this article form. I hope you enjoy the read and find some valuable takeaways for your own investing journey.

Title: A letter regarding your portfolio

Body: First of all, thank you so much for your patronage! 

Secondly, anything I write in this email is in no way a recommendation to buy or sell any stocks, and you must do your own research before acting on anything written here!

I planned to give you a quick recommendation for each stock, but I ended up going deep into the weeds and spent a good chunk of time researching each company and where they're headed. Here’s what I found—hopefully, it’ll help you make some informed decisions:

Panasonic (6752)

Verdict: Hold

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We’re just halfway through 2024, and it's time to check my portfolio's progress. In this update, I'll share how my investments have performed so far, highlight top performers, and review some underperformers. I'll also provide insights into my latest portfolio moves.

Portfolio Allocation:

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Portfolio update

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Hey there, stock enthusiasts and data crunchers! Let's dive into the exciting world of my portfolio's performance and how it stood up against Japan's formidable NIKKEI 225.

This year, the NIKKEI soared by a whopping 28.2%, its best yearly climb in a decade, driven by a weaker yen, corporate governance reforms, and a surge of inflation that lured in investors from all corners​​​​.

But guess what? My portfolio wasn't just a bystander in this rally – it rode the wave with style, posting a total return of 31.98% and a CAGR of 34.83%.

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Picture this: You've got 8 million yen and a dream to achieve financial independence. What's your game plan?

In the world of investing, it's not just about picking stocks; it's about playing e long game. That's where our 2024 Buy & Hold Portfolio comes in, spotlighting 8 exceptional Japanese stocks that if you hold for 18 years, I believe will beat almost any fund, both passive and active!

For those in the FIRE community or aspiring to financial freedom, time is your most valuable ally in investing. This portfolio is designed to not just beat the Nikkei index but to outperform the majority of active funds. How? By leveraging our nimble investing capabilities and a keen eye for value that only years of experience can hone.

So, with a mindset geared towards long-term growth and financial independence, let's dive into these 10 handpicked stocks that could be your ticket to financial freedom. Without further ado, here's KonichiValue's 2024 Buy & Hold Portfolio:

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3Q 2023 Stock Portfolio Performance Summary

I'm riding the wave of Japan's booming equity market. This year has been particularly exciting with a surge of global investor interest in Japanese stocks. The reasons are clear: Japanese companies, flush with nearly 2.5 trillion yen in cash and no debt, are thriving. The transition from deflation to mild inflation, coupled with an ultra-competitive yen (hovering around 150 to the U.S. dollar), has bolstered the economy. It's a golden era for local manufacturers, enjoying some of the lowest labor costs globally.

Corporate earnings are on the upswing. The profit margins in Japan have leaped to about 5.5% over the past decade, a significant jump from the historical average of less than 3%. This impressive turnaround is mirrored in the robust performance of Japanese equities, which, as per Credit Suisse, have yielded annual real returns of 7.4% since 2010.

Now, let’s dive into my portfolio’s performance:

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An impressive overall total return of 13.21%, a CAGR that demands a second look at 56.06%, and individual stocks making waves in their respective industries – there's much to uncover in this detailed analysis. While I delve into stocks like Nintendo, which surged, and the surprising moves by Warren Buffet concerning ITOCHU, the deeper insights lie just a click away. Dive in to understand the strategies and factors behind this performance.

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February to end of May 2023 Portfolio Analysis

I'm delighted to report an impressive Q1 growth of 34.2% in my stock portfolio since my last update on February 16, 2023:

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I am thrilled to report that it has been a strong start to the year and the fourth quarter of 2022 annual reports are now available. This provides us with a valuable opportunity to assess the performance of our portfolios and make informed decisions. It's an exciting ti…

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My Stock Portfolio - Overview

As this is the first time I share my portfolio publicly, let me explain the structure I am showcasing my portfolio and any updates to it:

1. Overview Performance vs. Nikkei 225 & S&P 500

2. My Stocks - Where go through every company in my portfolio and the reason for investing in it. If I have analyzed the company, I will also link to it in this section.

3. Future plans - Where I lay out my plans for the coming months.

If you have any feedback on the way I display my assets or the stocks I own, please leave a comment below

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Note: My detailed stock and fund portfolio will be showcased in separate posts.

Table of Content

1. Overall & Monthly Performance

2. Strategy & Reflection

3. Future Plans

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