These Japanese stocks are so obviously strong and easy to understand that you barely think about them - But when you do, you realize how stupid you've been for not owning them
Thanks for the article. Itochu has PE 11.8, which seems low until you observe that until a couple of years ago, it was generally 7 or less. Is there something that justifies such a rerating?
Check the research studies. Sales growth actually says little about future stock performance. High growth rates usually attract competitors, which leads to a natural correction and mean reversion.
First, thank you for sharing your well-thought-out approach to investing in the Japanese stock market. Your logical and disciplined technique for picking individual stocks makes a lot of sense.
Second, I'm sorry to hear that you're having trouble with Stripe. I hope the situation is resolved quickly.
Third, since you're interested in using quantitative filters, what's your opinion on using free cash flow margin to rank stocks?
Thanks you Mark. I really appreciate the thoughtful message, and I'm honestly so honored to have had your support for so long.
On your third point: I’m a big believer in filtering with free cash flow metrics, but I treat free cash flow margin as more of a supplementary check than a ranking tool. The core of my process still starts with price vs. intrinsic value, P/E, P/B, and owner earnings relative to market cap. Free cash flow margin is useful to flag operational efficiency, but on its own, it can be misleading. A high margin doesn’t mean much if the company’s cash flow is lumpy or if capital reinvestment opportunities are nonexistent.
That said, in Japan, where accounting can be conservative and CapEx-heavy businesses often dominate, I do look at consistent FCF margins over a 5–10 year horizon. But I always pair it with return on equity and whether management is actually doing anything intelligent with the cash (spoiler: often, they’re not).
And thank you for the kind words about the Stripe mess.
Thanks for the article. Itochu has PE 11.8, which seems low until you observe that until a couple of years ago, it was generally 7 or less. Is there something that justifies such a rerating?
Check the research studies. Sales growth actually says little about future stock performance. High growth rates usually attract competitors, which leads to a natural correction and mean reversion.
First, thank you for sharing your well-thought-out approach to investing in the Japanese stock market. Your logical and disciplined technique for picking individual stocks makes a lot of sense.
Second, I'm sorry to hear that you're having trouble with Stripe. I hope the situation is resolved quickly.
Third, since you're interested in using quantitative filters, what's your opinion on using free cash flow margin to rank stocks?
Thanks you Mark. I really appreciate the thoughtful message, and I'm honestly so honored to have had your support for so long.
On your third point: I’m a big believer in filtering with free cash flow metrics, but I treat free cash flow margin as more of a supplementary check than a ranking tool. The core of my process still starts with price vs. intrinsic value, P/E, P/B, and owner earnings relative to market cap. Free cash flow margin is useful to flag operational efficiency, but on its own, it can be misleading. A high margin doesn’t mean much if the company’s cash flow is lumpy or if capital reinvestment opportunities are nonexistent.
That said, in Japan, where accounting can be conservative and CapEx-heavy businesses often dominate, I do look at consistent FCF margins over a 5–10 year horizon. But I always pair it with return on equity and whether management is actually doing anything intelligent with the cash (spoiler: often, they’re not).
And thank you for the kind words about the Stripe mess.
That makes sense! Thanks for the clear explanation.