10: Betting on Japan, $ANGI as a Marketplace Play, Deconstruction Gone TOO Far, The Lives of Napoleon, Koto Music
History is the version of past events that people have decided to agree upon - Napoleon Bonaparte
10th Edition! Half the distance to the dreaded 20 issue mark where most of newsletter ideas go to die, but still celebrating. I am having fun writing these, and hopefully you are learning a thing or two as well! I am starting to see a bit better where I want to go as I’m already getting some cross-referencing opportunities between different episodes, which (I guess) is a good sign that I’m not spreading too much :-)
I have a question for you - What are YOU interested in?
Investing & Business
Japan Equity Market = Generational Opportunity
Reading time: ~20 minutes
Horizon Kinetics published a new research note detailing their view on the Japanese equity market, the third of the series. In this part, HK dissects what factors led to today’s generational buying opportunity.
Insight #1: Rising From The Dead
The first part of the essay gives us a quick overview of the difficult times Japan had to go through over the last 30 years:
During the 30 years following the collapse of its credit bubble in 1989, Japan spent the first 15 years working on non-performing loans disposals. When the corporate sector finally started recovering, it then suffered the successive effects of the 2008 global financial crisis and the 2011 Great East Japan Earthquake […] Meanwhile, Japan lost its competitive superiority in many global industries it had once dominated, such as consumer electronics, automobile manufacture, and semiconductors, to global competitors from South Korea, China, and Taiwan.
Things started to change as soon as 2013 with the onset of the “Abenomics” reforms, which included many new laws and rules aiming at improving Japan’s growth potential, e.g. by introducing new types of best practices in corporate governance.
Insight #2: Governance Born Again!
As I mentioned briefly in issue #7, Korea suffered and still suffers from the fact that the quality of corporate governance is falling short of what is the standard in western countries, with a lot of problems around related-parties transactions, hostility towards minority shareholders, and overall a lack of focus on efficient capital allocation.
Japan faced the same problems with some peculiarities, e.g. the proximity and long-term relationships between financial institutions and industrial companies:
A part of that system were Japanese institutional investors, such as banks, trust banks and insurance companies, which historically had acted as passive investors and which had rarely voted against company managements’ proposals, because they had long term business relationships with investee companies, such as managing their insurance policies or corporate retirement accounts.
Thanks to the introduction of the Stewardship Code in 2014, a lot has been achieved in reducing this prevalent conflict of interest:
The Stewardship Code required Japanese institutional investors to start a dialogue with their investee companies on the topics of improving their returns on equity and shareholders’ returns. Japanese financial institutions now had to disclose their voting decisions, along with explanations of those decisions […] As of December 2020, over 290 financial institutions implemented this code
Insight #3: Forget the Value Trap
As we saw through the previous insights, the Japanese Equity market was plagued by several weaknesses (over-reliance on banks, bad capital allocation, governance problems), but the government’s intervention helped to change the status quo:
In Japan, the concepts of corporate governance, corporate control, fiduciary duty, maximizing corporate values, and shareholder return that have been the premise of a healthy capital market in the Western world did not exist. The Japanese government, in a graduated but forceful manner, brought them into play and existence in order to end the inefficient systems that ultimately became dysfunctional and a burden that impeded economic recovery and corporate growth. The TOPIX is only now re-attaining the level at which it peaked in 1989, over 30 years ago, yet the composite book value of those companies has more than doubled.
Another interesting aspect that is commented is the evolution of the gearing (indebtedness) multiples in the market:
Corporate leverage has been reduced so dramatically – to a debt-to-EBITDA ratio of just 0.14x, as of February 2020 – that the term leverage doesn’t really apply. Really, the Japanese market, at least on a global comparative basis, is underleveraged
Angi ($ANGI): A Home Services Marketplace Move
Reading time: ~10 minutes
Graham & Doddsville just published their 42nd issue for Spring 2021, and the runner-up to the Pershing Square Challenge (a stock-picking competition) was a pitch on Angi, a home services provider listed on the Nasdaq.
The Investment thesis is based on a fundamental shift from a lead generation capability to a pre-priced transaction model that will improve the economics for shareholders, along with a growing TAM (total adressable market) that is a recurring theme for marketplaces plays.
In the same issue, there are two very high quality interviews, one with Sean Stannard-Stockton from Ensemble Capital Detailing how he honed his investment process, and another one with Dan Rasmussen from Verdad Advisers, whose research I also read regularly! I recommend you check out both the Intrinsic Investing blog and the VerdadCap blog :-)
Thought-provoking stuff…
Where Have All the Great Thinkers Gone?
Reading time: ~20 minutes
In this essay, Ross Douthat (author of The Decadent Society), tries to explain what factors led to the apparent disappearance of great intellectuals over the 20th century.
In the first part of the essay, there is an argument about the change in our consumption patterns when it comes to media, a subject I already commented in issue #9 when writing about the disappearance of autodidacts in England over the 20th century. Ross Douthat is convinced that this is not the main factor, and that one could even argue that the novel format was actually promoting a high intellectual standard:
I might actually go further than [Spengler] does and argue that the novel has been a significant outlier to the general trend, surviving the film and television age and coming through the torpor of the last half-century with a lot more vigour than other forms of art.
In comparison, Douthat deems that “highbrow” content has disappeared and that “high middlebrow” content has taken the vacant place:
At the cinema, meanwhile, high middlebrow artists like Martin Scorsese, who makes what academic sophisticates once would have considered crass populist entertainment, are cast as either horrible film snobs or embattled aesthetes for issuing a few critical words about the Marvel juggernaut. Television, after a brief higher middlebrow moment that gave us The Sopranos and its successors, is now being drawn inexorably into its own Marvel-isation, a peak-TV variation on the pattern that the writer and academic Phil Christman describes as “lowbrow genres, done with middlebrow earnestness, in revolt against a thoroughly defunded highbrow regime”.
The second part of the essay is even more interesting because it lays out an approach which I had not considered before: the consequences of deconstruction over several generations. In fact, Douthat notices that many fields seem to be stuck in what one could call an “eternal return to 1975”. His thesis in his book The Decadent Society is that the successful deconstruction of a field makes it impossible a posteriori to understand the intermediary steps, and the original state which was deconstructed:
The great theologians of the Vatican II era displayed their brilliance in their critique of the old Thomism, but then the old system precipitously collapsed and the subsequent generation lacked the grounding required to be genuinely creative in their turn, or eventually even to understand what made the 1960s generation so significant in the first place […] Certain forms of creative deconstruction went so far as to make it difficult to find one’s way back to the foundations required for new forms of creativity
Arts & History
The Lives of Napoleon
Reading time: ~10 minutes
The essay starts with an interesting question:
If, as the Napoleonic historian Philip Dwyer suggests, writing a biography is like holding up a mirror for a contemporary readership, who is the Napoleon that is reflected back at us in 2021?
To that, there are multiple answers!
Napoleon the Dictator
The nature of that myth varies, depending on your national or cultural context. In Britain, for example, despite a persistent interest in him, Napoleon tends to be presented, in Zamoyski’s words, as an ‘evil monster or just a nasty little dictator’. […] Accounts of Napoleon’s childhood claimed that, as a schoolboy, he had killed a dog and nailed it to his door, and that he had poisoned his lover. Here was a man with ‘a heart black with crimes of the deepest dye’, in the words of the Anti-Jacobin Review.
The Corsican Ogre
While rendered ‘invisible’ in his new, tiny dominion, Bonaparte remained a figure of fascination for locals and visitors alike. He even became a kind of tourist attraction, with people travelling from around Europe (and Britain, too) in a bid to catch a glimpse of or even to meet the ‘Corsican ogre’.
Napoleon the Gardener
On Elba, Napoleon returned to an early passion established in his formative years as a pupil at the military academy of Brienne: gardening. With his gardener Claude Hollard, the deposed emperor laid out new gardens at his two residences on the island, planting citrus trees and Mediterranean flowers
The First Star
Through a careful balance of familiarity, intimacy and heroic exceptionalism – cultivated and marketed through newspapers, pamphlets and, above all, visual depictions of the leader – the relationship was no longer one of monarch and subject, but something much closer to a kind of fandom.
At the end of his biography, Dwyer reflects that Napoleon remains fascinating because he embodies the ambitions of the ‘modern western individual … he conquered … he acquired lasting power … he unashamedly pursued lasting fame’. The continued proliferation of books on Napoleon is testament to the potency of his story.
Treat for the Ears
Haru No Sugata (The Mood of Early Spring) - Kimio Eto 05’30”
Japan is blessed with the change of four seasons - and this composition as a solo piece, expresses the tranquil and glorious feeling of early Spring.
Other Interesting Links
Many interesting links in the replies! If you have to check one choose the following:
Until next week!
Antoine