Kon’nichiwa (which means hello in Japanese).
I started working with Francisco García Paramés in 2008. We started in Shanghai (China) to learn more about our investees companies in the area. At that time, BMW was one of our largest investments and, without a doubt, China was the most important market for many businesses, including the automotive industry.
I visited the BMW factory in Shenyang with Paco and we met with BMW’s Joint Venture partner in China. We also spoke with the dealers and got a first-hand idea of the brand’s strength in this huge country. We then carried out a thorough analysis to have a more concrete opinion about the BMW investment case.
Another task that I usually carry out is to study and monitor the competition in Asia. This not only gives us relevant information about our investee companies, but it also reveals good investment opportunities with certain frequency.
In his book One Up On Wall Street, Peter Lynch says that he likes to get investment ideas by asking companies who they think represents a worthy competition in the market. I share the opinion that word of mouth, especially when it comes from the competition, is a clear indicator that we are surely facing something that is worth investigating more thoroughly.
For example, we used to invest in Schindler (a European elevator company), so I studied the competitive landscape in China (the largest global market for elevators). In the process, we identified a very good competitor listed in Taiwan. We invested in the company before its revenues began to increase and the sell-side analysts began to carry out an initial coverage of the company. The result was that we profit handsomely from that investment.
Having a long-standing presence in Asia gives us additional advantages
Thanks to the work we have done over all these years, we are better positioned to take advantage of the valuation discrepancy between markets.
At present, the stock markets of Japan and Korea are trading at attractive valuations if we compare them with what we see in Europe and the United States. As value investors, we are delighted to expand our exposure in Asia under the premise that we have spent a lot of time analysing businesses and continuously monitoring companies.
At the time I’m writing this post, Asian companies represent more than 15% of our international portfolio. Our presence in Asia has only increased over the years. This is not the case that we want to allocate a certain percentage of our funds to investments in Asia. It is the case that we find investment ideas in Asia that fit our investment process and philosophy.
Another virtue of having a presence in Asia for years is that we can produce more with less. By this, I mean that we will produce more ideas that are worth investing in without having to learn the business from scratch.
In a recent example, with the help of a friend (a value investor) and taking advantage of the experience we had obtained by investing in a Spanish refrigerator company in the past, we began to investigate the Japanese refrigeration sector a year ago. We compared similar businesses on a global scale and confirmed that the business offers high quality (return on capital employed, (ROCE)) with entry barriers.
We came to Japan to meet the main players in the sector and find out what the locals thought of them. The more we learn about the industry and the companies, the more convinced we are to add two Japanese refrigerator companies to our portfolio. Both have a net cash position and are controlled by families.
In summary, at Cobas we are managing our funds with a global perspective and a focus on the ground. Our investments in Asia emanate from our process and investment philosophy; they are not a figure that starts from an allocation of funds strategy.
Secondly, we are prepared and waited patiently for the market to offer us the opportunities to invest, as we always do.
Lastly, at Cobas we work as a team and we always try to help each other by confronting the analyses in the different regions to carry out our task with a greater capacity for analysis and security.
Sayounara (which means goodbye in Japanese).