Japanese companies with a durable competitive advantage

Warren Buffett emphasizes buying companies with a durable competitive advantage, while Peter Lynch talks about finding companies that aren't well known but are run well, and poised for growth. I am currently in Japan visiting my brother and I wanted to mention a few companies that I see fit those molds. I haven't had time to look up stock information, or see if they are publicly traded companies, but maybe there are a few gems in here.

First up are beverage companies in the Coca-Cola realm. In Japan, there are two main beverage companies, Asahi and Suntory, that have a monopoly on the beverage industry, be it soft drinks, beer, or fruit juice. Japan is litered with vending machines, and you are guaranteed to see a Suntory or Asahi product on every street, usually for 20-30 yen ($.20-$.30) more than you can buy them in a regular store.

Second are the convenience stores, in the vain of 7/11, which they actually have in Japan. The two other main stores are FamilyMart and AmPm. Most of these stores are open 24 hours and you can't go a few blocks without seeing one. There have always been people in these stores, regardless of the time I have entered one.

Finally, there is the grocery chain Daiei, similar to a Meijer or Kroger (for you Michiganders) or a smaller Wal-Mart that has a full grocery section. This seems to be the best place to do all in one shopping, although I have heard there are a few Costco stores in Japan, for those bulk shopping trips.

I don't know if anyone of these companies have stock that can be purchased, but for those looking at companies within Asia, those are a good place to start.

Divi-don't????

With GE's dividend yield sitting above 11% right now, there was talk of GE cutting the dividend this week. Even in the midst of bankruptcy, a few months ago GM was looking to keep its dividend at $.01 so that its stock would show up on the radar of mutual fund managers that screen for dividend paying stocks. Retirees whose portfolios have been devastated by the market crash are hoping their quarterly dividend check will still be there to pay the bills. Dividends are on the mind of everyone right now as a means to get some sort of return in a time of uncertain and stagnant returns.

What are some reasons for a company to pay dividends? In my mind, the first is a purely aesthetic marketing ploy. Paying a dividend appeases shareholders who are used to it or who will only buy shares in dividend paying companies. Further dividend paying companies appear more stable.

The second is that the company does not have a good way to spend some of its profits to produce a return and rather than sit on the cash, decides to return it to the shareholder. Buffett does not pay a dividend on Berkshire Hathaway because he believes he can produce a greater return for his shareholders with that cash. Further releasing a dividend is not tax-efficient as it subjects the shareholder to a double tax, first on the corporate level via a tax on profits and second on the actual dividend being paid out. If the company is truly run well, the most efficient way to a return is by the company not paying out dividends.

This is not to say dividends don't have a place, depending upon the situation. Stay tuned for more discussion and analysis in this arena.

Agree/disagree/ferociously disagree...share your thoughts below.

Link'O'Rama (not to be confused with Obamarama)

Calculating Intrinsic Value

* http://www.stock-investment-made-easy.com/calculate-intrinsic-value.html
* http://answers.yahoo.com/question/index?qid=20061120165707AAFjmuf
* http://www.investopedia.com/terms/i/intrinsicvalue.asp
* http://www.streetauthority.com/cmnts/hps/2006/05-12.asp


Dividend Yield for S&P 500 Greater than Yield on 10 Year Treasuries

http://www.fool.com/investing/dividends-income/2009/01/12/the-worst-investment-in-50-years.aspx


Security Analysis

* http://www.fool.com/investing/value/2007/07/23/security-analysis-101-margin-of-safety.aspx
* http://www.fool.com/investing/value/2007/08/01/security-analysis-201-intrinsic-value.aspx
* http://www.fool.com/investing/value/2007/08/21/security-analysis-301-look-for-a-wide-moat.aspx?terms=security+analysis+301&vstest=search_042607_linkdefault
* http://www.fool.com/investing/value/2007/08/23/security-analysis-401-calculating-intrinsic-value.aspx
* http://www.investopedia.com/university/stockpicking/stockpicking1.asp


Discounted Cash Flow

http://www.investopedia.com/university/dcf/default.asp



Many of these articles are from Motley Fool and Investopedia, both great sites for more detailed information on stock picking.

2008 in review, 2009, and random thoughts….

The following is a guest post from Bob Costello (not his real name), a financial consultant in Michigan.

Much could be written about the events of 2008 but in a broad sense, an economy fueled by debt met its limits. As reported in the Wall Street Journal, GDP grew 5.9% annually since 1983 while total debt grew 8.9%. Disturbingly, GDP increased $10.9T and debt rose $45.9T. At the least, a period of adjustment is in order. A new approach to growth will have to be found. Thus far, Washington’s response has been to pour on record debt.

Who knows what the long-term consequences will be, but some thoughts for piece of mind: Currency values are based upon relationships with other currencies. The U.S. is not the only government throwing money at their flailing economy. Also, if Asian currencies appreciate in value relative to the dollar, it will make Asian goods and services more expensive, which is good for U.S. industries.

All things considered, long term, I side with Warren Buffet and agree that we have a tremendous long term opportunity.

In the short term it should be positive for gold, a traditional alternative to “funny money” and financial trickery in general. Precious Metals funds jumped over 70% since November 21 as investors may have pondered the same long term implications.

Most pundits and professionals agree that a well managed portfolio should have at least 10% in non correlating assets. Whether that is REIT’s, commodities, or interest rate plays, take a page out of the Ivy League Endowment playbook and add some non correlating assets.

All the negative aspects aside, odds strongly favor the bear market ending in 2009. After the technical washout that occurred during this past October and November, it would be desirable for stocks and commodities to gradually build a base over the next three to six months in preparation for a sustainable advance. Any improvement in the economy
later this year could help to establish new uptrends that result in meaningful gains before year end. I believe that the worst might be over for stocks and commodities for now—and that worthwhile opportunities could appear later this year.

With the amount of money being distributed by the world governments, a positive reaction seems almost certain. It’s like a man taking an entire bottle of Viagra and then nothing happening…

But you never know!

Beating the Street

I'm new to investing and started by reading "The New Buffettology" (Clark, M. Buffett) and most recently Peter Lynch's 1993 "Beating the Street." I was enamored with Lynch's very candid perspective of his career. What I learned in a nutshell summary is this:

(1) Like sports betting, for every financial analyst saying "buy," another is saying "sell." Picking stocks can be a coin flip with the bets evening out on both sides...the surest winners are those charging broker fees.

(2) Great analysts are separated by special knowledge into a company/sector. Some of Lynch's biggest scores were from talking with a CEO over dinner and discovering something great about that CEO's competitor. Since Ellen Kullman won't be inviting me to dinner any time soon, I'll need another avenue.

(3) Absent special knowledge of a sector, we're all largely speculating on the same set of data (balance sheets, earnings history, cyclical trends etc.).

(4) Warren Buffett's principles are the most sound fundamentals to abide by for analysts who can't dine with Meg Whitman.

I'm a huge fan of Peter Lynch now. Reading his book was like listening to his career war stories over a late evening beer. Yet even Lynch admits quite candidly that he failed to beat the market during some critical upswings in the economy. So if even Peter Lynch can hit and miss, what chance does the novice investor have?

I guess I could take away the following bullet points to guide me: (1) Warren Buffett is pretty crafty. Invest in companies showing sound fundamentals and a positive, sustained earnings trend if you want to make it over the long haul (2) seek companies with powerful competitive advantages when possible (3) understand what it is you're investing in and (4) always check EDGAR...it's the closest I'll ever get to that CEO dinner table. --Schlitz