Responding to a question from an audience member at the Morningstar Investment Conference about investing opportunities in Japan, Charles DeVaulx said: “We’ve been dealing in Japan since 1995 and made a lot of money; it’s been a wonderful experience.”
DeVaulx, who came to prominence as the hand-picked successor to Jean-Marie Eveillard at First Eagle SoGen Funds but then left that exalted position unexpectedly in 2006, said “the key to Japan is to know the intrinsic values” of Japanese companies, and to sell them before their stock prices have reached their full value.
“Don’t wait until they’ve reached 90% of intrinsic value” to sell, he said, but rather “at 75%.”
Now at IVA, DeVaulx sees Japanese firms as cash-rich
It’s simplistic to say that “Japanese companies are run for employees and management, not shareholders; it’s more complex than that,” said DeVaulx, who joined International Value Advisors (IVA) in 2008. “Some Japanese companies don’t mind making a lot of money. They’re now bloated with cash. If you removed that cash, you would see that the return on capital is very high.”
He then cited no less an investing expert than Warren Buffett, who, DeVaulx said, is “aware that there are some wonderful companies in Japan.” Moreover, DeVaulx pointed out that Japan now exports more to China than to the United States, making Japanese companies “a sort of back door to China.” Finally, he said he’d “rather pay 1.5 times book for a Japanese company” than invest in a much more expensive Chinese company with questionable corporate governance.
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