International Value Investing

(MENAFN- ValueWalk) Throughout this series, I'm looking back at some of the lessons learned from our historic. This is part seven. You can find the rest of the series at the link below.

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Within this part, I've gathered the comments from our value interviews on the topic of finding value investments internationally. If you're interested in more interviews and stock ideas,Hidden Value Stocks, ValueWalk's exclusive quarterly magazine.

You have experience as an investor in both US and Japanese markets, what would you say is the biggest difference between investing in the US and Japan?

It's hard to call out one difference in particular since there are a number of key differences. It may be stating the obvious, but let me mention how much time is spent -- wasted -- by the Japanese worrying about exogenous factors. American investors used not to care so much about the outside world, but to exemplify what I'm trying to describe, it's like how China now can really move the market in the U.S. My point of view as a value investor is that I don't worry too much about macro, and thankfully with all the attention the macro stuff gets, it leaves great values on the equity market for a longer time. Another difference worth sharing is the one-hour lunch break in Tokyo (the exchange stops trading between 11:30 and 12:30 each day). I think it is worth considering for the U.S., but we also have multiple time zones whereas Japan has

I think many private investors are concerned about the risks (FX, time zone, lack of information) of investing overseas, especially in a market like Japan, which has the unenviable record of the longest bear market in history. What would you say to investors who are concerned about investing overseas and how would you advise they mitigate key risks?

This may sound harsh, but I have effectively turned away some potential newsletter subscribers that could not get over some of the concerns you mention. My goal is to achieve the highest possible returns supported with high margins of safety -- and I'm trying to do so permanently yen-denominated. I leave foreign exchange matters up to individual subscribers that include individual and private investors, wealth managers, and hedge fund managers. The bear market/lost decades questions are coming up less frequently because of how I've marketed the Uguisu Value newsletter as a highly focused smaller cap value specialization that typically only relies on Japanese language sources (uncovering value where even Japanese investors have overlooked it and reading hundreds of pages of filings that very few, if any, are reviewing). While benchmarks may be down over a certain duration and clearly can be volatile, disciplined investing works very well in Japan -- a market that until 2012 had largely lacked competition among global value investors and even now with more momentum-oriented investors. There have also been many successful companies that have compounded nicely despite the headline benchmarks' performance.

You mentioned you're finding plenty of opportunities outside the US in international markets. Are there any particular reasons you find attractive here?

We're bottom-up investors and very opportunistic. We find opportunities in all kinds of places. I do think there are a lot of things are quantitatively cheap in Australia, but there are actually a lot of risks relating to the economy there such as the real estate bubble and the exposure to China. Other than Australia, I don't see any regions with an unusually high number of good opportunities right now. We have traditionally, and still do, have a lot of exposure to developed Europe and mostly the UK. But I don't see an unusually large number of opportunities in those places right now.

Do you think managements are as shareholder friendly in these regions, especially the UK, as they can be in the US?

In my experience yes. I'm not sure there's any difference in the small-cap universe. Maybe one difference, especially if you include micro-caps, in the UK these companies have a much higher institutional ownership than those micro caps in the US, so they tend to have better shareholder communication policies. I think the US and the UK have the most shareholder-friendly managements around.

As an international value fund, you can invest anywhere in the world but are there any regions that you specifically want to avoid?

Ultimately, we invest in individual companies, so we're more concerned about things going wrong at the company level. We don't really pick and choose regions. Even if you're in a wonderful part of the world, there are still many companies that we would avoid. We have had our share of hiccups in countries that are very, very safe and investor friendly.

For example, a great country for investing is Norway. However, in the late 2000s the country, for whatever reason, decided it was going to change the tax regime for the shipping industry and as a quid pro quo for this change, companies had to pay substantial amounts of back tax. So, the shipping companies, most of which already had a large amount of debt on their balance sheets, were suddenly hit with this huge liability. This reduced shareholder equity across the sector, and suddenly industry debt-to-equity ratios spiked, leading to bankruptcies and near bankruptcies across the region. This is a great example showing that even the most stable regions in the world can be extremely unpredictable.

It is really difficult to try and say exactly where we will and won't invest. Even in countries like Singapore which has a relatively developed legal code, entirely unexpected situations can develop. There are plenty of regions where it's not easy to invest, but I would never say 'I would definitely not invest there.' Indonesia and Russia for example, both are difficult places to invest, but we've had great experiences in Russia over the years. And of course, there are issues regarding accounting standards in China which present challenges.

One thing