Recently, we spent a week in Japan seeking to better understand the world’s third largest economy, expand our network of relationships, and research potential investments. We spent time with insightful local investors, visited manufacturing facilities, toured hundreds of retail stores, and dove into some of the local history.
Japan is a famously closed society that is difficult for foreign investors to evaluate. We want to know in which situations we can better evaluate a business than a local investor. Typically, we have an opportunity when the broader insights we can apply from seeing an industry in dozens of markets across the world are more important than the insights a local investor might have due to better access to local information. This test excludes many highly regulated businesses and those where corruption is core to the business model.
Japan’s lack of dynamic demographic growth weakens the opportunity of all domestically focused businesses. The number of people in the workforce will fall over the next decade reducing the number of consumers. However, the culture prioritizes hard work and saving, and exporters that can capitalize on this remarkable cultural advantage can be successful given recent moves in the yen and higher wages abroad have made Japan a more attractive place to manufacture than it has been in decades. At current valuations, we do not expect Japan to produce a lot of great investment ideas for us, but hopefully, we will find one or two that make sense.