Basket of Japanese Stocks

Continuing on with providing a description of my portfolio changes since last September (beginning of my hiatus from writing due to fairly limited activity) is a basket of small positions (~1-2% each) in Japanese stocks purchased in October/November of 2014. I was pleased to locate these ideas from an individual on the corner of Berkshire and Fairfax message board. Below is a brief description of the rationale for each purchase, as well as the current situation and performance to date.

• Joban Kaihatsu (Ticker: 1782): At the time I purchased it, Joban had compounded book value per share over the prior 5 years at close to 15%, and it traded at 61% of book, 0.7x EBITDA, and 1.7x the average of several years FCFE. Currently it is trading at 478 JPY, which is 80% of book, 2.4x EBITDA, and 5.2x FCFE (5Y average). The return to date has been 56% in USD, and 73% in JPY.
• Fujimak (5965): At the time I purchased it, Fujimak had compounded book value per share over the prior 6 years at 10%, and it traded at 41% of book, 1.3x EBITDA, and 7x the average of 5 years FCFE. Currently it is trading at 790 JPY, which is 41% of book, 1x EBITDA, and 7x FCFE. The return to date has been 2% in USD and 3% in JPY.
• Tokyo Radiator Mfg (7235): At the time I purchased it, Tokyo Radiator had compounded book value per share over the prior 5 years at 9.9%, and it traded at 45% of book, 0.7x EBITDA, and 9x the average of 5 years FCFE. Currently it is trading at 645 JPY, which is 50% of book, 1.2x EBITDA, and 6.7x FCFE. The return to date has been 14% in USD and JPY.
• Car Mate Mfg (7297): At the time I purchased it, Car Mate had compounded book value per share over the prior 5 years at 9.6%, and it traded at 45% of book, 4.8x the average of 5 years FCFE, and had a negative enterprise value. Currently it is trading at 645 JPY, which is 43% of book, 6.8x FCFE, and the enterprise value is still negative. Due to a spike in cost of goods sold, EBITDA turned negative over the trailing twelve months, which is concerning and warrants closer monitoring of this company's progress. The return to date has been -1% in USD and flat in JPY.
• Nansin (7399): At the time I purchased it, Nansin had compounded book value per share over the prior 5 years at 13%, and it traded at 40% of book, 2.3x EBITDA, and 2.6x the average of 5 years FCFE. Currently it is trading at 400 JPY, which is 36% of book, 2.1x EBITDA, and 2.9x FCFE. The return to date has been -11% in USD, and -1% in JPY. 

In aggregate the basket is up 10% in USD and 16% in JPY. This is versus -3% for SPY including dividends since 10/31/2014 (+5% from the bottom of the short sell off in mid October). So satisfactory results to date, although not stellar because the positive performance is really due to 2 of the 5 names. These stocks still appear quite cheap, so I do not have plans to sell yet.

I have gone back and forth, but I currently have left the JPY exposure unhedged. As shown above, this has cost me a material amount.  My main reason for remaining unhedged is that it is expensive to hedge (although it has turned out to be more expensive not to hedge to date).  Additionally, aside from very large cash on these companies' balance sheets, currency movements affect these businesses in fundamental ways that I don't think is exactly 1 for 1 with the current market cap of the company. Lastly all currencies decline, and I don't know which ones will decline faster or slower than others. I no doubt will continue to cogitate on this reasoning.

I will continue to hold each of these stocks as they remain quantitatively cheap.

Disclosure: Long 1782.JP, 5965. JP, 7235.JP, 7297.JP, 7399.JP