It may have been fortuitous to launch this blog and trading account earlier this year. As markets sold off during the pandemic, a good number of net-nets in the United States and European markets briefly reappeared after a long hiatus.
The rebound in markets means that there are no longer as many net-nets out there. What does this mean for our strategy? For one, we should probably expect lower returns until we find new ideas. Warren Buffett loves to say he could earn 50%+ per year on small sums (in fact, he guarantees it). Unfortunately most of us aren’t him. However, we don’t need to be Warren Buffett to do well in our investments over time.
I don’t expect the NBNN portfolio to change too much until we find new interesting ideas, or our ideas get overvalued. I like most of our names at their current prices. Some are still below their 52 week highs. They will hopefully be decent investments until new ideas come along.
And where do we find these new ideas? As Charlie Munger reminds us, we need to “fish where the fish are.” Value has underperformed so deeply and for so long, there is bound to be opportunity all over the place.
For net-nets in particular, our screens indicate that the biggest pools of fish today are in Japan, South Korea, and Hong Kong. They also exist in OTC/pink sheets. We don’t have the ability to trade in South Korea. So we can cross that off the list. But the other markets are relatively accessible.
We have been trading net-nets in Japan for about a decade. We already own a couple names in Japan. There are scores more interesting names there worth a look. I have not traded extensively in Hong Kong but it looks like it could be equally interesting as many stocks appear to be below 2009 levels.
We will continue to flip through our version of the Moody’s manuals to find interesting opportunities. But absent another sell-off, I wouldn’t be surprised if our portfolio shifts eastward over time.