Yen keeps going from strength to strength!

[ChapInTokyo]

Good going on those Japanese stocks, at least in relative terms! A couple of questions: when did you start those investments, and why is Toho 一般 not 特定 ?

I bought them mostly last year when I cashed in a lot of my Stateside holdings, repatriated the dollars and converted to yen before the yen strengthened.

The一般 account for the Toho I can’t quite put my finger on but it’s probably because I bought them on a recommendation a long time ago maybe I only had the 一般 back then.

One thing I enjoy about individual stocks is I get to learn a lot more about the individual businesses than when investing via index funds.

Ah that’s why! I was just wondering.

And yeah, I find the individual stock-picking to be a fun educational hobby. At the same time, some of the financial podcasters, even the ones with professional qualifications, are a bit disingenuous. They claim to be advocates of the Boglehead approach, but spend most of their podcasts discussing newfangled ETFs and miss-pricing of stocks etc. without mentioning that we should keep stock-picking to less than 5 to 10% of our holdings.

Ramen Nakisa is very conscientious about emphasizing that he has very little hope of beating the market. Ben Felix and James Shack are very honest on this too. Check out James Shack's latest video about factor-ETFs that amount to active investment vehicles. At the end, he gets a bit puritanical, and recommends total abstinence on the grounds that we cannot compartmentalize, especially in a crisis.

The Problem With Index Funds
https://youtu.be/RPYJFv5aPc8

Ha! Thanks for linking the James Shack video about factor-ETFs. I have some factor ETFs in my portfolio, and I guess my portfolio looks a bit like the bad example that James gives in that video! But I think that in his puritanical zeal he sort of equated 'ETFs' with 'Passive Investing'. In fact, ETFs like Vanguard's multi-factor VFMF or Avantis' small or value tilted AVUS or AVDE ETFs are loudly marketed as a new generation of low cost Active ETFs. To my mind, when costs come down, a lot of the drag on active ETFs that fees used to comprise suddenly are not so deleterious. Thanks for the video though! It's always good to have a bit of nagging doubt at the back of my mind...

[ChapInTokyo]

I guess for institutional investors it’s a drag on potential upsides but then no one is forcing them to buy such stocks.

I guess many of you own passive funds, run by institutional investors. These funds are literally forced to buy these stocks. Entreching bad management in a subset of the market directly hurts every retail investor who owns units of these passive funds.

By the way, your article is from 2015, so it doesn't support your point. Actually I doubt yutai has faded much since then, but your article doesn't show it. The only big company I recall who has abandoned yutai recently is Orix - bravo to them!

There are many shitty abusive practices in the Japanese stock market which are being resolved or reducing/dissappearing:

cross-shareholdings
parent-child listings
poor capital allocation
staggered boards
lack of independent directors
inappropriate incentives for executive compensation

None of these issues are fully resolved yet, but comparing the situation now with how it was a decade ago shows huge progress has been made on all of them. The TSE has been very successful in accelerating the pace of reforms over the past 2-3 years.. I doubt it will take them forever to get around to discouraging abusive mis-treatment of classes of minority shareholders. Indeed I might know a person or two who has suggested this to them.

I could not find any data supporting your equation of yutai with poor management. Why do you believe that? For example, companies like Toho and Mitsui OSK in my portfolio have free movie tickets and discount coupons for their group car ferry routes but I think they are very well managed companies.

[Tkydon]

They are a Dividend Payment in Kind.

They give you benefits, which actually cost them nothing, but you value at the retail value.

This is much less expensive for them than to pay you the equivalent cash dividend.

Win-Win?

[Deep Blue]

I could not find any data supporting your equation of yutai with poor management. Why do you believe that? For example, companies like Toho and Mitsui OSK in my portfolio have free movie tickets and discount coupons for their group car ferry routes but I think they are very well managed companies.

Do you feel it is fair for a company to distribute rewards unequally to shareholders? How many management teams have you spoken to and asked why they persist with yutai? Why do you think this practise is uncommon in jurisifications with better corporate governance?

I've said why I believe poorly run companies try to boost the number of shares held by retail. I'd love to hear why you think they do?

[Deep Blue]

They give you benefits, which actually cost them nothing, but you value at the retail value.

This is patently untrue.

[Tkydon]

They give you benefits, which actually cost them nothing, but you value at the retail value.

This is patently untrue.

Which part?

[Deep Blue]

They give you benefits, which actually cost them nothing, but you value at the retail value.

This is patently untrue.

Which part?

The part about yutai costing companies nothing. Every free flight, every bag of rice, every complimentary meal or money off ticket has a cost to the company.

[ChapInTokyo]

I could not find any data supporting your equation of yutai with poor management. Why do you believe that? For example, companies like Toho and Mitsui OSK in my portfolio have free movie tickets and discount coupons for their group car ferry routes but I think they are very well managed companies.

Do you feel it is fair for a company to distribute rewards unequally to shareholders? How many management teams have you spoken to and asked why they persist with yutai? Why do you think this practise is uncommon in jurisifications with better corporate governance?

I've said why I believe poorly run companies try to boost the number of shares held by retail. I'd love to hear why you think they do?

I don't have a strong opionion about the rewards, as they are a nice to have but not essential parts of my investment upsides.

As for people investing in index funds like All Country, if you do the sums an investor here on the board with say 100 million yen invested in eMaxis Slim All Country will most likely not have enough shares in each individual Japanese company to qualify for yutai anyway. For example, Toyota is only 0.225503% of the index, and Sony is 0.153345%. Remember you need to have at least 100 shares to qualify for yutai.

On the Toyota website, they have this statement regarding their shareholder benefits:

当社は、株主の皆様の日頃のご支援に感謝するとともに、当社関連サービスの利用を通じて、当社グループの事業に対する理解をより一層深め、より多くの投資家の皆様に当社株式を長期にわたって保有いただくことを目的として、株主優待制度を導入することといたしました。
We would like to express our gratitude to our shareholders for their continued support, and through the use of our related services, we will further deepen our understanding of our group's business and encourage more investors to hold our shares over the long term. We have decided to introduce a shareholder benefit system for this purpose.

Fair enough.

As an added bonus, I guess having a shareholder base comprising a large number of buy and hold retail investors might have the upside of discouraging corporate raiders from trying to turn a quick buck. This would I imagine be because the time horizon of long term investors align better with that of the company.

[Tsumitate Wrestler]

Points to add here:

1. Yutai are only available for Japan based retail investors. A pension fund in Canada helping subsidize Tanaka-sans Aeon shareholder discount does ruffle feathers.

2. Japanese based funds do indeed get all these freaking knickknacks and coupons, categorize them, sell them, and redirect the profit to the fund. That is a bloody waste of human capital. My understanding is that it is often the job of new-hires.

[Deep Blue]

As for people investing in index funds like All Country, if you do the sums an investor here on the board with say 100 million yen invested in eMaxis Slim All Country will most likely not have enough shares in each individual Japanese company to qualify for yutai anyway. For example, Toyota is only 0.225503% of the index, and Sony is 0.153345%. Remember you need to have at least 100 shares to qualify for yutai.

The point I was making is that by entrenching poor management teams, long term shareholder value creation is impaired. This hurts all investors in passive indexes who invest in these companies. Of course anyone buying a passive fund won't qualify for yutai anyway, regardless of how big the company is in the index.

Companies want to give more rewards to docile retail shareholders who don't tend to vote in AGM's rather than instutional investors who are signed up to the Stewardship Code and will have a voting policy and disclose how they vote on each resolution.