Fisher Investments Editorial Staff
Others

With Jaundiced Eye

By, 11/19/2008

Story Highlights:

  • The last few months' headlines have grown ever more lopsided—highlighting the bad and completely ignoring the good.
  • We lately noticed a great example of this phenomenon—Japanese firms are announcing share repurchase programs at a record pace with little media recognition.
  • The repurchases are likely a reflection of easier rules and the little-noted fact that almost 70% of Japanese companies have price-to-book ratios less than one.
  • Investors can benefit greatly by searching out underappreciated news and casting a jaundiced eye on each day's front page world-making.

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We recently unveiled a new section on MarketMinder titled "Sunny Side." There, we collect only positive news stories. This isn't to intone that all the positive news we see is perfectly on the mark, nor that we view the world through rose-tinted glasses. Rather, it is an attempt to highlight positive news that's lately been buried in the back of the business section, consigned to gather dust. Increasingly, "balanced" news seems a thing of the past—tilted overwhelmingly in favor of the dour. It's no wonder today's melancholy outlook is so pervasive.

We lately noticed a great example of this phenomenon—a relatively important storyline about a major global economic player that's been almost completely ignored by the mainstream US media.

Since an October easing of stock buyback rules, a Nikkei Net Interactive article* documented a record number of Japanese companies initiating stock repurchase plans. Stock repurchases are a positive sign for the world's second largest economy. For investors, repurchases can signal a constrained or even shrinking share supply, which is good for prices longer term. And despite weak economic news of late, repurchases illustrate an unappreciated underlying resilience—Japanese firms have plenty of cash on hand and are willing to use it to help boost future earnings by buying back their own shares.

The soaring repurchases are likely a reflection of not only easier rules, but also an astounding and little noted fact—almost 70% of Japanese companies have price-to-book ratios less than one.** This means the market values most Japanese companies at less than their tangible assets (i.e., office buildings, machinery—whatever shareholders can expect to recoup if the business is broken up). It's simply amazing such a large number of firms in a developed market would appear so grossly undervalued. Yet it's a great sign that, despite October's financial market turmoil, many Japanese companies have demonstrated they're ready, willing, and able to take advantage of potentially lucrative market conditions.

This positive story deserves space near today's scary headlines, yet in a quick search of some major online publications, it's nowhere to be found. We don't deny there's trouble in the world right now, but we've discovered there's also plenty of good news being mostly ignored. It just goes to show: The world where folks earn a living and the world defined by the mainstream media are often very different places—investors can benefit greatly by searching out underappreciated news and casting a jaundiced eye on each day's front page world-making.

* By subscription only
 ** Source: Bloomberg

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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