Great opportunities in Japan

The Japanese market is inefficient. A paradise for fundamentally driven value investors.

HIGHLY INEFFICIENT MARKET MEANS HIGHLY SKEWED PAY OFF STRUCTURES

Downside Upside

WHY IS THE JAPANESE MARKET SO INEFFICIENT?

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Trending behavior

Overemphasizing macro economic trends and top-down themes, the investment community tends to extrapolate forecasts causing dislocation.

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Negative investor perception

Investors perceive Japan as having poor disclosure, weak corporate governance and a hostile stance towards equity investors.

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Looking in the wrong direction

Fund managers and analysts alike overemphasize earnings growth and disregard balance sheet analysis where true value can be found.

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Short-Termism

Long term investing is an unpopular concept, many market participants are short term momentum followers who ignore valuation.

But Japanese equities are highly volatile

Volatility is not risk, permanent loss of capital is.

Pelargos Website Chart Japan

That is why we control the downside

We select for the upside and manage the downside.

2. Rigorous control of the downside

Continuous risk control at both single stock and portfolio level

1. Select for upside

Fundamental value stock pickers

Pelargos Japan Alpha Fund (normalized monthly returns in std dev)

2. Rigorous control of the downside

Continuous risk control at both single stock and portfolio level

1. Select for upside

Fundamental value stock pickers

Pelargos Japan Alpha Fund (normalized monthly returns in std dev)

We select for upside as fundamental value stock pickers. We control the downside by continuous risk control at both single stock and portfolio level. This combination leads to stable, uncorrelated returns with low volatility.

Our value approach

Systematic idea generation. Detailed fundamental analysis. Disciplined risk management.

Fundamental data driven stock picking

We identified a distinct circle of competence consisting of business models we deem comprehensible.

Our proprietary model helps identify stock with the best odds for further research.

We spent most of our time on fundamental bottom-up analysis and, as a team, meet a few hundred companies per year.

In our opinion, this leads us to the best risk-reward propositions.

Unique tools to control risk

In order to effectively manage Japan’s excessive volatility we developed proprietary risk tools to enhance our fundamental value approach.

With systematic and disciplined risk management we are able to build wealth in the long run.

Decrease cognitive biases

We aim to systematically manage our biases by creating feedback loops.

Monitoring our and market behavior, analysing performance attribution combined with open and honest communication makes for an effective team.

Long term horizon

Fundamental value investing can only be successful with a long-term investment horizon in mind. 

We do not compete in the short-term and are not buy and hold investors.

Building our philosophy.

Pelargos Capital was established in 2008 in the midst of the global financial crisis. Two major bear markets in less than a decade had a profound impact on our culture and reinforced our believe that investing is about understanding risk and taking risk when the odds favor us to do so.

Kaizen

Financial market participants operate in a dynamic, interactive and adaptive environment. We strive to continuously improve ourselves and the way we operate. Over the past decade we strengthened our analytical investment framework and stepped up our engagement with companies on the subject of corporate governance improvements. Improving corporate governance will strengthen Japanese corporations and benefits all stakeholders and society.