Japan's Business Longevity, What Would John Malone Do, and Li Ka-Shing
"My first motto is: finish the damn thing"
Welcome to 2021! Excited to give you issue #3. As always, I’m keen as mustard to share what I’ve been reading, learning, and compressing.
Here’s the format of today’s email:
Part 1: Japanese Business Longevity
Part 2: What Would John Malone do?
Part 3: Under the Spotlight: Li Ka-Shing
Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen.
Japanese Business Longevity
Japan has 3,000+ companies over 200 years old. Guess how many companies over 100 years old? Over 50,000! Like, what in tarnation.
But what enables Japanese companies to stick around for so long? What do they do that others don’t?
The Japanese companies that have endured the longest have often been defined by an aversion to risk — shaped in part by past crises — and an accumulation of large cash reserves.
And more from the same article: (h/t to Phil Ordway from Good Reading for the suggestion)
If you look at the economics textbooks, enterprises are supposed to be maximizing profits, scaling up their size, market share and growth rate. But these companies’ operating principles are completely different. Their No. 1 priority is carrying on. Each generation is like a runner in a relay race. What’s important is passing the baton.
- Kenji Matsuoka, a professor emeritus of business at Ryukoku University
Another important point on how these types of companies behave:
Many companies are stuck in short-termism, focusing on a strategic plan for five years. But a lot of Japanese companies think about 100 or 200 years from now and envision the kind of future they want to create. During the tsunami disaster, the key mindset of executives was: We have to empathize with others. And companies ought to do the same thing now, during the current crisis, empathizing with those who are suffering and trying to figure out how to help.
- Hirotaka Takeuchi, HBS
Okay cool. So Japanese companies are focused on the long-term, are risk-averse, and aim to empathize.
So how does their business transcend generations of family?
Is it as simple as passing it down the family?
The continuity component is surely helped by the custom of adopting (adult) sons to carry on the business, displacing ‘natural’ sons when direct progeny are not viewed as suitable.
Like damn. Imagine not being good enough for your parents so they adopt a new son into the family. And not just any son. A random bloke who’s 10 years past puberty! Bonkers.
In Japan, a 2011 study found, businesses run by adopted heirs consistently outperformed those run by blood heirs. This explains a bizarre statistic about Japanese family life: Unlike in the U.S., where most adoptees are children, 98 percent of Japan’s adoptees are 25-to-30-year-old men. “You can’t choose your sons, but you can choose your sons-in-law,” goes one Japanese saying.
And the stats support your parents’ decision to adopt a new son! Imagine being a fully grown adult son who at age 30 gets a new adopted brother. WTF do you even do?
"Hey bro, welcome to the family, best of luck, no hard feelings"
In any case, it’s hard to argue with the success they have with it. Just a case of different strokes for different folks.
Japan and Negative Interest Rates
A quick note for the following section. In short, The Bank of Japan’s interest rate has been below 0.5% for over 20 years now. And had negative interest rates for the past 4 years.
So WWJMD?
What would John Malone do?
Right now if you have money you can borrow money real cheap and if you can borrow money real cheap then you can make money right, just as an investor, forget about companies.
Borrow money at 1%, buy AT&T stock that pays a 6% dividend, you make 5% a year. The interest is tax deductible then the dividend is taxed at 15%. So you know, what what could be easier? Right? Stable stock, not a lot of volatility and you know your return on equity can be very high.
Right now if that's all you're doing, Reg U allows you to borrow 50 percent right so you can probably get a get an 11 percent yield, return on equity. Just like that.
- John Malone 2012 Mavericks Lecture at [58:10]
Has Buffett done exactly what John Malone said?
In August last year, Berkshire acquired slightly more than 5% of the outstanding shares in five leading Japanese trading companies. Itochu, Marubeni, Mitsui, (all 70+ years old), Mitsubishi (100 years old this year), and Sumitomo (100+ years old).
All companies that have been around the block and are here to stay. Their volatility is low. All have dividend yields of 3% or more.
And the tax benefit side of the equation?
Berkshire has 625.5 billion of yen-denominated bonds outstanding, maturing at various dates beginning in 2023 and ending in 2060. [Source]
Great minds think alike.
Every week I share compilations, some resources, and interesting links.
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Under the Spotlight: Li Ka-Shing
Each week I provide a little spotlight on an investor or operator I admire.
Li Ka-Shing is this weeks focus, in a nutshell:
Aged 12, fled to Hong Kong from Guangdong with his family as refugees during World War II in 1940.
His father only three years later would become ill with tuberculosis and die.
Subsequently dropped out of school and took up a job as a salesman in a plastic factory. By 18 he was factory manager.
Four years later at the age of 22, he started his own business, a plastics company named Cheung Kong in 1950. Which would eventually become a $200 billion+ global conglomerate, making Li one of Hong Kong’s richest.
Hong Kong Billionaire Li Ka-Shing: An In-Depth Interview
My takeaways from the above interview:
What works today, may not tomorrow. So just because you’re doing well now, doesn’t guarantee it in the future. Don’t be set in your ways.
In the development phase, don’t forget about stability. And when there’s stability, don’t forget about development. Such a balance is very important.
Early on in his career when he had his own factory, he only spent 20-30% of his time there. The rest of the time planned and figured out what to do in the future. Play the long game.
Even though he started working at a young age, he enjoyed studying. So by choice, he has continued to study, read, and improve his knowledge. There’s a constant desire to learn and improve. He has this insatiable curiosity.
For a guy that’s fairly prominent and wealthy, there isn’t a whole lot of information out there on him! Which I think is a shame, as his story is a great one.
I’ve been meaning to get my hands on the book Li Ka-shing: Hong Kong's Elusive Billionaire but it’s not the easiest thing to find.
Bonus Quirky Content
Something to read: CIA’s Simple Sabotage Field Manual
Page 32 is easily my favourite and is a great lesson on how NOT to run a company.
General Interference with Organisations and Production
(1) Insist on doing everything through "channels." Never permit short-cuts to be taken in order to expedite decisions.(2) Make "speeches." Talk as frequently as possible and at great length. Illustrate your "points" by long anecdotes and accounts of personal experiences. Never hesitate to make a few appropriate "patriotic" comments.
(3) When possible, refer all matters to committees, for "further study and consideration." Attempt to make the committees as large as possible — never less than five.
(4) Bring up irrelevant issues as frequently as possible.
(5) Haggle over precise wordings of communications, minutes, resolutions.
(6) Refer back to matters decided upon at the last meeting and attempt to re-open the question of the advisability of that decision.
(7) Advocate "caution." Be "reasonable" and urge your fellow-conferees to be "reasonable" and avoid haste which might result in embarrassments or difficulties later on.
Invert, always invert.
h/t Shai Dardashti (@ShaiDardashti) for the recommendation!
Something to watch: history of japan [9 mins]
Keeping the theme today! The history of Japan from 40,000BC to today in 9 minutes. The madman bill wurtz has done a decent job. I’ll be honest though, I’m guessing people will either love or hate the editing and style of the video.
The United States installed a new government, inspired by the United States government. With just the right amount of ingredients for a post-war economic miracle.
And Japan starts making TV’s, VCR’s, Automobiles, and Camcorders, as fast as they can. And also better than everybody else.
They get rich. And the economy goes wild. And then the miracle wears off.
Something to listen to: Cooking As an Art, With Jerry Saltz | The Dave Chang Show
I’m clueless about the topics art and food, yet this is one of those cases where ideas and teachings are applicable across a range of styles. I barely pause podcasts but I had to a couple of times just from being blown away. Like seriously, that good.
Jerry Saltz
The meal must be made there's no more time for messing around, procrastination is not a possibility. You gotta meet the deadline. You gotta meet it now, and you gotta give the best of yourself you can give, and that's your job.Dave Chang
But that's criticism. Art can't be made under the gun like that can it?Jerry Saltz
Course it can. It should be, it should be. Anybody listening to this, give yourself a deadline. If you don't have one, and you make that deadline, my first motto is: finish the damn thing. Finish the damn thing. I'm sitting in your restaurant Dave. I ordered a beef steak, whatever that is because I don't know about food, and I've waited ten minutes then twenty then thirty. They'll do this too in Venice because they like to torture you, you know for a plate of spaghetti , but you're not making your deadline. You want to be an arty farty guy and go ahhh but this one I need ten days to make, I’m Babette's Feast here. Now meet the deadline. Make it as good as you can, make it. It will never be perfect.
Until next week, have a good one!
- K-town
You can find previous issues of Curated by Kalani here. I’m on the web at kscarrott.com and on Twitter @scarrottkalani.
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