The recent events in Japan have impacts on stock portfolios around the world, including the trust funds that I manage and discuss on this site. There are really four general areas to discuss:
1) Japanese companies which have been directly hit hard by the events as the Japanese market dived (the EWJ ETF which represents the broad market is down about 11% in the last 30 days, vs. 5% decline in the S&P 500)
2) The impact on the Japanese currency, which is up about 3% vs. the US dollar in the last 30 days (after an intervention by the Bank of Japan which tried to stem the gain)
3) The impact on other firms because of the supply chain in Japan (for example GM is shutting down some plants in the US due to a lack of spare parts)
4) The impact on companies that sell to the Japanese people (for example Japan is the largest luxury market in the world for Tiffany)
While I watched with dismay as some of the stocks in my portfolio were part of this decline, notably Canon (CAJ) and Toyota (TM), and Nidec (NJ). The popular wisdom is that the hedge funds bailed out of the Tokyo market, accelerating the decline, much of which has subsequently been recovered. I can’t verify if that is true or not.
In our portfolios, we tend to sit tight and hold unless there is a compelling reason to sell. I think that these three companies are still good companies and if anything, at their current values, they are more of a “buy” than ever. I am not averse to selling when I think that a company is poorly managed or stuck in a dead end industry, but this is not the case with these stocks.
Some of the losses (in local currency terms) were pared by the fact that the currency appreciated vs. the dollar, which shielded some of the blow. This is part of a long term trend of the USD weakening vs. the Yen, as you can see below.
While I make my own choices I do like to go to multiple sources for research. I appreciated the directness of Barron’s approach in their most recent issue, which makes no bones about their recommendation.
The earthquake, tsunami and subsequent nuclear events also raise the value of diversification. While you can’t prepare for these sorts of events in your portfolio directly, by spreading your bets across countries, industries, currencies and asset classes you can diminish the blow (and also limit your upside).
For now I am happy with my decision to sit tight on the Japanese stocks, which has been partially vindicated by the recent rally as well as the increase in currency values (which has other long term negative impacts as well).