Over the next few weeks we want to offer an assessment of the country, companies and market through a Cambridge lens. Over the course of these blogs I hope you gain a better understanding of how we navigate the globe while staying true to our process and philosophy.
We have been global investors for many years, with specific products, business models and themes leading to investments in a number of companies around the world. However, when we started at Cambridge in 2011 we had a goal of expanding our local market knowledge from the U.S. and Canada to the rest for the world methodically, to be able to identify core markets and develop the skills necessary to navigate them to minimize risks and maximize returns. Our focus started in North America, followed by Europe, South America then Asia as the final area to apply ourselves. Japan was chosen as the largest and most developed market to tap into having a number of attributes that fit our investment philosophy.
Preparation for the trip began in June 2015 with Greg's launch of Cambridge Growth Companies Corporate Class one year earlier and me being named co-manager of Cambridge Global Equity Corporate Class. The process to design the trip was to lead with what we know best, companies. By digging through the opportunity set with screens, meetings and conversations with people knowledgeable in the area and a lot of reading over company material, we were able to identify 20 different companies which could potentially be core holdings for our fund holders for many years. Over a week we were able to meet with a dozen of these businesses, as well as a number of local business partners. Meetings took us from Tokyo to Osaka, Gifu and Kyoto. We returned from Japan very impressed on a number of different levels and I believe Japan represents a potential core market where the Cambridge investment philosophy can offer differentiated results for clients over time.
What impressed me off the bat about Japan was how civilized the culture was. We started in Tokyo, a city of 18 million people, without the hustle, bustle and hassle of most global financial centers. I was amazed at how clean, safe and quiet the city was. When walking around during busy times of the day, there wasn’t a lot of commotion and rarely did I hear a car horn. The streets were extremely clean, even though there are very few garbage cans around. In addition, the crime rate is very low and we saw motorcycles and bicycles left out at night, unchained. The culture is very much about social harmony, and the collective over the individual, and you could definitely see this with how people interacted with each other, with us and shared public spaces.
The second positive surprise was the interactions with the companies. I had very low expectations for access to information due to personal experience and stories I had heard from other investors about interactions offering very little value. Management answered our questions fully and thoughtfully and we were able to achieve the insights necessary to determine if the businesses could be considered core. This likely is due to our differentiated approach to management meetings. We tend to spend our time understanding how management thinks and how an organization operates. We are less interested in what the company thinks will happen in its business in the short run and more interested in how its culture and structure will allow them to adapt and take advantage of chances in its industry. As we constantly remind ourselves, one can’t predict the future, but we want to make sure our businesses can navigate whatever happens in the best interest of their stakeholders – very much like how our own flexibility allows us to navigate different markets for our fund holders.
Overall I would deem this trip a great success. We were able to gain the cultural and societal insights needed to confidently navigate the economy. We were able to meet a number of great businesses who provided valuable insight into their organizations to help us anticipate their development in their respective industries. We have returned with a list of six to eight core companies, which can be core investments across our global mandates. With this base, we can continue to visit Japan and grow that coverage list for years to come.
Over the balance of this year we will write a few follow up blogs about Japan. Look for blogs discussing the companies we chose and why we chose them, a discussion about the country as a whole and why we think it can be considered core and a discussion about why our approach to investing offers a competitive advantage in this market.