It’s hard to believe that the market was actually up last month. The Nikkei 225 was up +1.2% while the broader TOPIX index was up +0.3%. But the difference between countries was enormous (e.g. US(S&P500) -0.8%, Hong Kong -4.3%, Australia +3.6%, Taiwan -2.2%, Korea +1.9%, China -3.0% to name a few). While this dispersion seems abnormal, I think it has more to do with the end date and timing. The intramonth highs and lows were similar with Nikkei between +1.2% ~ -12.6%, S&P500 +1.1% ~ -11.2%, Hang Seng +0.4% ~ -14.2%, TWSE +2.9% ~ -16.0% (the other Asia-Pacific countries were also wide but less dramatically). Despite all of the back-and-forth on tariffs, I guess the market ultimately decided that it was okay … which confounds me. We still have the across-the-board 10% tariff which may or may not be higher or lower in 60 more days. I’m sure corporate executives are still confused with regards to their investment plans. And both transatlantic and transpacific relations are probably at post-WWII lows. And yet, the equity markets feel almost stronger than pre-Liberation Day. Maybe the “Art of the Deal” is working, perhaps not with cross-border negotiations, but at least with the stock market? It’s analogous to how I sometimes discipline my children. If I have to get them up early the next day, I tell them that they have to get to sleep by 8:00 PM vs their usual 10:00 PM. They will, of course, complain because this means less game time. But later, I tell them they need to be in bed by 8:30 PM, and they are relieved. I later say 9:00 PM (my original target) and I suddenly become the best dad in the world. The equity markets feel like they are behaving similarly as President Trump rewards it with less pain than originally planned and praise him for his mercy.
 
So far, corporate guidance appears to be equally inconsistent. While datapoints are still few, some try to incorporate the potential impact of tariffs into their guidance (as if that is possible to compute?) while others caveat that they haven’t despite what looks to be excessively conservative guidance. The FX rate used to provide guidance by exporters has been equally wide with some using a highly conservative 135 yen for the fiscal year while others use 145 yen which is near current levels, an unusual estimate unless you are a net importer.
 
Stock market reaction has also been difficult to judge. Because forward outlook is so murky, sometimes the markets would reward strong Mar quarter results despite the possibility that the strength was a result of pull-in and/or inventory build prior to the tariffs. At times, it would reward companies that chose not to provide much visibility but penalize those that attempted to give some estimates, albeit conservatively. I’ve seen stocks fall despite strong results and confident forward guidance and, conversely, seen those that rise despite a cautious outlook (and vice versa). And, ultimately, whatever the company says, who can have much confidence in their numbers, strong or weak, with so little real visibility into end demand? I would suspect that the supply chain disruptions will continue while tariff uncertainty remains. For example, I’d rather stomach the 10% tariff during this quarter than risk the 20~46% that may come later, especially as companies prepare for Xmas but, then again, maybe the right bet is to wait and see since demand is equally uncertain.
 
We have been using this stock volatility to move the portfolio around. While forward outlook may be foggy, we saw some quality companies (notably exporters) that hit multi-year lows and at bargain prices too good to pass up. However, this would entail making room by selling companies early. We haven’t had to face the uncomfortable position of selling a stock at a loss, but I would if given a choice between stocks that will provide a greater return in the coming year or two, taking into account, of course, the current environment and individual prices at that time. Still, I would note that the total trade volume this month was only around 2% of the portfolio, which is still higher than usual.
 
Someone had asked me (a first-time prospect) what our portfolio volatility was. It’s been a while since someone had asked that question (I think it’s my first at TriVista), and I had to honestly answer that I had no idea. It turns out that it’s currently about 21% using daily returns over the last year, -1.8% below our benchmark, but -8.7% below if using a 0.94-lambda EWMA (and -7.7% even when using 0.97), which shows the huge dispersion in volatility between our portfolio and the market recently. Regardless, I’m guessing they lost interest after hearing that number; if you asked, you were probably looking for a fairly small number. But I’m not sure how I feel about that figure. I would’ve thought that our relative volatility vs the benchmark would be higher given that we own 12 names while the benchmark has 1,000 fairly equal weighted. But then again, we tend to own more stable businesses in less cyclical industries where one would expect has both lower fundamental volatility as well as stock volatility, so I suppose it could be lower. In any case, it was the wrong question to ask. The right question to ask is whether our turnover rises as market volatility rises. And the answer is, yes, in general, it does, as you would expect. Volatility provides opportunity and those that have long-term horizons should be taking advantage of the volatility.
 
And so, I suspect we will continue to be more active than normal in the coming months.

Masaki Gotoh​

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“And I see your true colors, shining through; I see your true colors, and that’s why I love you; So don’t be afraid to let them show, your true colors …” – lyrics from “True Colors” by Cyndi Lauper.

 

There are a couple of artists that I always try to see when they tour Japan, mostly from the 80s. For example, I’ve seen tour concerts by Bon Jovi, Billy Joel, Sting, Madonna, and several others in smaller venues. Others (not from the 80s) include Pentatonix, Britney Spears, Katy Perry, and Lady Gaga whom I’ve seen 4 times (tied with Bon Jovi). But Cyndi Lauper is a close 2nd at 3 times, most recently at her last stage of the Farewell Tour in April 2025. However, unlike other artists I’ve gone to see, I wasn’t particularly a big fan of Cyndi back in the 80s. I liked her songs and her eccentricity (and that amazing four-octave singing range), but I can’t say I listened to her songs any more or less than other popular artists of that age and just followed whatever was playing on MTV.
 
What changed was March 11, 2011. She actually arrived in Japan on the day of the devasting earthquake. The plane was set to arrive 30 minutes early and was in a landing pattern as the earthquake hit so it was diverted to Yokota Air Base in Western Tokyo (near where I used to work during my Hitachi days). While other artists cancelled their tours, she committed to remain and changed the tour into a charity event with two nights each in Nagoya, Tokyo, and Osaka.
 
This was a dark time in Japan, both literally and figuratively. I happened to be out of town on my honeymoon and had returned to Tokyo a week after the quake. There were still no trains running so I had to take the bus from Narita. But I can still remember the view as we entered the city. Anyone who has taken that bus probably knows the beautiful Tokyo skyline as you drive across the Rainbow Bridge into the city. But on that day, it was pitch dark with not a single light across the skyline, not even a streetlight. It was like a scene from an apocalyptic movie.
 
It was also one of the rare occasions that Japan got together as compatriots, especially over the coming weeks, months, and years regarding the supposed radiation levels that were affecting the surrounding areas. I say “rare” because, as far as I could feel, the Japanese seemed depressed about the economy, the government, and, therefore, the country for most of my post-80s bubble life until then. But the earthquake changed that. The international community was supportive at times, uneasy at times, but also outright hostile at times. I’ve never been particularly nationalistic but, admittedly, I started to feel more patriotic as we sometimes felt isolated from the world. And I think that feeling was true across Japan, which might be one reason that led to Tokyo being selected to host the 2020 Summer Olympics two years later (I understand that one of the reasons Tokyo lost the 2016 bid was lack of domestic enthusiasm in 2009). I heard a rumor that the Goldman Sachs Tokyo President told employees who escaped to Hong Kong or Singapore that they “needn’t bother coming back”. Until last month, the Japanese government was still fighting with China regarding the ban on Japanese seafood imports in response to the release of treated radioactive water from Fukushima despite the IAEA finding no irregularities in the seawater samples. The earthquake had left a lasting scar on our country.
 
And yet, Cyndi Lauper stayed. I understand she’s been very fond of Japan, possibly because she used to work and perform at a Japanese piano bar in New York to make ends meet before she became an instant hit with her debut solo album. Since then, she’s performed 15 tours in Japan, of which I went to see three of the last four.
 
I don’t know if it has anything to do with my musical background, but I rarely read the lyrics. They are just sounds in a piece, like another instrument, albeit the leading one. So, I never really absorbed the lyrics to her songs until I “prepped” for the concert (I didn’t know a few of the songs in the setlist). While I knew she was a strong women’s rights and LGBT rights activist, I hadn’t connected the dots with her songs, notably True Colors.
 
Until I was diagnosed with stage 1A stomach cancer 15 years ago, I was much more cynical and skeptical about the world in general, probably due to my childhood environment and experiences. But that trait was what helped me through business school (which felt annoyingly superficial at the time [but I was only 23 when I started so hadn't learn to appreciate it until much later in life]) and what I think attracted me to this industry in 1998. I learned quickly, during my 3-month summer internship at Goldman Sachs Tokyo in 1997, that this was a very cutthroat industry and showing your “true colors” was probably not the best professional strategy. “Winning” no matter the cost was, and that usually entailed hiding or deemphasizing ones true thoughts. “Liking” something was irrelevant (or rather, “liking to make money” is all that mattered). Oddly, that feeling of distrust is not true toward Goldman Sachs. The flipside of cynicism is that, if you can get past it, there is a deep sense of loyalty. To this day, I feel an instant sense of camaraderie with any former Goldman Sachs employee, whether we worked together or not, particularly if they were working in the Tokyo office before the IPO. I think it has to do with the strong bond that the Goldman culture created in such a small environment at the time, fighting in the trenches against “the rest of the market”. The Japanese culture probably deepened that bond.
 
Eastern medicine says that the 5 internal organs and 6 bowels are what actually makes our soul, not our brain. Taking one out changes one’s soul; my stomach was one such bowel. Many people around me who have known me for long say that my personality had changed noticeably since the operation. Personally, I think it has to do with age. I’ve definitely become more emotional and quite a bit less cynical, but I’m sure fatherhood played a big part. Admittedly, I am most certainly more honest with myself and everyone around me than in the past, but whether Eastern medicine is the reason, I have no idea. The only difference I can tell is that my taste buds have changed (particularly my taste in wines).
 
But I do think our current investing style fits my post-cancer personality, at least compared to my past self. I absolutely “like” my companies and their business. I “like” that they have strong, sustainable competitive advantages. I “like” praising their products and services to others and encouraging them to use them. One thing that hasn’t changed is that I "like" it (a lot!) when the stock works. But when it doesn’t, I react differently. I’m more thoughtful and try to consider what the market knows that we don’t (rather than instinctively wanting to flip it). I certainly don’t like to dismiss such movements simply as “short-termism”, despite the fact that this is often part of the reason for the difference in views. Not every -3 or -4 standard deviation move is an immediate buy, though, sometimes, it is. We might get on the phone with management, sell-side analysts, other investors, industry professionals, competitors, suppliers, or customers in order to review our thesis. Old habits die hard, and I am still cautious when speaking with outsiders. And I may not always like the management teams or their decisions (though we can attempt to correct that should it improve our returns). But in either case, I "like" to think through the long-term implications of the business (if any) in addition to the short-term gut feel for the stock.
 
And I also “like” speaking with our partners, whether existing or prospective, in both good times and bad. Not only do I always learn something, I "like" to share our thoughts and receive productive feedback. And this is why I have no concerns about providing 100% visibility of our portfolio, our trading activity, our valuations, and our thesis to our investors and anyone else who is willing to listen. I’ve always wondered why portfolio managers often want to hide what they are invested in. What’s the point of partnering with someone if you can’t speak openly with them, unless, of course, you are hiding your true colors.
 
Most of all, I "like" being honest with our philosophy. In an industry where one’s true colors are hard to express, I am thankful that I can.​

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