After all, the founder of “Grant’s Interest-Rate Observer” is better known as a contrarian and critic of leverage than as a forecaster or investment adviser, and he devotes most of his attention to the bond market. But he couldn,t resist a bargain: The country,s small-cap stock index had sunk to a ten-year low by the fall of 1997. So Grant tapped Ken Shirley, an analyst at the newsletter, to find low-priced companies with long-term potential. “I told him to go be the Benjamin Graham of Japan,” Grant recalls. Former hedge fund manager A. Alex Porter signed on to run the fund.
How are they doing? Unfortunately, the Japanese stock market has since proved that what goes down can go down even further. After a strong rebound in 1999, with the Nikkei rising 41 percent, stocks lost all of that gain, and the Topix, Japan’s broader market index, fell 24.7 percent. Grant’s fund, up 14.8 percent in 1999, outperformed the indexes in 2000 but still finished down 1 percent for the year. And the pain isn,t over: The economic news out of Japan continues to be “unrelievedly bad,” Grant admitted in a year-end letter to shareholders. By early January the Nikkei was near a 15-year low, and there was talk of a banking crisis.
Nonetheless, Grant remains bullish on Japan, insisting that the bad times are causing “constructive change,” including a more welcoming attitude toward foreign capital. True to Grant’s conservative principles, the $18 million Nippon Partners fund steers clear of currency speculation, leverage, short sales and, so far, technology stocks, though Grant says that may change soon, thanks to last year’s market drop. “It’s very old-fashioned,” he notes. “Our main view is that Japan will not slip into the sea.” When will things turn around? “I,m completely agnostic as to when the thunderclap will come,” he says.
