The document discusses an investment strategy for the Japanese equity market called "Guerilla Warfare". Some key points: - Momentum investing in Japan by buying the worst performing stocks and shorting the best could double returns during periods when the overall market was halving. - The strategy focuses on quantitative, technical, and fundamental research to choose stocks rather than relying on a single methodology. - Risk is controlled by limiting position sizes and industry exposures. Real-time attribution is used to analyze returns. - The strategy aims to take advantage of situations where the market misprices stocks by not fully understanding businesses or accounting issues.

1. The Art of Guerilla Warfare in the Japanese Equity Market By Michael Allen Shinobi

2. Japan is Different!

3. Momentum Returns Just buying the worst performing decile and selling the best would double your money during a period when the market halved.

4. There is no fundamental explanation for the vast majority of profit opportunities in the Japanese market.

5. Our advantage is our ability to choose the appropriate methodology from amongst quantitative, technical, and rigorous fundamental research, and to implement all three effectively.

6. Unique technical models: Measure and predict relative performance Multiple-trading frequencies Parameters adapt to characteristics of each stock. These are not one-size-fits-all models.

7. Non-concentrated Typical concentrations Some important rules No position exceeds 3% of NAV, or 30% of daily volume. No long positions in assets labeled as toxic by our balance sheet & cash flow analysis No industry exposure exceeds 6% above Topix weighting in either long or short book. No net industry exposure exceeds 6% of NAV 60 to 80 names per side There is nothing wrong with cash

8. Non-directional Correlation to Topix is expected to be zero. Correlation to Topix

9. Real-time Attribution I Long and Short book returns dis-aggregated in real time

10. Real-time Attribution II Returns to sector allocation & stock selection dis- aggregated in real time.

11. Real-time Attribution III Stock specific return dispersion of long and short book measured and matched-up in real time.

12. Preventing Volatility Spikes Befor e After

13. Recognized a superior business model in Sugi Drug Stores before the street caught on.

14. We were alone in understanding that despite 5 years of un-precidented growth, Japan’s blast furnace operators were still cyclical beasts incapable of controlling costs and extremely dependent on credit markets.

15. Recognized the message from management of seemingly insignificant level of share repurchases.

16. Recognized accounting flaws in leading producer of car batteries. Then played the decline in commodity input prices.

17. In-depth industry analysis showed that in the depths of the greatest recession of our life-time, massive shortages were building in automotive seats. Buy

18. Took advantage of foreigners who bought on an ecology theme without knowing the company was about to suffer massive shortfalls in revenue and profit.

19. Daily Returns *Out-of-sample Test of Concept

20. Daily Returns* *Out-of-sample Test of Concept

21. Guerilla Investing “ In Japanese history, a nin ja ( 忍 者 ) is a warrior specially trained in a variety of unorthodox arts of war, including scouting , assassination, espionage, sabotage, and various martial arts. Shinobi nomono ( 忍 びの者） is an older form of the word, meaning one who is stealthy. The character 忍 (pronounced neen or shino ) depicts a sword above a heart.