Warren Buffett, A Japanese Love Call

It really is the end of an era. Warren Buffett, the greatest investor of modern times, is to retire at the age of 94. While maintaining his optimism about America, he has not made any significant new investments in his home market for some years.

Even the sharp sell-off caused by President Donald Trump's tariff announcement on April 2 was not enough to entice him to deploy some of his record-breaking $334 billion cash pile. The message appears to be that United States stocks will have to get much cheaper before they become attractive in the eyes of the Sage of Omaha and his chosen successor, Greg Abel.

The announcement was made at the annual shareholder meeting of his listed vehicle, Berkshire Hathaway, in early May. This event attracts tens of thousands of participants from far and wide, hence the nickname of "Woodstock for capitalists." Buffett's comments were particularly notable this year because it was the last time for him to respond to questions in that homespun but often illuminating style that he perfected.

Long-Term View On Japan

Particularly interesting was the praise he lavished on the five Japanese companies he has invested in – trading houses Mitsubishi Corporation, Mitsui & Co, Sumitomo Corporation, Itochu Corporation, and Marubeni.

"We don't have any intention of trying to change what they've done because they do it very successfully," he declared. "Our main activity is just to cheer and clap."

*Warren Buffett answers questions on the monitor at the shareholders' meeting held in Omaha, Nebraska on May 3. (©Reuters)*

He also had a typically folksy take on cultural differences, noting that the best-selling Coca-Cola product in Japan is Georgia canned coffee. Meanwhile, Buffett's favorite, Cherry Coke, is much less popular. "I haven't converted them to Cherry Coke, and they're not going to convert me to Georgia coffee. But it's a perfect relationship."

Buffett went further than mere flattery, stating that he hoped Berkshire Hathaway would hold its positions in the five traders for another fifty years. Coming from anyone else, such a comment might seem jokey or fanciful. But Buffett is renowned for his patience and long-term perspective. This is the man who studied the business record of IBM for fifty years before deciding to invest; who has held the stock of Coca Cola since 1988; who snapped up America's largest railway company in its entirety because "it was an opportunity to buy a business that will be around for one or two hundred years."

Modesty and Endurance

Japan understands durability, too. More than half of the world's oldest companies are Japanese. The Sumitomo Group started in 1590. Japan's Mitsui family began business in 1673. Mitsubishi, though, is a relative newcomer, having been founded in the late nineteenth century.

Buffett came to Japan late in life and via a circuitous route. An Israeli technology company in which he had bought a major stake had a Japanese subsidiary. And in former times, it was a listed company called Toshiba Tungaloy. With its factory in northern Honshu, it suffered damage from the devastating earthquake and tsunami that hit Japan in 2011. Buffett visited the stricken area and showed solidarity with the staff.

Despite the wealth that Berkely Hathaway has amassed over the decades, Buffett leads an unassuming lifestyle in Omaha, Nebraska. Sometimes he takes breakfast at his local McDonald's, and he is a longstanding critic of "egregious" executive pay. The generally modest level of remuneration in Japan for CEOs and other key figures was appealing to him. He's mentioned it on several occasions.

Putting Japan in His Sights

When did Buffett set his sights on the five traders? It's unclear, but my sharp-eyed colleague Ben Williams spotted the great man browsing a Japanese company handbook (an indispensable digest of corporate data) in a 2012 CNN feature. Buffett himself cites the solid dividends and share buybacks, which are part of Japan's recent corporate governance reforms, for clinching the deal. Without that change in corporate and investor culture, it is doubtful that Buffett would have bothered.

Buffett and his team made the initial investments in 2020. Such is the enormous scale of Berkshire Hathaway's financial assets that taking a stake in just one of the Japanese traders would hardly have moved the dial, even if the stock did well. Buying into all five was unorthodox but delivered an excellent return. Especially when financed by Japan's super-low interest rates.

*Warren Buffett attends the Berkshire Hathaway shareholders meeting in Omaha, Nebraska, in May 2024. (©Reuters via Kyodo)*

Will Berkshire Hathaway invest in other Japanese companies? It is feasible but unlikely. There are many excellent candidates with inexpensive stock market valuations, but very few that are of sufficient size to make a difference to Berkshire's portfolio. On the other hand, it may continue to add to the existing stakes in the trading houses, if managements consent, as was set out in the original agreements.

Building Something New Together?

There is another intriguing possibility. On many occasions, including the recent shareholders meeting, Buffett and his team have expressed a strong desire to collaborate with the trading houses. What would such a collaboration look like?

Probably it would involve large-scale infrastructure. Perhaps related to the energy needs of Japan and other Asian countries.

Two years ago, Buffett's late partner, Charlie Munger, deplored the geopolitical fissure that had opened up between the US and China. It was, he termed, "stupid, stupid, stupid." Now the geopolitics are much worse and, as Buffett noted, trade wars can easily morph into shooting wars. It would be a fitting counterexample of the benefits of trade and openness if the great company created by Warren Buffett and Japan's famed trading houses could come together and build something new and substantial.

Author: Peter Tasker
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