Warren Buffett’s Berkshire Hathaway Increases Stake in Japan’s Big Five Trading Companies
Warren Buffett, often referred to as the “Oracle of Omaha,” expressed his long-term optimism about Japan’s five major trading companies in his annual letter to Berkshire Hathaway’s shareholders for 2024. Recent reports indicate that Berkshire Hathaway has further increased its stake in these companies.
Background: Buffett’s Shareholder Letter Hints at a Strategic Move: Hoarding Cash for a Potential U.S. Stock Market Crash?
Buffett’s Berkshire Hathaway, which has been steadily selling U.S. stocks, saw its cash holdings hit a record high of $334.2 billion by the end of last year. Recently, the company has again expanded its investments in Japan’s Big Five trading companies.
According to a report from Bloomberg, a filing submitted on Monday shows that Berkshire Hathaway’s stake in Mitsui & Co. increased from 8.09% to 9.82%, Mitsubishi Corporation’s stake rose from 8.31% to 9.67%, Sumitomo Corporation’s stake increased from 8.23% to 9.29%, Itochu Corporation’s stake grew from 7.47% to 8.53%, and Marubeni Corporation’s stake went up from 8.30% to 9.30%.
Buffett’s Continued Investment in Japan’s Big Five Trading Companies
This move to increase investment in Japanese stocks had already been foreshadowed in Buffett’s February letter to shareholders, where he explicitly stated that Berkshire Hathaway has a long-term positive outlook on these Japanese “sogo shosha” (general trading companies). The company has reached agreements with these firms to “moderately” relax the previously set 10% stake cap, allowing Buffett to further increase his investments in these leading Japanese companies.
Since 2019, Buffett has been gradually accumulating shares in Japan’s Big Five trading companies. Leveraging Berkshire Hathaway’s strong credit rating, the company has been able to issue Japanese yen bonds at very low costs to raise funds for investments. These funds are then invested in stocks that yield a 5% annual dividend, helping to avoid the impact of exchange rate fluctuations. This strategy has been widely praised as a brilliant move, with Buffett’s late partner, Charlie Munger, once remarking that such an opportunity might only come once or twice in a century.
Further Reading: Buffett’s $10 Billion Investment in Japan’s Big Five Trading Companies – Munger: A Once-in-a-Century Opportunity, Too Good to Pass Up!
Japanese Stocks Expected to Be Boosted
As of the end of 2024, Berkshire Hathaway’s holdings in Japan’s trading companies have reached a market value of $23.5 billion, with an initial investment cost of $13.8 billion, demonstrating remarkable growth in value.
Investors and analysts widely believe that Buffett’s increased stake in Japan’s trading companies not only reflects his confidence in Japan’s long-term growth prospects but also serves to boost and stabilize the Japanese stock market, which has been weak amid overall economic uncertainty. So far this year, the Nikkei 225 Index has fallen by more than 3.57%, while the Tokyo Stock Exchange index has dropped by over 1%. During the same period, the U.S. S&P 500 Index has decreased by about 3.3%.
Although Yugo Tsuboi, chief strategist at Daiwa Securities Group, stated that the impact of Buffett’s increased stake may not be as strong as it was a few years ago, an investment strategy head at Baillie Gifford Japan noted that this move provides a sense of “security” for Japanese stocks, potentially sparking further buying interest from investors in a weak market.
Buffett’s Cash Pile: Waiting for a U.S. Market Collapse?
Notably, while increasing his stake in Japan’s trading companies, Buffett has been gradually reducing his holdings in some high-quality U.S. stocks such as Apple and Bank of America, and accumulating large amounts of cash, signaling that he is actively adjusting his portfolio in preparation for global market volatility.
Bill Smead, founder and chairman of Smead Capital Management, which has closely followed Buffett and Berkshire Hathaway for four decades, analyzed Buffett’s latest shareholder letter last month. He believes that Buffett “seems to be waiting for a crash in the U.S. stock market,” one that could be as severe as the collapse following the dot-com bubble in 2000, before using Berkshire’s large cash reserves to make new investments.
