In Part 2 of a look at investing in Japan, Sheryl Sutherland looks at how one large investor shifted into Japanese equities and what companies were chosen

By Sheryl Sutherland*

[This is Part 2 or a three part series. You can find Part 1 here. ]

Buffet’s decision to invest in Japan surprised many; he mostly sticks to what he knows (or ‘to his knitting’ as they say) in the US – Apple, Coca Cola, Chevron, Bank of America and American Express accounted for over 75% of the value of Berkshire’s stock portfolio at the end of March.

During his company’s recent shareholder meeting, Buffet explained that he broke from tradition because the Japanese wager was a “no brainer.”  The businesses traded cheaply and operated in a broad range of similar industries, several of whom paid dividends and repurchased shares.  In addition, Buffet and his team realised that they could hedge against currency depreciation by issuing yen-dominated bonds.  As mentioned in my previous newsletter, he emphasised that the stocks were absolute bargains, describing the valuations as “ridiculous” relative to prevailing interest rates.

Setting the puffery aside, let’s look at five Japanese shares Buffet initially purchased:

Mitsubishi

We usually think of Mitsubishi as motor vehicles, but it only holds a 10% stake in the auto company.  Mitsubishi has an extremely diversified business that includes operations in IT, finance, infrastructure, metal mining, energy, heavy machinery, consumer products and chemicals.  The company dates back to 1860.

Mitsui & Co.

One of the largest conglomerates in the world, like Mitsubishi a stalwart in the Japanese economy dating back to 1876.  And like Mitsubishi, its diversified range of businesses include energy, machinery, chemicals, textiles and logistics.

Sumitomo Corp.

This diversified business dates all the way back to a book and medicine shop in the 17th century.  Today it imports and exports goods such as metals, machinery, fuels, chemicals, food and textiles.  Additionally, the company owns and operates real estate, construction, insurance, shipping and finance businesses.

Itochu

Similar in Mitsubishi in size and trading range; including chemicals, energy and minerals.

Marubeni Corp.

Marubeni is Japan’s fifth largest trading company.  It works in areas such as food/consumer products, energy and metals, transportation, industrial machinery and power.  Compared to the other investments it is a relative newcomer, founded in 1918.  In 2018 it announced a long-term plan to shift its energy and mining businesses away from coal and commit to doubling its renewable energy to 10-20% of its portfolio.

These purchases were made in 2020 and Buffet took increased portions in mid-2023.  As the Motley Fool points out, Buffet isn’t attempting to diversify the Berkshire portfolio with these shares.  All companies are in the same lines of business, and they share the most important common denominator – an attractive valuation combined with the ability to generate strong cashflow.  Berkshire won’t be selling any time soon.  Its press release announcing the additional purchases stated that it intends to “hold its Japanese investments for the long term.”  It’s worth noting that after the latest purchases Berkshire owns on average more than 9% in each of the five companies.  Berkshire is now more heavily invested in Japanese shares than in shares of any other country other than the US.

And next week?  The dilemma of Japanese investment.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.