Buffett's Investment in Japanese Company 3 Years Ago Sees Stock Price Rise 8 Times the S&P Increase

The Protagonist is Marubeni

[Image source=AFP Yonhap News]

'The Oracle of Value Investing,' Warren Buffett, chairman of Berkshire Hathaway, has been increasing investments in Japan's five major general trading companies since August 2020. As of 3 years and 6 months later, the top-performing company’s return has been found to be approximately 8 times the rise of the S&P 500 index. At that time, Buffett initially purchased 5% stakes in the five major Japanese trading companies?Mitsubishi, Mitsui, Sumitomo, Marubeni, and Itochu?and has since increased them to about 10%.

On the 25th (local time), The Wall Street Journal (WSJ), citing FactSet data, compared the stock price increases of the five major trading companies from after the market close on August 28, 2020?just before Berkshire Hathaway announced its investment in Japanese companies?to the S&P 500 index returns over the same period. During this time, the S&P 500 index rose by 53%.

In contrast, the stock price increases of the five major trading companies far exceeded this. Marubeni posted a 402% return, ranking first among the five. This is nearly 8 times the rise of the S&P 500 index. Even Itochu, which showed the lowest return, achieved a 185% return. This exceeds three times the rise of the S&P 500 index.

Berkshire Hathaway is confirmed to hold 9% stakes in each of the five major trading companies. According to FactSet, as of the 22nd, the total value of Berkshire Hathaway’s shares in the five trading companies was estimated at $23 billion. The maximum stake Berkshire Hathaway aims for in these companies is 9.9%. Last June, Buffett expressed his position that he would not hold more than 9.9% in each company without board approval.

When Buffett decided to invest in Japan, the Japanese stock market was in a prolonged slump. In August 2020, the Nikkei 225 index was only about 40% of the closing price (38,915.87) on December 29, 1989, when it peaked during the bubble economy. This was due to the so-called lost 30 years, caused by the collapse of asset price increases across financial and real estate markets. Additionally, experts generally assessed that Japan’s aging population, productivity slowdown, and rising medical costs meant that expected returns from risky assets like stocks were low.

When Berkshire Hathaway invested in the five major trading companies, except for Itochu, the other four were trading at prices significantly lower than their peaks established before the Lehman Brothers crisis in 2007?2008. Marubeni was trading about 50% below its July 2007 peak, and Mitsubishi about 40% below its October 2007 peak.

However, with the Japanese stock market reaching an all-time high for the first time in 34 years, Buffett’s value investing is once again being praised as successful. The Nikkei index recorded its highest level in 34 years on the 22nd and broke that record again on the 26th, just one trading day later.

Buffett shared his views on value investing in his shareholder letter on the 24th. He said, "Considering the scale of Berkshire Hathaway’s (assets), building a position through public market purchases requires great patience and a long period of favorable prices." He added, "This process is like turning a battleship," using a metaphor.

This content was produced with the assistance of AI translation services.