Buffett may even hate sushi, but his appetite for Japan is voracious

Everyone knows the gastronomic preference of Warren Buffett By hamburgers, but few know of their aversion to Japanese food. In the famous biography “The Snowball: Warren Buffett and The Business of Life,” author Alice Schroeder tells a picturesque episode when the mega-plating was hungry for a New York organized dinner by Akio Morita, Sony’s co-founder billionaire, for not being able to look at several crushed delicacies that were then offered.

But if the Japanese cuisine is not like it, the same cannot be said of its appetite for Investments in Japanwhich have grown since the covid-19 pandemic. And once again, not only hit the fly, but he saw before the others an opportunity to bet on the recovery of the Japanese economy.

Also read:

It was in the summer of 2020, when Buffett was celebrating his 90 years, that the Berkshire Hathaway revealed to have bought in the previous year of participations of about 5% in each of the five main tradings in Japan (Itochu, Marubeni, Mitsubishi, Mitsui e Sumitomo), in an initial investment of $ 6.7 billion, while telling shareholders that it could maintain or increase the size of these long -term participation.

That is, the contributions were not made in specific companies or sectors, but in the five “Sogo Shosha”, which play a vital role in the country’s economy, as they invest in a wide range of industries, including sectors such as energy, technology and manufacturing, even salmon creation and electroelectronic retail. They also have participation abroad, as in oil and gas production projects, for example.

Also read:

But that’s not all. Buffett’s strategy in the country includes issuing titles called in yen to protect against currency risks. Thus, Buffett is essentially borrowed money in Japan at a much lower interest rate than it would be available in the US. And taking the resources to invest in Japanese actions. While exposed to the performance of companies in the local market, it pockens the spread of the lowest cost of loan in the Asian country.

Buffett’s friend and partner Charlie Munger, who died in 2023, explained in a podcast that year that it was a strategy of great patience to raise these stakes, today in almost 10% in each trading. “It took an eternity to invest $ 10 billion, but it was like having God opening a chest and pouring money into it. It was terribly easy money,” he said.

The view was to take advantage of interest rates in Japan, 0.5% per year, and invest in companies that were cheap and consistent payments of 5% dividends. This “Carry Trade” seemed especially intelligent when interest rates in the US has risen from almost zero to more than 5% in recent years, in an attempt by the Federal Reserve (Fed, the Central Bank) to contain fired inflation.

And the bet is long term, as it was clear in a separate chapter in the traditional Berkshire shareholders last February. “A small, but important exception to our US-based focus is on our growing investment in Japan. It has been almost six years since Berkshire has started acquiring actions from five Japanese companies that operate very successfully, somewhat similar to Berkshire itself,” the text said.

Also read:

Buffett commented that Berkshire’s vice president, Greg Abel, has often found himself with the direction of Japanese trades in recent times and that he himself follows “regularly his progress.”

“We both appreciate their capital allocation, their administrations and their attitude toward investors. Each of the five companies increases dividends when appropriate, repurchase their actions when it makes sense, and their high executives are much less aggressive in their compensation programs than their American colleagues,” he explained.

In the last year, Berkshire increased its stake in Mitsui from 8.09% to 9.82%, Mitsubishi from 8.31% to 9.67%, Marubeni from 8.3% to 9.3%, 8.23% to 9.29% and 7.47% to 8.53%. And although from the beginning the group had agreed to keep the stakes below 10% of the shares, there has been an agreement to eventually rise this ceiling.

At the end of 2024, Berkshire’s aggregate cost in these companies totaled US $ 13.8 billion and the market value of the participation totaled US $ 23.5 billion. The annual income of expected dividends of Japanese investments in 2025 will total about $ 812 million and the debt interest cost called Berkshire yen will be about $ 135 million.

What did Buffett see in Japan?

But what Warren Buffet saw in Japan that no one else was paying attention? IMD, an independent academic institute, highlighted in a recent analysis that the Japanese journey in recent decades is a tale of ups and downs. In the 1980s, the country seemed unstoppable, with innovations in manufacturing and technology that left the world on the edge. But the economic crisis in the 1990s, which began a period of “lost decades” with perennial stagnation.

Since then, the Tokyo Stock Exchange has plummeted, banks have lost strength and economic growth has become slow. As a result, Japan’s formidable economy has decreased and was kind of forgotten by global investors.

It took a slow process of rebirth before Japan caught the attention of people like Warren Buffett, as told in the book “Resolution Japan” the author Michael use. Japanese companies had to make a mix of traditional values ​​with modern management techniques until trust was restored. This amid a much higher than normal inflation for Japanese standards in recent years.

Also read:

“Japanese companies are increasingly adopting ‘ambidextra management’, a concept that allows them to leverage their main strengths while exploring new opportunities. This approach allows them to remain competitive and relevant in a rapid change world,” said use in a podcast.

Two critical components of this model, according to use, are the walk of “Gemba” and the lean production. The Gemba Walk, famous for Toyota, involves executives visiting the front lines of their business to observe firsthand operations. Upon leaving their offices, leaders get direct insights from employees and customers, helping them make decisions that meet real-world needs.

Toyota’s lean production, another trademark of Japanese management, is now a milestone around the world, highlighting the efficiency and discipline that local companies bring to their operations.

Another important point he mentioned is the dedication of Japanese companies with stakeholders, which includes commitments with employees, local communities and suppliers, which helps build resilient and well -prepared companies to face economic storms. This would be a key factor that attracted Buffett, which often in its history prioritized companies with long-term sustainable views.

Concern with innovation and technology is another point in favor of the Japanese corporate sector. For example, Japanese companies control 60% of the global silicon wafers market, a critical material for semiconductor production. They also lead in bearings, high -tech windows and various automotive technologies, making Japan an essential player in global supply chains.

Buffett’s investment thesis

Like Buffett, it has always focused on stable and solid fundamentals, this corporate focus on resilience makes Japan represents an ideal investment opportunity. The recent resurgence of the Japanese stock market, reinforced by these revitalized corporations, signals that Japanese companies are now prepared for long -term growth.

And by maintaining a focus on stakeholders, Japanese companies minimize the risk of sudden market changes, offering a more stable investment option. This is the opposite of some US companies that prioritize short -term gains for shareholders.

Of course there are risks. The aging of the Japanese population and relatively low business dynamism remain potential obstacles, as the OECD pointed out in its economic research of 2024. On the other hand, there is an emphasis on innovation and strategic adaptation in the private sector, while the government is promulgating reforms to reinforce economic competitiveness and encourage entrepreneurship.

According to IMD, Warren Buffett’s investment in Japan is more than just a financial decision: it is a vote of confidence in a resolute and resurgent nation. “Japan’s corporate renaissance, driven by innovative leadership and an unshakable commitment to stakeholders’ value, is remodeling its position in the global economy. Buffett measurement signals that Japan’s economy is resilient and offers a model of resilience and adaptability with which other economies can learn.”

Also read:

Analysis

Although it ponders that this investment is even small in the face of the portfolio of actions and debt titles that Berkshire has, Pedro Oiticica, partner and analyst of manager Nextep, he proved an absolute success. “It was a wonderful trade, which generated a very relevant capital gain, which generates yields far greater than the cost of setting up this position. But in the end, the effect of this on Berkshire’s price is very small,” he said.

The manager believes the strategy was another bet on a price and value distortion of the five major Japanese conglomerates than in the country’s economy itself. He pointed out that the possibility of being able to issue debt in yield to a very low Yield was taken advantage of. “The debt service is very cheap in companies that distribute dividends, but they are cheap. So you can use this differential between Dividend Yield and title coupon that, at the levels of the time, were very attractive,” he explained.

Thus in the manager’s view, much of this position assembly in 2019 and 2020 was due to the price that, in his own words [Buffett]It was incredibly low compared to value. “It was a lot of a function of complete distortion between price and value and I do not know if necessarily a bet (…) in the Japanese economy,” he said.