Warren Buffett's Japan Investment 3 Years Ago Hits Target... "8 Times S&P Returns"

Since the First Investment in Japan in 2020
Marubeni's Return 402% Compared to S&P 500 Return 53%

'The Genius of Value Investing' Warren Buffett, chairman of Berkshire Hathaway, has recently achieved a return on investment in a Japanese company over the past 3 years and 6 months that is about 8 times the rise of the S&P 500 index. In August 2020, Buffett purchased 5% stakes each in Japan's five major trading companies: Mitsubishi, Mitsui, Sumitomo, Marubeni, and Itochu, and has since increased these holdings to nearly 10%.

Returns of Buffett's 'Pick' Japan's Five Major Trading Companies

[Image source=Yonhap News]

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 current period against the S&P 500 index returns. During this period, the S&P 500 index rose by 53%.

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

Berkshire Hathaway is confirmed to hold approximately 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 these five companies was estimated at $23 billion. The maximum stake Berkshire Hathaway aims for in these companies is 9.9%. In June last year, Buffett expressed his intention not to hold more than 9.9% in each company without board approval.

Buffett's Bet on Japan's Stagnant Stock Market Pays Off

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 its closing peak on December 29, 1989 (38,915.87), which was the height of the bubble economy. This was due to the bursting of asset price increases across financial and real estate markets, resulting in what is known as the "lost 30 years." Additionally, experts generally assessed that Japan's aging population, slowing productivity, and rising medical costs meant expected returns on 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 was 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 has once again proven successful. The Nikkei index recorded its highest level in 34 years on the 22nd and surpassed that record again on the 26th, just one trading day later.

Buffett shared his views on value investing in a shareholder letter on the 24th. He stated, "Considering the size of Berkshire Hathaway's assets, building positions through public market purchases requires great patience and a long period of favorable prices." He likened the process to "turning a battleship."

Berkshire Hathaway Market Cap Ranks 7th Among S&P 500 Companies

Berkshire Hathaway's market capitalization ($885.9 billion) is approaching $1 trillion. Its stock price has risen about 13% since the first trading day of this year. Among S&P 500 companies, excluding Tesla, the Magnificent Seven all have a market cap higher than Berkshire Hathaway. Berkshire Hathaway posted operating income of $8.48 billion in the fourth quarter of last year, a 27.9% increase compared to $6.63 billion in the same quarter the previous year.