One after another, Japanese executives from some of the country’s most elite firms filed into Warren Buffett’s suite at the luxury Four Seasons Hotel in central Tokyo.
The legendary investor was on a trip to the Japanese capital last month, and the titans of the country’s giant energy and raw-materials conglomerates were there to make their pitches. Over glasses of Coca-Cola, one of Buffett’s most famous investments, they separately told the 92-year-old American the same thing: Japan’s trading houses, as they’re known, must accelerate their move beyond commodities, and they wanted one of their biggest shareholders to help.
Buffett, who’s sitting on billions of dollars in gains after buying stakes in the companies in 2020 and later increasing them, listened intently and asked many questions, according to people with knowledge of the talks. He wanted to know more about their businesses, their views on the economy and geopolitical situation and what’s next for these groups with roots dating back hundreds of years. He was eager to find ways to work with them, the people said, asking not to be identified discussing private information.
The Oracle of Omaha’s renewed backing is an important vote of confidence in Japan’s big-five traders — Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Itochu Corp. and Marubeni Corp. — as they step up a pivot away from fossil fuels that’s been under way for years. It’s also a broader endorsement of a Japan that’s often seen as past its prime, less relevant than Asian counterparts such as China and India.
But there’s one big question: Is Buffett betting on the move away from fossil fuels, the commodities themselves or a combination of the two? Or is it something else? Another billionaire, Fast Retailing Co. founder Tadashi Yanai, suggests there are a few factors, one of which is to work with them to do more in Japan.
“It’s probably the influence of the weak yen,” said Yanai, whose Uniqlo clothing brand has made him Japan’s richest person with a fortune of more than $36 billion, according to the Bloomberg Billionaires Index. “And he may think there are many companies in Japan with growth potential,” he said on the sidelines of Fast Retailing’s earnings presentation last month. “The trading houses could be a guide to Japanese companies. They could be a guide to the Japanese market in that they can contact all these firms.”
Buffett’s Berkshire Hathaway Inc. disclosed in August 2020 that it had taken stakes of about 5 percent in the five trading houses, triggering a surge in their shares and sending the combined value of the investments above $6 billion. The pandemic had dampened demand for commodities. Liquefied natural gas had hit an all-time low months before. Coal was at its cheapest in years. That had depressed the companies’ shares, with four of them trading below book value.
“They were selling at what I thought was a ridiculous price,” Buffett told CNBC last month.
Berkshire stood to benefit in a few ways. Any gains in the yen would increase the dollar value of the investments when converted back. A recovery in commodities would boost the trading houses’ stocks. And if prices didn’t rebound, the companies’ diversification into almost every part of the economy provided a hedge that wouldn’t be available in pure-play commodities bets.
Buffett’s investments now look prescient. Oil, coal and gas have jumped since Berkshire disclosed its stakes, padding the companies’ profits. Mitsubishi shares have about doubled since late August 2020. Mitsui is up about 120 percent, Marubeni has roughly tripled, while Itochu and Sumitomo have gained at least 65 percent.
The value of Berkshire’s holdings has increased by at least about $4 billion. After adding to positions, the company now owns more than 6 percent of each of the firms.
Still, Buffett’s comments following the initial investments suggest the value investor had even bigger plans.
“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies,” he said in a company statement at the time. “The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit.”
And that’s what the executives were pitching last month.
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