Warren Buffett celebrated his 90th birthday on Sunday and on that same day, Berkshire Hathaway $BRK.B issued a press release that they were investing in 5 Japanese trading companies.
Berkshire Hathaway has been buying these 5 stocks since last year and the deal was being done by one of their insurance subsidiary, National Indemnity. It might be an Ajit Jain (CEO of all the insurance businesses) deal rather than a Buffett deal. But according to the press release Warren Buffett set a limit to only buying 9.9% of any of the company. Beyond that, they are going to seek approval from the board of these companies.
The 5 stocks bought by Warren Buffett are Itoshu, Mitsubishi, Marubeni, Mitsui and Sumitomo. All of these 5 companies are conglomerates and are some of the largest components of the Japanese index $JPN225 $EWJ . The largest of these companies is Mitsubishi, which own one of the largest banks in the world (sixth after the top four chinese banks and JPMorgan Chase $JPM ) and also a defense business and and automotive brand.
Japan is a big firm capitalist economy unlike the USA which is an entrepreneurial capitalist economy. The largest company in the US today is Apple $AAPL , a company which didn't exist 50 years ago. In Japan, the same companies have been dominating the scene for decades.
Warren Buffett investing in these 5 stocks is a bet on the Japanese economy. The problem with betting on the Japanese economy is that the Bank of Japan has a big influence on the economy owning most of the ETF there and with negative interest rates. Japan also has the largest debt to GDP ratio in the world. It is still a mystery why we're not seeing inflation in Japan.
Is Warren Buffett making a mistake? No, that's when value investing is so important. He's investing in stocks that are undervalued, especially because of their banking businesses which have underperformed with negative interest rates. You cannot bet against Japan. Even with a 1% GDP growth per year investing in safe undervalued stocks can lead to good returns over the long-term.
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