Quantfury Gazette

Warren Buffett rides stock market tsunami out from Japan’s ‘Lost Decades’

by
Nathan Crooks
Quantfury Team
Warren Buffett

When Warren Buffett says he’s going to do something, he’s proved time and time again that it pays to listen to him.

His latest win, the revelation on Saturday in an annual letter to Berkshire Hathaway (NYSE:BRK) investors that an investment in five Japanese companies had already returned the firm $1.9 billion, came just days after the country’s Nikkei Stock Average hit a 34-year record after surging to the highest level since the peak of the last boom in 1989.

Japan’s currency, the yen, has weakened tremendously over the past three years, directly boosting the country’s many manufacturing companies that include household names such as Honda (NYSE:HMC), Sony (NYSE:SONY) and Toyota (NYSE:TM). Berkshire’s purchase of stakes in the Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo conglomerates was first announced back in 2020, but Buffett addressed it again last May at his annual investment conference. It’s an event that can last for hours and to no surprise is worth a listen.

Indeed, Japan’s exports that include cars, integrated circuits and auto parts reached record highs in December, as shipments to the US rose more than 20% from the same period a year earlier. That suggests companies, particularly manufacturers, could be set to see profits surge even more despite broader economic conditions that remain more murky, with Deloitte saying a recovery in the country was “struggling to gain momentum.”

And just what does Buffett plan to do with his Japanese investments? He’s quite clear in the letter. He’ll do what he usually does: buy and hold. He’s also on the lookout for growth opportunities that could emerge from partnerships with its portfolio of other companies.

“Our investment may lead to opportunities for us to partner around the world with five large, well-managed and well-respected companies,” he wrote. “Their interests are far more broad than ours. And, on their side, the Japanese CEOs have the comfort of knowing that Berkshire will always possess huge liquid resources that can be instantly available for such partnerships, whatever their size may be.”

Buffett’s Japan strategy is long term, but it remains to be seen if it will continue to be successful as it’s based on several macroeconomic assumptions that include continued low interest rates and a weaker yen.

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