Meiji Stocks: Refuting Buffett’s Trading Strategies

Image credit: Financial Times News

When it comes to investing in global markets, there is one name that stands out – Warren Buffett. The American investor’s stock moves have made headlines time and time again, and that’s exactly what happened this Tuesday when Japanese stocks rose after he declared his intent to increase investments in the country.

Buffett’s company, Berkshire Hathaway has already invested in five Japanese trading houses, Mitsubishi Corp, Mitsui & Co, Itochu, Sumitomo, and Marubeni. Over the past three years, Berkshire Hathaway’s stake in these companies has grown from 5% to 7.4%. Buffett’s move has received mixed reviews, with some praising his decision, while others criticize his obsession with the traditional trading houses that follow ideologies rooted in the Meiji era, when Japan started to expand its international economy.

The five trading houses have operations in numerous sectors, countries and territories, including China, Russia, and Vietnam. Unfortunately, the Russian ventures caused severe losses, leading to considerable write-downs in the last financial year. All five companies are expected to witness a drop in net profits in the current financial year.

Surprisingly, despite this, these companies’ share prices have surged since Buffett’s involvement, likely through emulation of his strategy. Earnings have made a comeback and their valuations have remained low, but there is an alternative option. Investors can replicate the investments made by the trading houses, however, without taking on the conglomerate discount associated with them.

A few days ago, Berkshire Hathaway announced a yen bond offering that may be used to further increase its investments in Japanese stocks. If Warren Buffett decides to do this, investors should take note, but with some caution.