Charlie Munger applauds Warren Buffett's lucrative ventures in Japan
Warren Buffett's strategic investment in Japan during the pandemic was hailed by business partner Charlie Munger as a miraculous opportunity, likening it to a divine chest overflowing with money
According to Charlie Munger, Warren Buffett's business partner and vice chair of Berkshire Hathaway, investing billions of dollars in Japan was a straightforward decision that felt like a divine blessing. In an interview with the Acquired podcast, Munger described it as incredibly easy money.
In the summer of 2020, Berkshire disclosed its acquisition of approximately 5% stakes in Japan's leading five trading companies. This move by the American conglomerate, known for its investments in various industries including insurance, amounted to a substantial $6.7 billion investment. Moreover, Berkshire informed shareholders that it has the potential to maintain and potentially expand its holdings in the future.
This year, with Japan's stock markets soaring to their highest levels in 33 years, Berkshire revealed that it had actually increased its investments, raising its stakes in each company to an average of over 8.5%. Despite this, the US giant still has further potential, as it has previously announced its intention to eventually increase its stakes in each firm to 9.9%.
On Thursday, June 1, 2023, a securities firm in Tokyo, Japan, showcased an electronic stock board exhibiting the Nikkei 225 Stock Average figure. The surge in foreign interest for Japanese stocks reached unprecedented levels, driven by ongoing demand for the nation's equities and position adjustments made prior to the rebalancing of an MSCI equity index. The photograph captures this frenzied atmosphere, courtesy of Kiyoshi Ota from Bloomberg via Getty Images.
Warren Buffett pours more money into Japans stock market
Japans Nikkei and Topix indexes are each up more than 20% so far this year.
The companies supported by BerkshireItochu, Marubeni, Mitsubishi Corporation, Mitsui & Co., and Sumitomo are commonly referred to as "sogo shosha" or general trading companies in Japan. These companies have a significant impact on the country's economy, as they engage in various industries such as energy, technology, and manufacturing.
Munger described this investment opportunity as a rare occurrence, offering stable assets with substantial cash flow and minimal risk. The 99-year-old mentioned that ideas like these only come along perhaps two or three times a century, assuming one possesses the intelligence of Warren Buffett.
Berkshire managed to successfully execute its largest venture outside of the United States due to Japan's historically low interest rates, according to the executive. This advantageous factor allowed the conglomerate to obtain affordable loans up to 10 years in advance, which were then utilized to purchase stocks offering a 5% dividend yield, he noted.
Munger further commented on the situation, stating that the trading companies involved in these transactions were well-established, long-standing entities possessing inexpensive copper mines and rubber plantations. Consequently, borrowing money was a relatively simple process, he added.
On May 4, 2019, shareholders converged at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, eagerly anticipating the insights of Warren Buffett, the esteemed Chairman of the company. They were enthralled as the billionaire investor walked through the exhibit hall, adding to the excitement and anticipation surrounding the event.
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Berkshire's strong credit rating put them in a favorable position to borrow at a low interest rate, unlike other companies. Munger mentioned that Berkshire's credit allowed them to access this opportunity, but it required immense patience and gradual accumulation over a significant period of time. To date, the conglomerate has invested a minimum of $10 billion, as per Munger.
Buffett's move to invest in Japan has elevated hope regarding the potential of the global economy's third-largest nation. The esteemed investor has previously expressed enthusiasm for "the future of Japan," attracting increased attention to the nation from other international supporters.
A miracle investment
Munger expressed his thoughts on investments in various countries across Asia during his comprehensive interview. Reflecting on BYD, the Chinese electric vehicle manufacturer in which Berkshire has been a longstanding investor and which competes vigorously with Tesla (TSLA), he described it as a "miracle."
Munger commented on the work ethic and intelligence of an individual, presumably referring to Wang Chuanfu, the billionaire founder and chairman of BYD. Munger stated that this person is capable of accomplishing tasks that others cannot due to their 70-hour workweek and high IQ. Additionally, Munger expressed his lack of enthusiasm for selecting successful companies in the electric car industry, except for a few standout automakers. He also mentioned his financial losses resulting from an investment in South Korea's Hyundai Motor.
Beyond the market leaders, "I just dont even look at the auto industry," he added.
Berkshire Hathaway CEO Warren Buffett speaks during the Asahi Shimbun interview on April 11, 2023 in Tokyo, Japan.
The Asahi Shimbun/Getty Images
Warren Buffett's Berkshire Hathaway has completely divested its investment in TSMC.
Munger has also reiterated Berkshire's stance on the Taiwanese chipmaker TSMC (TSM), expressing a preference for a company with a strong and recognizable brand like Apple. Apple has consistently been one of Berkshire's largest investments, valued at $177.6 billion in the second quarter.
Earlier this year, Berkshire made an unusual decision to sell off its entire investment in TSMC due to concerns raised by Warren Buffett, also known as the "Oracle of Omaha", about Taiwan's geopolitical tensions. TSMC, a major semiconductor company, is highly valued in Taiwan and its presence is seen as a strong motivation for the West to protect the island from any potential aggression by China.
Despite the challenges facing the world's second-largest economy, Charlie Munger expressed confidence in China's future prospects over the next two decades, stating that it has a more promising outlook than most other major economies.
China's top companies are significantly stronger and superior to leading companies in almost any other country and are also available at a much more affordable price. Consequently, I am inclined to include some exposure to Chinese risk in the Munger portfolio.
Nevertheless, when considering the overall investment scenario, Munger acknowledged that the era of easily accessible opportunities has diminished. During the initial stages of Berkshire's operations, there were abundant effortless options to pursue.
"You dont have any low hanging fruit that is easy right now."
