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Warren Buffett Highlights Japanese Moves; Pays Tribute To Charlie Munger

Tom Burroughes

26 February 2024

Renowned US investor Warren Buffett reminded Berkshire Hathaway shareholders of how he and his colleagues boosted holdings in five large Japanese companies last year. This shows how the Asian country’s economy has rebounded.

Buffett, 93, who remains CEO of the business, explained his thinking, and the performance of the $905 billion conglomerate, in his annual letter. His missive, which has become an event in its own right, and closely read by the media and investors, included a tribute to long-time business partner Charlie Munger, who died late in November 2023 at the age of 99. "In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect," he wrote.

Among the details of Buffett's letter were his remarks on Japan. The country’s Nikkei-225 equities benchmark recently revisited the highest level it had been since December 1989 – highlighting how long the country had been in the economic doldrums before a recent recovery.

Corporate governance reforms, for example, have seen international and domestic investors focus on how companies are unlocking large cash balances held in balance sheets. This news service has written extensively about investor thinking on Japan. (See stories here, here and here.)

Berkshire Hathaway holds Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo.

Japan story
“Berkshire continues to hold its passive and long-term interest in five very large Japanese companies, each of which operates in a highly-diversified manner somewhat similar to the way Berkshire itself is run. We increased our holdings in all five last year after Greg Abel and I made a trip to Tokyo to talk with their managements,” Buffett said. (Abel is chairman and CEO of Berkshire Hathaway Energy, and has been vice chairman of non-insurance operations of Berkshire Hathaway since January 2018.)

“Berkshire now owns about 9 per cent of each of the five…Berkshire has also pledged to each company that it will not purchase shares that will take our holdings beyond 9.9 per cent,” he wrote. “Our cost for the five totals ¥1.6 trillion ($10.6 billion), and the year-end market value of the five was ¥2.9 trillion. However, the yen has weakened in recent years and our year-end unrealised gain in dollars was 61 per cent or $8 billion.

“Neither Greg nor I believe we can forecast market prices of major currencies. We also don’t believe we can hire anyone with this ability. Therefore, Berkshire has financed most of its Japanese position with the proceeds from ¥1.3 trillion of bonds. This debt has been very well-received in Japan, and I believe Berkshire has more yen-denominated debt outstanding than any other American company. 

“Since we began our Japanese purchases, each of the five has reduced the number of its outstanding shares at attractive prices. Meanwhile, the managements of all five companies have been far less aggressive about their own compensation than is typical in the United States. Note as well that each of the five is applying only about one-third of its earnings to dividends. The large sums the five retain are used both to build their many businesses and, to a lesser degree, to repurchase shares. Like Berkshire, the five companies are reluctant to issue shares.

“An additional benefit for Berkshire is the possibility that our investment may lead to opportunities for us to partner around the world with five large, well-managed and well-respected companies. 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 wrote.

The firm’s Japanese purchases began on 4 July 2019.