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What element does rich American Warren Buffett pay attention to in a major Japanese trading company?
In Tokyo and Wall Street, as investors try to analyze which legendary stock selector, Buffett, has decided to buy shares in five major Japanese trading companies that have interests in a wide range of businesses, from home shopping networks to salmon farming. . This kind of question spread.
Buffett invests in five Japanese trading companies, “looking forward to mutually beneficial opportunities.”
Buffett does not explain the factors attracted to trading companies like ITOCHU and Mitsui, butIt is not wrong to remember the letter to shareholders in 1977. The first 1977 letter available on the Berkshire Hathaway website from Mr. Buffett shows four characteristics of a company that the company appreciates.
Warren buffett
(1) Business that can be understood
Japanese investors are difficult for some investors to understand.
Mitsubishi Corporation, the largest of the five largest trading companies Buffett invested in, is a major producer of coking coal and has turned one of Japan’s major convenience store chains into a subsidiary. Mitsui & Co., ITOCHU, Sumitomo Corporation, etc. they also have various businesses and hospitals.From managementThere is a wide range of tire sales and the focus may not be visible which can lead to criticism.
However, these commercial companies derive most of their income from Berkshire’s family-owned energy and resource industries. Marubeni, for example, derives more than 90% of its income from agriculture, metals, energy, and chemicals. Mitsubishi Corporation has more than 42% of its resources, while other commercial companies depend on the sector for more than 30%.
Buffett is increasing investments in energy and resources elsewhere. In July, Berkshire purchased most of Dominion Energy’s pipeline and storage assets. For Barrick GoldHe invested and got the attention of the media.
“I’ve always talked about the energy business. It’s not the way to get really rich, it’s how to stay really rich,” Buffett said at the Berkshire Annual Shareholders’ Meeting in May.I was talking.
(2) Good long-term prospects
Trading companies are one of the oldest industries in the world. The company is unlikely to fail in the near future, in part because the business is widely diversified.With Mitsui & Co.Sumitomo Corporation’s roots go back to the 17th century, and Mitsubishi Corporation and ITOCHU have a history of more than 100 years.
According to Yunosuke Ikeda, chief equity strategist at Nomura Securities, this investment is expected to restore commodity prices and global trade flows from the spread of the novel coronavirus infection and the damage caused by the trade war between the United States and the United States. China. It is said to suggest the prospects for Berkshire.
Even if resource prices cannot recover, commercial companies have the strength to rebound because they are diversifying their businesses into new growth sectors such as information technology (IT), healthcare, and space. Even with sales declining at Corona, three major business companies either maintained or increased their annual dividends.
Commercial firms “will survive for a long time. The returns are good, because the dividends are quite high,” said Fem Taainha, an analyst at Jeffreys Securities.
(3) Operated by sincere and talented people
According to Fam, the interest of trading companies in Buffett may be due in part to Japan’s credible accounting reputation.
In fact, business companies have suffered several scandals in recent decades. Most recently, last year at Mitsubishi Corporation, an employee of a wholly owned subsidiary in Singapore invested approximately $ 300 million (approximately 31.7 billion yen at the current rate) in crude oil derivative transactions that violate regulations. internal.I had a loss.
However, these business enterprises are generally known as the number one place of employment in Japan, and it is easy to gather excellent human resources from top-tier universities. Caritas carries outAccording to a survey, five companies are among the 35 most popular companies ranked by graduate job seekers in 2021.
(4) Available at an extremely attractive price
As always, valuation seems to be a big factor for Buffett. Trading stocks have plummeted since the beginning of the year, with most stocks falling below the net asset value. Sumitomo Corporation’s PBR is 0.69 times the cheapest. Itochu is 1.2 times, which is the only improvement. In contrast, the PBR of the Nikkei Stock Average is approximately 1.8 times.
“Buffet sees the intrinsic value of business partnerships,” Fam said. “These business partnerships are evolving from business partnerships to holding companies, so they generate most of their earnings from their equity holdings.” He pointed.
Original title:Buffett’s 1977 letter hints at why he likes Japanese trading houses （抜 粋）
