Warren Buffett has again increased its stakes in the 5 large trading firms in Japan where Berkshire Hathaway had a 7.4% stake.
American multinational conglomerate holding company Berkshire Hathaway (NYSE: BRK) has increased its stake in a few trading firms in Japan through a wholly-owned subsidiary, National Indemnity Company. The average stake in these firms is over 8.5%.
Berkshire Hathaway announced that National Indemnity Company now has more stakes in Mitsubishi, Marubeni, Sumitomo, Itochu, and Mitsui. According to the firm, the total value of its stake in these companies is higher than the total value of its stake in any other country but the US. The company also said it will hold these stocks for the long term.
Berkshire Hathaway invested in 5 of Japan’s largest trading companies. Also called “sogo-shosha”, these general trading companies are large Japanese companies dealing in a diverse range of products. Other major sogo-shosha companies include Toyota Tsusho, a member of the Toyota Group, and Sojitz Corporation.
In April, Berkshire Hathaway CEO Warren Buffett told CNBC he was “confounded” that buying into these companies was possible. Speaking to CNBC’s Becky Quick, Buffett said the earnings yield on these companies was “maybe 14%”. The earnings yield is a metric calculated by dividing profit per share by share price. A high earnings yield simply means that investors were making more per share.
Why Berkshire Hathaway Bought Stakes in Japan’s Sogo Shosha
Berkshire Hathaway first bought stakes in Japan’s Sogo Shosha in August 2020, spending around $6 billion on the purchase. In April, Buffett raised the stake to 7.4%. Explaining to Becky Quick, he said:
“I just thought these were big companies. They were companies that I generally understood what they did. Somewhat similar to Berkshire in that they owned lots of different interests. And they were selling at what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at that time.”
Investors generally criticize the sogo shosha for the unusual complexity of their operations, including exposure to overseas risks. However, Buffett seems unbothered by this and may be investing in these companies for this particular reason.
In its earnings release for Q1 2023, Berkshire Hathaway climbed nearly 13% year-on-year, mostly from its insurance business. The company’s net earnings per average equivalent Class A and Class B Shares both jumped by 544% between Q1 2022 and 2023.
Automobile insurance company Geico, a wholly-owned Berkshire Hathaway subsidiary, recorded $703 million in profit. However, Berkshire’s energy and railroad endeavors plunged. The first quarter of the year also saw Berkshire repurchasing $4.4 billion worth of stock, beating its previous $2.8 billion record.
Last year, Berkshire offloaded its shares in Chinese electric automaker BYD (HKG: 1211). The company dumped 1.33 million BYD shares worth $34.43 million at the time. For a long time, Berkshire was one of BODY’s largest shareholders, holding more than 220 million shares for over 14 years.
As of 2021, Berkshire Hathaway held 21% of BYD. However, the company began selling off its BYD stake and now owns under 10% of the automaker. Speaking at Bekrshire’s annual shareholder meeting, Buffet said he was unwilling to “compete with Elon”, referring to Elon Musk-led automaker Tesla (NASDAQ: TSLA).
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