SMM: Berkshire Hathaway CEO, the "god of stock" Buffett, announced that Berkshire Hathaway has acquired more than 5 per cent of each of five major Japanese trading companies in the past 12 months. The five companies are Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. The cumulative market value of the shares acquired by Buffett is about $6.25 billion (nearly 43 billion yuan).
Under the influence of the "Buffett effect", the shares of the five companies soared immediately after the opening of trading on Monday. Among them, Marubeni rose the most, reaching 12%; Sumitomo and Mitsubishi rose more than 10%, Mitsui rose 8.2%, and Itochu rose 5.4%, reaching a record high. Itochu is also the only one of several companies with a price-to-book ratio of more than 1.
For Buffett, he chose to invest in Japanese trading companies not only because the five companies themselves are in line with his usual aesthetic of stock selection, but more importantly, Buffett can use his investments in these overseas companies to reduce Berkshire's dependence on the US economy and Apple's holdings, while reducing Berkshire's cash reserves.
The return of "Buffett style"?
During this year's novel coronavirus epidemic, some of Buffett's investment operations were surprising and did not seem to be in line with his previous style. For example, Buffett chose to "bottom out" Delta in February and admitted in April that he had misjudged and directly cut off all the shares of the four major US airlines. For example, Buffett increased his stake in Bank of New York Mellon in March (the average daily price was $39.69), and sold some of his New York Mellon shares at a price of $35.30-$35.80 in April, losing about $3.6 million again and again-- such a "high suction and low sell" move is rare for "stock gods".
In addition, Buffett bought a large number of Barrick Gold shares in the second quarter of the year, which is surprising enough for Buffett followers, in the list of positions disclosed by the US Securities Regulatory Commission as of June 30. Because Buffett has always expressed aversion to gold assets, because gold does not have any production capacity.
By contrast, Buffett's investment in Japan is clearly Buffett-style: four of the five trading companies are trading well below their book value, meaning their market capitalization is undervalued. At the same time, these companies also have ample cash flow. Mitsubishi's free cash flow per share, for example, has grown steadily over the past four years.
And more importantly, these trading companies are deeply involved in the real economy, such as steel, shipping, commodities and, in some cases, the retail sector. It's also an attraction for Buffett, who has repeatedly stressed in the past that he won't invest in companies he doesn't know.
Buffett's "three eagles with one arrow"
The United States experienced its worst recession in 73 years last quarter due to the impact of the novel coronavirus epidemic. Many of Berkshire's operations are in trouble as a result of the epidemic, and Berkshire this month wrote down $9.8 billion in assets from its Precision Castparts aircraft parts business.
The investment in Japanese companies will help improve the regional diversification of Buffett's investment and reduce its dependence on the US economy. Most of Berkshire's investments are in the United States, but it has also acquired stakes in some overseas companies. It includes IMC International Metal processing Company of Israel, Detlev Louis, a German retailer of motorcycle equipment and accessories, and BYD of China.
On the other hand, with apple's share price soaring recently, apple shares account for nearly 50% of Buffett's position. As of June 30, Buffett owned about $125 billion worth of Apple shares. It is clear that excessive concentration of positions brings risks.
"because Buffett has too much Apple in his portfolio, he may have been looking for something very different from Apple." Tokyo Monaikos (Monex) market chief strategist Takashi Hiroki said.
In addition, the additional investment in Japan has also helped Buffett reduce Berkshire's cash reserves. Berkshire's cash reserves reached a record $146.6 billion at the end of June. In an environment where central banks around the world are generally loose, more cash on hand undoubtedly means more costs of devaluation.
It can be noted that Berkshire's trading activity has become more active recently in order to reduce cash reserves on hand. On the one hand, Berkshire reached a preliminary agreement in July to acquire the natural gas transmission and storage assets of Dominique (Dominion Energy) for $10 billion, while Berkshire spent nearly $2.1 billion on the bottom of Bank of America from July 20 to early August.
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