Warren Buffett made news again for increasing his stake in 5 trading houses, namely Mitsubishi Corp, Mitsui & Co, Itochu Corp, Marubeni Corp and Sumitomo Corp. These 5 companies are Japan’s five largest trading companies which deal with a wide range of goods and services, and now Buffett own a 7.4% stake in each of the companies.
Some say that Buffett is taking advantage of the cheap Yen to go in, as the Yen had depreciated greatly over the years due to BOJ’s never-ending quantitative easing, which is basically printing of money. But if that is so, would not the Japanese assets get more and more worthless over time? As the value of Yen falls, will this investment actually be a risky one instead?
We dive further in into Buffet’s decision making.
Profits From Businesses
We look at the sectors these 5 trading houses deal with. From minerals and metals, infrastructure, energy, chemicals, food, IT & communication, finance, machinery, construction, textile, real estate, transport, consumer good and more, these 5 trading houses hold a firm grip on the country’s businesses and resources. What Buffett is buying is not the appreciation of the share price, although that will be good, but the guaranteed profits from these oligopolies.
In this case, there is a chance that Buffett may be buying preferred stock, which grants a higher dividend payment, a more stable stock value and favourable tax treatments. In oversimplified terms, take it as buying a bond from a company who has very few competitors across many sectors and receiving high returns from them when they earn money. Furthermore, as with all purchases, there is a good chance that a bulk purchase would mean a discounted price for Buffett when he negotiated the deal with them.
I have said earlier that just because you copy what the successful people are doing, does not guarantee that you will get the same results. If you see the news that Buffett went in into these 5 trading houses, and you do the same in the stock market, there is a good chance you will not do as well as him. In fact, there might even be the chance you lose some money due to the ever weakening Yen and the probable drop in stock prices. I thought I should remind my readers here that Buffett has a very long timeline in his investments, because he has the money to park there without any need to cash out in the long term.
A Political Move
Just like Jack Ma, a person on the level of Buffett cannot be acting solely on his individual’s or company’s interest. With a wealth on that level, you will be forced to get involved with the political will of the government. This is speculation, but even though Japan is already a dog of the US, laying hands on their core assets will mean a tighter leash over Japan, ensuring greater loyalty. While Buffett considered himself a Democrat, chances are he will lend his support to whichever party leads the government at the point in time. He had of course ‘made clear his support for policies that support capitalism and economic growth’. Basically, while he is inclined to the Democrats, he has no issues lending support to whoever is in the government as long as there is money to be earned.
The example below may be a stretch to some, and I cannot say with certainty that this is the case. I will leave it to the readers to consider for yourselves how much to believe.
In 2008, Buffett’s Berkshire Hathaway Inc. bought 24.59 percent of BYD’s Hong Kong traded stock. That was 2 years before Tesla was listed on the stock exchange. I had said in an earlier article that the car market was dominated by the Japanese and European car manufacturers. However with the rise of the electric vehicles (EVs), the US and China became the new leaders in the field of EVs. Both had competed in the EV market and cooperated to take down the dominance of the traditional car manufacturers. With Buffett’s investment, China’s private car manufacturing company got the necessary funds to research, to build and improve their cars. With China’s huge incentive, Tesla manage to open its Gigafactory and set up shop in China.
Just like how the hedge funds moved in to kill the countries who did not have enough USD, it is not surprising to see business or investment moves being tied to the political interests of the government of a country.
Do Not Just Blindly Copy
For retail traders or investors like us, it is hence very important or even critical to know current affairs and politics well. Understand the power play between the countries and the strength of each competing force. Know the rationale behind the investments of the big monies and not just look at the official statements given. A move by the big monies may not necessarily mean it is linked to a political move, but as I have said repeatedly, high level decisions seldom achieve only 1 objective.
Research well, and you may find that some of the investments by the big monies may not be applicable to you.
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