Warren Buffett said he was “confused” by the opportunity to buy into five Japanese trading houses two years ago.
“I was confused by the fact that we could buy into these companies,” Buffett told CNBC’s Becky Quick from Tokyo on Wednesday about “Squawk Box.” They actually had “an earnings yield of maybe 14% or something, but the dividends would go up.”
The Berkshire Hathaway The chairman and CEO announced this week that he has increased his stake in each of Japan’s big five companies to 7.4%, adding that he may consider further investments. Buffett’s trip to Japan is intended to support the companies.
Earnings yield, defined as earnings per share divided by the stock price, is a common measure used by value investors like Buffett. The higher the number, the more value investors get per share.
“I just thought these were big companies. They were companies that I generally understood what they were doing. A bit similar to Berkshire in that they had many different interests,” Buffett said. “And they were sold at what I thought was a ridiculous price, especially compared to the interest rates then prevailing.”
Buffett, 92, said Wednesday that Berkshire plans to hold the investments for 10 to 20 years. Berkshire previously said it could increase its stake in each of the trading houses up to 9.9% — though not without the approval of the companies’ boards.
business transactions?
Berkshire’s vice chairman of non-insurance operations and Buffett’s heir, Greg Abel, added in the same interview that the conglomerate is also interested in other “additional opportunities” with each of the companies to do business.
“We would rate it very quickly. Warren emphasized that the bigger the better, and that he would answer the phone on the first ring. And we will never run out of money. You can call us anytime,” Abel said.
The “Oracle of Omaha” first acquired stakes in these companies in August 2020 for his 90th birthday with an initial purchase valued at approximately $6 billion. The companies are Mitsubishi corp, mitsui & Co., Itochu corp, Marubeni And Sumitomo.
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Japan’s trading houses, known as “sogo shosha,” resemble conglomerates and deal in a wide range of products and materials. Importing metals, textiles, food, and other goods, they helped propel the Japanese economy onto the world stage.
They have been criticized by some investors for their complex nature of operations, as well as their increased exposure to overseas risk as they expanded internationally. For Buffett, however, these diversified trades could be part of the draw. They also boast high dividend yields and free cash flow.