What Made Warren Buffet Buy These Japanese Trading Houses?

Warren Buffett

Two years ago, Warren Buffett was offered the chance to acquire five Japanese trading houses. He described the experience as “confounding.” As per the tycoon, he was simply dazed by the fact that he could become involved with these organizations.

“They had in effect “an earnings yield maybe 14% or something like that, but dividends would grow.” he said in the interview on Wednesday April 12 with CNBC.

The chairman and CEO of Berkshire Hathaway made it clear that he had increased his stakes in each of the five major Japanese companies to 7.4% and that he might think about making additional investments. The purpose of Buffett’s trip to Japan is to show his support for the businesses.

Value investors like Warren Buffet use earnings yield, which is defined as the profit per share divided by the share price. Investors receive more value per share the higher the number.

“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,” Buffett said. “And they were selling at what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at that time.”

The 92-year-old Buffett went on to say that Berkshire will keep the investments for 10 to 20 years. Berkshire previously stated that it could increase its stakes in each trading house by as much as 9.9%, but only with board approval.

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Greg Abel, Berkshire’s vice chairman of non-insurance operations and Buffett’s heir apparent, said in the same interview that the conglomerate is also interested in making deals with each company if there is an additional “incremental opportunity.”

“We would very much evaluate it quickly. Warren highlighted the bigger the better, and that he’ll answer the phone on the first ring. And we’ll never run out of money. They can call us anytime,” said Abel.

The “Oracle of Omaha” first gained stakes in quite a while in August 2020 for his 90th birthday celebration, in an underlying purchase worth around $6 billion. Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni, and Sumitomo are the businesses.

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