Very logical and strategic approach fit with fundamental way of his business investment and life
As many of you know, Mr.Warren Buffett's Berkshire Hathaway has more investments in store for Japan now, and they are briefly explaining why their Berkshire bought big stakes in Japanese trading house companies, Mitsubishi Corp., Sumitomo Corp., Mitsui and Co., Itochu and Marubeni.
I think their decision was very "simple" at the end.
And, of course, they are not done investing in Japan, but this was just starting point for him and them to finally invest and engage more with Japanese corporations, started trying to humbly know and learn about unique independent culture and structure of their Japanese corporations in global perspective.
He thoroughly analyze companies as an business investor(not like stock trader).
It is easy to imagine that his investment in Japanese companies is the result of extensive research that has taken a considerable amount of his time.
And above all, his investment style is always looking at a company that can be owned and bought in the medium to long term, committed to their corporate authentic values.
And they must be...
1. A company that he truly understands the businesses. He doesn’t choose stocks, but choose their businesses. Their business might be similar to Berkshire’s sometimes. It is not impossible for them to build a relationship as a business partner in the future.
2. Undervalued stock and businesses
3. They have businesses and operations around the world, and generate a lot of cash for dividends and share buybacks. He emphasize the quality of top management.
4. And of course, that can be owned and bought in the medium to long term basis.
his investment style is always looking at a company that can be owned and bought in the medium to long term, committed to their corporate authentic values
He thinks that what is needed is to feel that the government is genuinely in favor of developing the economy through private industry.
In that point and respect, Mr.Buffett thinks that the United States and Japan are comfortable environments.
He says that he is confident that Japan and the United States will be bigger than they are now in next 30 or 50 years from now on.
Certainly, from a global perspective, competition has been increasing, and the number of industries and sectors in which Japanese companies are relatively less competitive have been increasing.
I have to say that animal spirits within their companies have been also declining.
In 2006, Japanese companies accounted for 21% of the world's listed companies R&D investments. Fifteen years later, in 2021, it became 10%, and the capital investment ratio has been also decreased from 11% to 8% during the same period.
On the other hand, these factors also served as a backdrop for Japanese companies to save “Cash”.
It's not that they aren't making money, rather they are making money globally, and there are a considerable number of companies that continue to inject strategic business investments globally while burning with animal spirits.
In 2022, the cash on their hand to market capitalization reached 26%, compared to the 7% range for Western companies like US and European companies.
The point is how it is used for growth, and how it has been used for growth. Mr.Buffett must be looking at it more deeply than anyone else, and this investment to major Japanese trading houses can see it pretty well.
these factors also served as a backdrop for Japanese companies to save “Cash”
General investors and businessmen who have a superficial view of Japan's major trading companies think that the trading companies are simply business companies that conduct diversified trading businesses, but the reality is completely different. They are more diverse, multifaceted, and broad and deep. They each of them are super huge group of first-class business professionals, entrepreneurs, and managers who conduct trade, business investment, and management of various business companies on a global scale in a variety of industries and business categories, and conduct competitive businesses of various types.
Me myself as someone who was inside the company, I can understand that well and quality level of their human resources and the large number that parameter are completely different from others. It is the source of their global competitiveness, key success factors.
If you are not just a trader in PC or/and Mobile who invests in stocks, but you are a business investor, businessman, or a manager who invests in businesses, you can firmly ascertain such competitiveness. Of course, Mr.Buffett is one of the world's top as the latter, so he can make such competitive decisions and challenges.
Further opportunities with Japanese corporations
It is generally said that more than 50% of listed companies in Japan are sinking into an exceptionally low valuation in the world, with more than 1 times PBR. Of course, PBR itself generated from the past can’t show the actual corporate value, and Mr.Buffett, of course, he doesn't say it's cheap just because of that.
Book value of net assets is less important. They look at everything in the company and see what's going to happen.
Is it undervalued relative to the intrinsic value of the company?
Many people don't know that there are still quite numbers of such undervalued companies in Japan. From the point of view of people and companies that invest in businesses and corporate rather than simply investing in stocks as money trade, there are still mountains of room and possibilities for business investment and collaboration with Japanese companies globally by making and utilizing the most basic way of thinking in business front ground.
Of course, in order for Japanese companies to be evaluated more further by such excellent business investors and management around the world, they must be able to have them evaluate their own management capabilities.
It will be necessary to not only discuss whether there is their management capabilities or not, but also the ability to firmly promote it and have it understood in global fields. For example, I don't think any major American company has a CEO now who is Japanese or has roots in Japan. In order to gain global recognition that the management of Japanese companies have also the deep layer of good managements, it is not enough to simply work diligently in the office.
From the point of view of people and companies that invest in businesses and corporate rather than simply investing in stocks as money trade, there are still mountains of room and possibilities for business investment and collaboration with Japanese companies globally
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Dear Mr Itoh san,
I really enjoyed your comments on thoughtful investing, and even more so on the examples of that great figure, Mr. Buffett, whom I didn't know.
But what strikes me is that he was born in the 1930s.
He belongs to a generation with a great deal of life experience (not forgetting history and its wars) and a healthier approach to life and investing. Short-term investment with substantial gains is possible, but it remains a perpetual battle in a fast-moving world, which increases the risks without a net.
On my own scale, as an SME and in all relativity, I fully subscribe to this approach, which can sometimes prove difficult in the face of the lure of profit due to lack of cash flow. However, in the end, with passion and wisdom, we can overcome the obstacles that ultimately bring greater value and long-term visibility.
Yours respectfully,
your beekeeper
Lari