Warren Buffett’s Japanese assets top $31 billion as Berkshire Hathaway keeps buying

Warren Buffett’s investment portfolio in Japan has grown substantially, with Berkshire Hathaway’s stakes in five major Japanese trading companies now valued at approximately $31 billion. This represents a dramatic shift from when the positions were first publicly disclosed in late 2020, valued at just $6.3 billion at that time. The surge reflects both significant appreciation in the underlying equities and continued acquisitions by Berkshire, which has begun exceeding the ownership thresholds it originally committed to maintain.

A Decade-Long Japanese Strategy

Buffett’s entry into Japan’s major trading houses came during what he viewed as a period of substantial undervaluation. In comments to shareholders, he explained that these five firms—Mitsui, Mitsubishi, Itochu, Marubeni, and Sumitomo—were trading at prices that seemed disconnected from prevailing interest rates and underlying business fundamentals. What began as a quiet accumulation in 2019 became public knowledge in September 2020, coinciding with Buffett’s 90th birthday.

The performance across these five positions has varied but remained uniformly strong. Individual stock gains have ranged between 227% and 551% from the initial disclosure through the present day. The aggregate portfolio has appreciated 392% over the same period, making this one of Berkshire Hathaway’s most successful foreign equity investments in recent memory.

Over time, you will likely see Berkshire’s ownership of all five increase somewhat.

— Warren Buffett, 2024 Annual Shareholder Letter

Understanding Japan’s Trading Company Sector

The five companies in Berkshire’s portfolio represent a unique segment of Japan’s industrial landscape. Known as “sogo shosha,” these integrated trading conglomerates have operated as the backbone of Japan’s economy for over a century. They facilitate approximately 30% of Japan’s total imports and exports, while simultaneously operating manufacturing facilities, resource extraction operations, and financial services across multiple continents.

Unlike typical trading companies that merely buy and sell commodities, these firms hold significant equity stakes in supply chains and operate as active business partners. This structural advantage has historically provided stable cash flows and dividend income, characteristics that align perfectly with Buffett’s investment philosophy. The sector had largely been overlooked by international investors for decades, particularly following Japan’s economic stagnation in the 1990s and 2000s.

By 2019, when Buffett began accumulating shares, the global investment community had largely written off Japanese equities as mature, slow-growth assets. This widespread pessimism created the valuation disconnect that Buffett identified and exploited. The trading houses were generating substantial profits while trading at discount valuations relative to their earning power.

Crossing the 10% Threshold

When Buffett initially disclosed the Japanese holdings, Berkshire owned approximately 5% of each company. He had agreed not to exceed 10% ownership without express permission from each firm. However, recent regulatory filings confirm that this arrangement has evolved substantially.

Mitsui & Co. disclosed this week that Berkshire’s National Indemnity subsidiary now holds 292 million shares, representing 10.1% ownership. At current market prices, this stake is valued near $7.1 billion, making Berkshire the company’s largest shareholder. The position has grown from 9.7% as recently as March 2024.

Mitsubishi similarly confirmed ownership has climbed to 10.2%, up from the 9.7% level reported earlier in the year. The remaining three companies—Itochu, Marubeni, and Sumitomo—have not released updated filings since spring, but market analysts widely expect those positions have also increased beyond their initial 5% stakes.

Permission to Expand

Buffett addressed the shifting ownership structure in his February 2024 annual letter to shareholders. He wrote that as Berkshire approached the original 10% ceiling on each position, all five companies agreed to “moderately relax” that restriction. This agreement effectively removed the primary constraint on further accumulation.

In that same letter, Buffett signaled his intention to continue building these stakes. He stated that shareholders should expect Berkshire’s ownership percentages across all five companies to increase over time. This represents a significant commitment to the Japanese market and these specific firms as long-term holdings.

The expansion came despite Buffett’s earlier public commitment to respect the 10% limit. Some industry observers noted that the relaxed ceiling suggests the Japanese trading companies view Berkshire as a stable, long-term partner rather than a short-term financial investor seeking quick profits or control. This mutual agreement demonstrates the trust these century-old institutions place in Berkshire’s stewardship approach.

Market Implications and Investor Sentiment

Berkshire’s expanding Japanese positions carry significant implications for global markets and investor sentiment toward Japan. The world’s most successful investor’s continued commitment to these securities challenges the prevailing narrative that developed Asian markets offer limited growth opportunities. This validation has begun shifting institutional capital flows toward Japanese equities more broadly.

The trading company sector specifically has experienced renewed interest from international investors following Buffett’s public accumulation. Valuations remain attractive compared to comparable American conglomerates, suggesting significant upside potential if global market sentiment continues shifting. Berkshire’s willingness to exceed original ownership targets signals confidence that valuations have room to expand further.

Furthermore, the positions provide Berkshire with meaningful exposure to commodity markets and global trade flows without the direct volatility of commodity stocks. This strategic advantage becomes increasingly valuable as geopolitical tensions affect global supply chains and trade patterns.

Context and Comparisons

Berkshire’s Japanese investments must be understood within the broader context of the conglomerate’s portfolio allocation. While these stakes have performed remarkably well, other significant positions have not kept pace. For context, Buffett’s position in alternative assets and emerging market equities represents a different risk profile than the established trading companies.

One notable comparison exists within Berkshire’s own portfolio: the company’s substantial investment in Occidental Petroleum. Beginning in 2022, Buffett accumulated a 26% stake in the oil producer, now valued at approximately $12 billion. Unlike the Japanese positions, Occidental’s performance has lagged expectations, serving as a reminder that not all of Buffett’s major bets deliver equivalent returns.

The Japanese holdings also contrast with more volatile asset classes that have captured investor attention in recent years. These are established industrial conglomerates with decades of operational history, stable cash flows, and defined business models. Their appreciation has resulted primarily from market revaluation rather than speculative trading.

They were selling at what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at that time.

— Warren Buffett, 2023 Shareholder Comments

Long-Term Positioning

Buffett has made clear that these Japanese investments fit within his longest-term thinking. In shareholder communications, he stated that Berkshire intends to hold these positions for “50 years or forever,” language that underscores his confidence in the underlying businesses and his lack of concern about near-term market fluctuations.

This extended time horizon has implications for how Berkshire approaches accumulation and valuation. Rather than timing entries based on quarterly or annual performance, the company appears focused on gradually increasing ownership stakes while these firms remain accessible at reasonable valuations by Buffett’s standards.

The Japanese strategy also reflects Buffett’s broader approach to international investing. For decades, the majority of Berkshire’s portfolio has concentrated on United States equities. The Japanese positions represent a meaningful diversification, though they remain a small percentage of total assets under management. As Berkshire’s capital base continues expanding and domestic opportunities become increasingly scarce, international allocations will likely comprise larger percentages of new capital deployment.

The continued expansion of Berkshire’s Japanese stakes offers several lessons about value investing in mature markets. First, significant returns can come from purchasing quality businesses trading below intrinsic value, even when those investments require patience to realize full appreciation. The five-year accumulation period before substantial gains materialized demonstrates the importance of conviction in contrarian positions.

Second, the willingness of established companies to relax ownership restrictions in negotiation with sophisticated investors suggests that long-term partnership value can override concerns about shareholder concentration. The Japanese trading companies apparently believe Berkshire’s continued ownership stability outweighs traditional governance preferences for dispersed ownership.

Third, the divergence between Berkshire’s Japanese success and Occidental’s underperformance serves as a reminder that even the world’s most successful investors experience winners and losers. Risk management and portfolio construction matter more than perfect stock picking. Successful investing requires accepting that not every major position will deliver outstanding results.

For observers of financial markets and investment trends, Buffett’s Japanese expansion demonstrates that traditional value opportunities still exist in established economies, even for investors managing hundreds of billions of dollars. The strategy challenges narratives suggesting all significant returns require exposure to emerging technologies or speculative assets. In an environment of elevated valuations across most developed markets, the Japanese trading houses continue offering compelling risk-reward profiles to patient, long-term investors willing to think contrarily.

Original reporting: cryptopolitan.com