Having just returned from a three-week tour of Japan, it was clear to me that tourism to the country is booming.
Despite some complaints, the Japanese remain as courteous and helpful as always, and on the plus side, the tourism sector has brought a welcome boost to the economy. Some analysts estimate that tourism accounts for about 7.5% of Japan’s GDP and about 6 million jobs. This is meaningful.
My impression of Japan was very positive. The people seem more confident, at peace, and one can’t help but be impressed by their quiet competence. From fast food to fast trains, the level of service is quite extraordinary.
Of course, I saw much of this more than four decades ago when I studied for a year in Tokyo and then as a stockbroker, but it seems they have somehow taken it to a higher level.
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It is not just Tokyo. Osaka, Kyoto, Nara, and Kobe are all great places to visit or, for that matter, live.
The lost decade is behind them, and the Japanese seem ready to move on.
Japan has also largely escaped its period of stagflation, as inflation and growth stay around 2%
Japanese retail investors have cash positions above 50% versus about 15% for Americans.
Japanese corporates have long been criticized for hoarding cash on their balance sheets and low capital expenditures due to cross-shareholdings with sister companies. But over the past 12 months, share buybacks are on track to increase 96% year over year, and the reduction in cross-shareholdings has increased by 75% in the last fiscal year.
Berkshire Hathaway started buying five of the largest Japanese “Sogo Shoshas” in August 2020, accumulating about a 5% stake in each of them, and then investing a little more in each stock during November 2022.
Here are the five companies with their stock tickers.
Berkshire’s Five Japanese Trading Companies
Itochu (ITOCF)
Sumitomo (SSUMF)
Marubeni (MARUF)
Mitsubishi (MSBHF)
Mitsui (MITSY)
The trading business (import/export) used to be the core business of these giants. Through the 1980s, over 50% of Japan’s exports and 75% of the country’s imports went through one of the major Shoshas.
Since then, they have evolved to become more like investment holding companies while overseeing operating companies.
In short, they do some trading, some investing, both in Japan and globally, and some managing the different businesses they have invested in (in the cases where they have acquired a controlling stake).
One thing has not changed. They still attract the cream of the crop of graduates of Japanese universities.
They are big players in the metals/mining and energy sectors, such as coal, copper, and LNG projects around the world.
They each have their own personality and strategy. For example, Mitsui owns a 33% stake in IHH Healthcare, the largest hospital group in Asia, and 17% stake in Penske Automotive in North America.
Itochu has a 10% stake in China’s CITIC Limited and most of Family Mart, Japan’s second largest convenience store chain, while the third largest chain, Lawson, is owned by Mitsubishi.
After looking at the five Buffett Japanese trading companies, I have settled on my favorite and will release it in the next issue of the Cabot Explorer. I encourage you to sign up today as a paid subscriber to learn which one I picked as well as the current Cabot Explorer positions, which have gains of 35%, 38%, 46%, 53%, 92%, 147%, and 85%, and a laggard, down 7%.
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