Despite concerns about growth prospects in much of the Japanese economy, the tourism sector is booming. Some analysts estimate that tourism accounts for about 7.5% of Japan’s GDP and about 6 million jobs. This is meaningful.
Having just returned from three weeks in the country, I am left with a very positive impression. From fast food to fast trains, the level of service was quite extraordinary and the people remain the picture of quiet competency.
Of course, I saw much of this decades ago while a student in Tokyo and then as a stockbroker, but it seems they have somehow taken it to a higher level.
It is not just Tokyo. Osaka, Kyoto, Nara, and Kobe are all great places to visit or, for that matter, live.
The citizens of Japan seem ready to move on from their much-discussed “lost decade,” as does the nation itself, which has largely escaped its period of stagflation, with inflation and growth each remaining around 2%.
Despite the improving outlook, Japanese retail investors carry more cash than their American counterparts–typically greater than 50% versus about 15% for investors in the states.
Along those same lines, 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 trading companies, or “Sogo Shoshas,” in August 2020, accumulating about a 5% stake in each of them.
Buffett’s company subsequently invested more in each stock in November 2022.
Here are the five companies with their stock tickers.
5 Japanese Trading Companies Warren Buffett Loves
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 a 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%.