Investing in Japan Trading Companies

[TokyoWart]

You’ve probably all seen the announcement that Warren Buffett’s Berkshire Hathaway has taken 5% positions in the Japanese trading companies (Sogo Shosha):

https://www.cnbc.com/2020/08/30/warren- ... anies.html

We can’t be sure Warren initiated those positions because he has two other senior investment managers but I wanted to share my experience with the companies, mostly as a caution. As a US citizen I can’t easily hold those inexpensively diversified eMAXIS index mutual funds so my Japanese brokerage account and NISA investing has been in individual stocks. I favor stocks which are not expensive by measures like P/E, P/B, etc. and the trading companies naturally come up on that kind of screen because they usually have a mid-single digit P/E (the higher P/E’s you see now are because Earnings have fallen) and usually carry generous dividends which feel good in a NISA account.

This is my experience with small positions in each of these companies:

Itochu (8001) basis 1302-1467 yen/per share, current price around 2782
Marubeni (8002) basis 835, currently around 648
Mitsui Bussan (8031) basis 1484, currently around 1952
Sumitomo (8053) basis 1282, currently around 1403
Mitsubishi (1841) basis 1841, currently around 2610

Unfortunately, those positions were all established many years ago so although most are at least modestly up the annualized gains are not impressive. I would have been far better off if I had bought an S&P 500 index fund.

I once asked my company’s CFO why the trading companies always seem to be cheap by valuation measures. His opinion was that there is some uncertainty about how accurate their balance sheets are given the relatively lawless places many of them have substantial assets. A gaijin friend who worked at one of the companies told me the bulk of his job centered around looking out for fraud in their foreign affiliates, which also suggests some uncertainty around the numbers they report.

Anyway, I wish Warren well because I still have these positions but I think my experience confirms the wisdom of index fund investing.

[Kanto]

I would say the fund is seeking stability and diversification outside the USD due to the Feds new inflation targets.

I do not think they expect growth. No one really expects growth from Japanese funds, they expect stability.

[fools_gold]

Unfortunately, those positions were all established many years ago so although most are at least modestly up the annualized gains are not impressive. I would have been far better off if I had bought an S&P 500 index fund.

Are these just capital gains? I wonder what the total returns are like. I imagine that some of these pay out (until recently) quite a nice dividend compared to your cost basis.

[TokyoWart]

Are these just capital gains? I wonder what the total returns are like. I imagine that some of these pay out (until recently) quite a nice dividend compared to your cost basis.

Yes and the dividends have been pretty good. I find it hard to calculate total returns in Japan because the brokerage doesn't help (Schwab, Fidelity and Vanguard all have screens that can show you the annualized return for your portfolio compared to various indexes).

[fools_gold]

Yes and the dividends have been pretty good. I find it hard to calculate total returns in Japan because the brokerage doesn't help (Schwab, Fidelity and Vanguard all have screens that can show you the annualized return for your portfolio compared to various indexes).

I bet if you worked it all out they probably stack up pretty well. Especially if the dividends were reinvested.

[RetireJapan]

I started buying these in my wife's account earlier in the year (for the dividends, basically).