Two years ago, Warren Buffett was “confounded” to acquire five Japanese trading businesses.
Buffett told CNBC’s Becky Quick on “Squawk Box” from Tokyo on Wednesday that he was “confounded” that Americans could acquire these firms. “An earnings yield maybe 14% or something like that, but dividends would grow.”
chairman and CEO announced this week that he has increased his holdings in each of the five big Japanese corporations to 7.4% and may invest further. Buffett visits Japan to assist the firms.
Value investors like Buffett evaluate earnings yield as profit per share divided by share price. Investors gain more per share as the number rises.
“I assumed they were major corporations. I understood their businesses. Buffett compared them to Berkshire since they have several interests. “They were selling at what I felt was a crazy price, particularly relative to interest rates at the time.”
Buffett, 92, indicated Wednesday that Berkshire will keep the assets for 10–20 years. Berkshire has indicated it may increase its shareholding in each trading company to 9.9% with board permission.
In the same interview, Greg Abel, Berkshire’s vice chairman of non-insurance operations and Buffett’s successor apparent, said the conglomerate is interested in any “incremental potential” with each business for deal-making.
“We would promptly assess it. Warren said larger is better and he’ll answer the phone on the first ring. We’re never broke. Abel said they may call anytime.
On his 90th birthday in August 2020, the “Oracle of Omaha” bought interests in these businesses for $6 billion. Mitsubishi and Panasonic.
Japan’s trading houses, called “sogo shosha,” are conglomerates that deal in many items and commodities. They helped Japan become a worldwide power by importing metals, textiles, food, and other things.
As they grew globally, several investors questioned their sophisticated operations and increased risk exposure. Diversified enterprises may appeal to Buffett. Free cash flow and dividend yields are strong.