Munger on the Japan Investment

Free money!

Charlie Munger Raves About Warren Buffett’s Rare Japanese Investment Opportunity Of A Century — ‘It Was Like Having God Just Opening A Chest And Just Pouring Money Into It’ — High Rewards For A Low Risk (yahoo.com)

"Berkshire Hathaway’s strategy involved borrowing money in Japan at a mere 0.5% interest and investing in companies there that offered a 5% dividend yield.

“It was like having God just opening a chest and just pouring money into it,” Munger said.

Initially, Berkshire Hathaway declared a $6 billion investment across five Japanese trading houses — Itochu International Inc., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd. and Sumitomo Corp. Group — in August 2020. That investment has grown substantially and is now valued at approximately $17 billion, thanks in part to both additional share purchases and soaring stock prices of the companies involved.

Munger provided more detail on the mechanics of the investment, indicating it wasn’t an overnight success but rather a result of patient, incremental actions."

Trouble is Berkshire is so huge - it’s not enough to move the needle. Lemonade stands and $10 billion in Japanese trading houses won’t do.

Assuming there really is about $100 billion looking for a home, that is, which I doubt. Not that there’s $100 billion, I’m sure there is. I just doubt if it’s looking to go anywhere but treasuries.

I don’t think this could possibly be true. As usual, Berkshire is simply waiting for good opportunities to appear. And eventually they always appear. And if by chance, the economy has an episode of the doldrums, if the stock of Berkshire itself drops enough and remains low, perhaps some of the available capital will be deployed there. Patience is a very under-appreciated investing trait.

Very true. Similarly, the patience of Berkshire shareholders hoping WEB will buyback in large quantities is overrated, in my opinion.

I’ve shared something like this before. Here it is again.

Year Cash+Fixed/Float Float
2010 105% 66
2011 92% 71
2012 100% 73
2013 94% 77
2014 101% 84
2015 99% 88
2016 102% 92
2017 109% 115
2018 105% 123
2019 111% 129
2020 113% 138
2021 109% 147
2022 92% 164
2023-2 99% 166

They dip into the cash a bit now and again, then build it back up again.

Wow. So even thought WEB tells shareholders float is free permanent capital, he is deploying them in instruments that can be liquidated very quickly, and with relative stable value (even though the fixed income this year doesn’t fit the stable value narrative).

Instead of float if you can flip it to claim paid, will this looks much different?

Fixed income went down as it became less attractive. Maybe that’s where the cash will start to go now it is becoming more attractive?

Year Total Assets Total Cash Fixed Income Equities
2010 372 35 34 60
2011 393 34 31 76
2012 427 42 31 87
2013 485 43 29 115
2014 526 58 27 116
2015 552 61 26 110
2016 621 71 23 135
2017 702 104 21 171
2018 708 109.3 19.9 173.0
2019 818 125.0 18.7 248.0
2020 874 135.0 20.4 281.2
2021 959 143.9 16.4 350.7
2022 948 125.0 25.1 308.8
2023-2 1042 141.9 22.4 353.4

I would much rather Berkshire find good businesses to buy than to buy back its own stock. But, if it can’t find good businesses, I don’t know, maybe sometimes that’s the best use of their cash.

In the 2007-2008 panic and 2020 panic, Buffett panicked as well. Instead of buying, Buffett sold a bunch in 2020.

They spent nearly $25 billion on stock buybacks in 2020, and $27 billion in 2021. Only $8 billion in 2022.

You missed the original comment from MarkR “I would much rather Berkshire find good businesses to buy than to buy back its own stock.”

It is not clear to me what kind of businesses Berkshire even interested in or they can buy that would meaningfully move the needle. I think Buffett’s run is glorious, unparalleled in history. He can set the buyback on auto-pilot and enjoy his life or reading 10-k’s, 10-q’s

Last 15 years have been a dud.

The below graph is for 15 years. It is not dud.

This is Berkshire all time

You may have your view, sure, but what he had achieved is something unique and extraordinary. It deserves respect. Hope you can look at his work holistically.

Underperformed S&P index that someone without any financial info can just invest in and millions did

Any examples of a money manager or fund manager that beat the S&P500 over these 15 years? AFTER expenses, of course. And, to really be fair, you have to subtract out the annual taxes on distributions from the compounding over the 15 years.

Funds I own in 401k.

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Munger explains some of it:

Q: Do you think Berkshire Hathaway will make another big acquisition under you and Warren Buffett?

A: It’s at least 50/50. Venture capital has made it so difficult for everybody. They keep bidding the prices up and up and up, and of course that makes the results go down, down and down.

Q: If you were starting out today as an investor, are there any things you would do differently than you did back in the 1960s?

A: Conditions were quite different then, and there were a lot of what we used to call loaded laggards…. There were two or three times as much in assets per-share value as there was in stock-market value per share. Ben Graham taught us all to buy that kind of stuff. It was underpriced, and hold it as long as it was underpriced, then sell it when the price got more normal and buy another undervalued asset. And you could do that for about four decades in the aftermath of the 1930s Great Depression. That’s gone, all of that low-hanging fruit.

The 15 year performance Divi likes to harp on is entirely the result of Berkshire being overvalued 15 years ago. Go 16 years or 14 years and the comparison is even or favorable to Berkshire.

Start points and end points.

The company bought back $1.1B of its common stock during the quarter, compared with ~$1.4B in Q2, bringing year-to-date purchases to $7.0B

Berkshire Hathaway (BRK.B) held ~$157B in cash on its balance sheet as of Sept. 30, 2023, compared with $147.4B at June 30.

Q3 operating earnings of $10.8BB rose from $10.0B in Q2 and $7.65B in the year-ago quarter.

Insurance float of $167B at Sept. 30, 2023 rose from $166B at Sept. 30, 2023.

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