Why Warren Buffett Invested in Five Major Japanese Trading Houses in 2020—and Why It Paid Off

In the summer of 2020, as the global economy faced extraordinary challenges brought on by a worldwide pandemic, Warren Buffett made a notable departure from his traditionally U.S.-centric strategy. Through Berkshire Hathaway, he acquired 5% stakes—then valued at around $6.3 billion—in five of Japan’s most prominent trading houses: Mitsubishi Corporation, Mitsui & Co., Sumitomo Corporation, Itochu Corporation, and Marubeni Corporation. Known in Japan as sōgō shōsha, these entities span everything from energy and metals to food and textiles. Although greeted with initial surprise, Buffett’s investment has, by December 2024, proven a prudent bet that demonstrates his hallmark ability to uncover value and secure steady long-term gains.

Understanding the Sōgō Shōsha

Japan’s trading houses play a crucial role not only in Japan’s economy but also in global trade and resource management. They date back to the country’s industrial expansion of the late 19th and early 20th centuries and have grown into massive conglomerates that combine the functions of investment banks with those of operational multinationals. Their portfolios typically include metals, machinery, chemicals, energy, and consumer goods, granting them the agility to weather market fluctuations and capitalize on economic upswings in multiple regions. In recent years, they have become more open to shareholder-friendly practices, including expanded dividends, share buybacks, and a drive for stronger corporate governance.

The Factors Behind Buffett’s Decision

Buffett’s move was anchored in his classic value-investing approach, informed by a belief that these trading houses were undervalued despite their diverse, steady sources of cash flow. Their shares had long traded at relatively low multiples, making them appealing targets for an investor known for seeking high-quality assets at favorable prices. Japan’s low interest rates and a relatively weak yen added an extra layer of strategic advantage, since Berkshire was able to issue yen-denominated bonds that reduced borrowing costs and mitigated currency risk.

Another motive was the alignment of business models: Buffett has often built Berkshire Hathaway through wide-ranging investments across insurance, consumer goods, energy, infrastructure, and manufacturing. The Japanese trading houses also engage in broad sectors while maintaining strong earnings and a capacity to pivot when conditions demand it. Their commitment to increasing shareholder returns, including higher dividends and share buybacks, further appealed to Buffett’s focus on stable, long-term profitability.

Subsequent Developments

By April 2023, Berkshire Hathaway had boosted its ownership stakes in these companies to around 7.4%, reflecting Buffett’s growing confidence in their strategic direction. The trading houses have continued to report robust profits, aided by resilient commodity markets and operational efficiencies that shielded them from many of the disruptions seen elsewhere. Several of these firms hit record or near-record net profits in the fiscal year ending March 2023, allowing them to reward shareholders with rising dividends and share buybacks. This environment has only reinforced Berkshire’s decision to increase its holdings further, with the company’s stakes reaching more than 8.5% by mid-2023.

Assessing the Outcome as of December 2024

The tangible returns on Buffett’s investment have become increasingly evident. Mitsubishi Corporation saw its net profit surge by over 25% to hit 1.2 trillion yen, while Sumitomo Corporation’s grew by more than 20%, and Itochu Corporation achieved its second-highest net profit on record. These impressive figures highlight the trading houses’ ability to thrive in a volatile global landscape, bolstered by their global presence and diversified income streams. The ongoing increase in dividends and share repurchases has directly benefited Berkshire Hathaway, in line with Buffett’s preference for businesses that reward long-term shareholders.

The performance of these trading houses also showcases the advantages of Berkshire’s strategic expansion outside the United States. Buffett’s foresight in looking to Japan—often overlooked by foreign investors—has paid off, helped by Japan’s stable macroeconomic policies, the trading houses’ deep reach into emerging markets, and the growth potential in various sectors such as renewable energy, digital infrastructure, and global logistics.

Future Outlook

By December 2024, that initial move has evolved into a success story highlighted by significant returns, rising shareholder payouts, and alignment with Berkshire Hathaway’s broader goal of owning undervalued yet resilient businesses. The sōgō shōsha have capitalized on their worldwide networks and diverse industry footprints, demonstrating their ability to respond effectively to global economic shifts.

Looking ahead, their continued commitment to shareholder value, combined with Japan’s ongoing economic reforms, suggests that these firms will remain an integral part of Berkshire Hathaway’s global strategy. The recent moves to boost stakes beyond the original 5% have solidified Berkshire’s position as a major foreign investor in Japan, illustrating how one of history’s most celebrated value investors continues to find opportunities where others might have overlooked them.