In recent years, Berkshire Hathaway generated impressive profits through its acquisition of stakes in a group of five Japanese trading firms that generated an estimated $4 billion profit on a $6.2 billion initial investment.
According to a document filed Monday in Tokyo, Berkshire Hathaway increased its stakes in five business entities.
As CEO, Warren Buffett likely orchestrated the investments and hedged Berkshire's currency exposure. One of the most successful investors in the world, Buffett is well respected for his investing skills.
The company did not comment on the matter.
Shares of the five companies, Mitsui, Itochu, Marubeni, Sumitomo, and Mitsubishi, have grown by 50% to 130% in yen since Berkshire announced it was buying 5% stakes in each of them in late August 2020.
Due to a 35% increase in the dollar since then, the gains are considerably smaller in dollar terms. At the time of this writing, the dollar is worth 142 yen as compared to 105 yen in August 2020.
Despite this, Berkshire hedged its yen exposure by issuing about $6 billion in yen-denominated debt, allowing it to benefit from changes in the yen's value. Berkshire described its currency exposure as "only minor" at the time of its investment. Over the past two years, that debt has decreased by $1.6 billion.
This means Berkshire now has a profit of approximately $4 billion on its original investment, which is now valued at around $10.3 billion, including hedge profits. Thus, Berkshire gained approximately 65%.
In its Monday filing, Berkshire revealed it held between 6.2% and 6.8% of the five companies, an increase from about 5% before. Back when the company made its initial investments, Buffett promised that he would not acquire more than a 9.9% stake in any of the companies without their board's approval.
The five companies have been big winners in the commodities boom in the past few years, considering their extensive trading activities.
The move clearly shows Buffett's sharp eye for opportunities that, if commodities were entering a bull market, Japanese trading companies that are little known to American investors were a good way to get in on the move.
The trading companies weren't in favor at the time of the initial investments — several of them were trading below book value at price/earnings multiples of single digits. As a result, Berkshire gained a nice margin of safety.
As Buffett stated at the time, The Berkshire Companies intended to hold the investments long-term.
"I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment. The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit," Buffett said.
On Monday, Berkshire's stock rose 0.3% to $469,900; it has gained 4% this year, compared with the S&P 500's 17% loss.
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