For the past three days, brokers, investors and other Tokyo-focused pundits have been engaged in a particularly vigorous bout of “Blind Man’s Buffett”: a parlor game in which participants attempt to guess what the 92-year-old Berkshire Hathaway founder Warren Buffett might be planning to buy, this time in Japan.
It is a satisfying pursuit because, in contrast to other, time-honored Tokyo stock market-based games — notably “Foreigners’ Folly” (what might global funds buy if they weren’t permanently underweight Japan?) and “Mrs Watanabe’s Wishlist” (what might domestic households buy if they were not permanently traumatized by the 1980s bubble?) — this one stands a fighting chance of producing an actual result.
The latest turn of “BMB” has been unleashed by the combination of a rare visit to Tokyo by Buffett himself, and by various intriguing statements made in press interviews since his arrival.
Buffett, exploiting Japan’s ultimately ultra-low interest rates, has raised just over Y1tn through five separate rounds of straight yen debt issuance since September 2019. He now says he plans a sixth, hence all the speculative capering.
On three occasions since August 2020, Buffett has bought and enlarged stakes in Japan’s five biggest trading houses — Mitsui, Mitsubishi, Sumitomo, Marubeni and Itochu. Berkshire now holds exactly 7.4 per cent in each of them, and which, in combination, offers both an overview of and insight into the entire Japanese economy and its propensity for dealmaking.
Buffett has previously said he might in theory take those stakes as high as 9.9 per cent. But he also hinted at something more. He said he would “love it” if one of the five companies proposed partnering with him on some big deal. Given how much of these companies’ business is energy-related, and that Buffett is something of an investment supremo in the field, it is embarrassing that they have not done so already.
But Buffett also told Nikkei that, while the five trading houses are the only Japanese stocks he currently holds, there were always others he was thinking about investing in. Zing! For the directionless Tokyo exchange and for brokers run ragged by months of foreign investors jabbering about Japan but remaining net sellers of the market, here was salvation from on high.
The various stock screens familiar to regular players of “BMB” were quickly applied to the Japanese market, which abounds with deep value, high-yielding companies with businesses that cannot only be understood by a 92-year-old, but are in many cases successfully run by people not far off that age. Where many of them fall down, of course, is on their commitment to returning profits to shareholders, but things are improving.
Still, the algorithms of online trading platforms bounced retail investors around various Buffett-might-buy ideas like railway companies and utilities. Mizuho Securities’ chief strategist, who applied a Y1tn minimum market cap to his screen, suggested that the three Japanese megabanks, Hitachi and makers of semiconductor-producing equipment were all viable targets. He even threw in Nintendo for good measure. Brokers at CLSA spread the net wider and suggested warehousing, forestry and media companies.
But the really interesting possibility, suggested by at least two people who have worked with Berkshire Hathaway in the past, is that Buffett might seek to play a financing role in the proposed $15bn buyout of Toshiba by the domestic private equity group Japan Investment Partners.
JIP’s offer, which has the backing of 17 companies and six financial institutions, would not only be Japan’s biggest ever buyout, but it would close an exceptionally miserable saga for the 147-year-old conglomerate. Although it is by no means clear that Toshiba’s future is more guaranteed in private hands than as a listed company, the emergence of a long-term, deep-pocketed financial backer who understands such companies and has the patience for a turnaround could, in theory , work very well indeed.
Given the extraordinary political sensitivity around Toshiba — it plays a key role in the defense, energy infrastructure and nuclear industries — there is an opportunity for Buffett to buy some quite astonishing quantities of goodwill to participate in the revival of a national icon and with cheaply borrowed yen.
Even if nothing of the sort happens, speculation around the idea is healthy. Japan needs investors like Buffett more than it often realises.