Warren Buffett invested in Japan's five major trading houses. Why is he so adamant about holding their stocks forever?

Why Is Warren Buffett "Head Over Heels" for Japan's Big Five Trading Houses?

Hey there, this is really fascinating. Warren Buffett—the investing legend who spent his whole career saying "Never bet against America"—suddenly goes all-in on Japan and vows to hold these stocks "permanently." This isn’t a spur-of-the-moment decision; it’s a masterstroke born of deep calculation.

Let’s break it down into bite-sized pieces:

1. A Golden Opportunity for Bargain Hunting (Classic Value Investing)

This is Buffett’s sweet spot. Imagine walking into a store and spotting a top-tier brand jacket originally priced at $1,000, now marked down to $300 just because it’s last season’s model. Would you buy it?

That’s exactly how Buffett saw Japan’s Big Five trading houses (Mitsubishi, Mitsui, Itochu, Sumitomo, Marubeni).

Stocks Trading Below Book Value: Back then, their stock prices were lower than their net assets (factories, equipment, cash, investments minus debts). In investing terms, that’s a "P/B ratio below 1." Simply put: you’d pay 80 cents for a dollar’s worth of assets. A total steal.
Strong Earnings, Weak Stock Prices: These companies raked in hefty profits year after year, yet their stock prices stayed sluggish. That’s a "low P/E ratio." To Buffett, this screamed "undervalued quality assets."

2. These Companies Are Basically "Japan’s Version of Berkshire Hathaway"

Many hear "trading house" and think "import-export." Not even close! These five are colossal conglomerates with sprawling global operations.

Extremely Diversified Businesses: They invest in mines (iron ore, coal), handle energy (oil, gas), trade food (bananas to tuna), and dabble in machinery, chemicals, and real estate.
Octopus-Like Global Reach: They’re the backbone of Japan’s economy, deeply embedded in global supply chains. From the food you eat and clothes you wear to the energy and raw materials powering economies—they’re behind it all.

This "jack-of-all-trades" model mirrors Buffett’s own Berkshire Hathaway! The beauty? Ultra-low risk. If one sector slumps, another picks up the slack. Buffett knows this game inside out.

3. Generous Dividends + Aggressive Buybacks = Happy Shareholders

This sealed the deal for Buffett. Cheap stocks and solid businesses aren’t enough—companies must reward shareholders.

High Dividends: These trading houses generously share profits via dividends. When Buffett bought in, their dividend yields were sky-high—way better than parking cash in a bank.
Active Stock Buybacks: They used company funds to buy back shares and retire them. Fewer shares outstanding meant higher value per share—a major win for remaining shareholders.

Japanese firms once overlooked this, but times have changed. Buffett spotted this shareholder-friendly shift and backed it with his wallet.

4. Masterful Financial Engineering: "Borrowing to Invest"

This showcases Buffett’s genius. He didn’t buy with dollars; he executed a brilliant move:

Borrow Cheap in Japan: Interest rates there were near zero—practically free money.
Buy Japanese Stocks with Yen: Berkshire issued massive amounts of ultra-low-yield yen bonds in Japan. Buffett then used this "cheap cash" to snap up shares of the trading houses.

Why?

Say his borrowing cost is 0.5%, while the stocks pay 5% dividends. By doing nothing, he pockets a 4.5% spread! This setup was almost fail-safe from day one—and perfectly hedged against currency risk (borrowing and investing in the same currency).

5. The "Permanent Hold" Signal: A Win-Win

Buffett’s "permanent hold" vow wasn’t lip service.

Reassuring Management: He told the five companies: "I’m not a short-term speculator. I’m your long-term partner. Keep running the business well, keep rewarding shareholders, and I’ll stand by you." This boosted management’s confidence.
Signaling the Market: When the "Oracle of Omaha" declares permanent ownership, it’s a global shoutout: "Look here—I’ve found gold, and I’m keeping it!" This draws more investors, lifting stock prices further.

In a nutshell:

Buffett’s move isn’t a simple bet. It’s the perfect blend of value discovery (bargain hunting), business model alignment (Japan’s Berkshire clones), shareholder rewards (high dividends/buybacks), and financial wizardry (borrowing yen to buy Japanese stocks).

His "permanent hold" stance reflects a vision beyond stock prices: he sees a nation’s economic lifeline—a "super asset package" that aligns with his philosophy and churns out reliable cash flows. Now that’s a masterclass in investing.