How is the saying 'Be fearful when others are greedy, and greedy when others are fearful' reflected in this investment?

Buffett's Investment in Japan's Five Major Trading Houses: A Classic Case of Contrarian Investing

Warren Buffett's famous investment maxim, "Be fearful when others are greedy, and greedy when others are fearful," emphasizes a contrarian strategy—acting against prevailing market sentiment during extremes. This principle was perfectly exemplified in Buffett’s 2020 investment in Japan’s five major trading houses (Itochu, Mitsubishi, Mitsui, Sumitomo, and Marubeni). Below is an analysis from the perspectives of market context, timing, and strategy:

1. Market Sentiment Context: Opportunity Amidst Others' Fear

• Global Fear-Driven Environment: In 2020, amid the raging COVID-19 pandemic, global stock markets experienced sharp volatility. Japan, as a developed economy, saw sluggish stock performance due to the pandemic and trade frictions. Many investors remained cautious about Japanese companies, perceiving them as having lackluster growth and undervalued metrics. This led to severe undervaluation of the five trading houses (with P/E ratios generally around 5–10 times, well below the global average).
• Manifestation of "Others' Fear": International investors fled the Japanese market, shifting capital to tech stocks or emerging markets while dismissing traditional trading houses as "sunset industries." Prevailing pessimism and fear triggered sell-offs of quality assets.
• Buffett’s "Greed": Buffett acted against the tide. Through Berkshire Hathaway, he invested approximately $6 billion to acquire roughly 5% stakes in each of the five trading houses. He recognized their long-term value in global trade, resources, and diversified operations, along with stable high dividend yields (around 4–5%). This embodied "being greedy when others are fearful"—boldly buying undervalued assets during panic selling.

2. Investment Strategy: Contrarian Thinking and Risk Management

• Core of Value Investing: Buffett prioritizes buying stocks priced far below intrinsic value. Japan’s trading houses possessed extensive global asset networks, stable cash flows, and a history of dividends, yet their stock prices plummeted during the pandemic, creating a margin of safety. This aligned with his risk management principle: investing during market troughs to minimize bubble risks.
• Avoiding Others' Greed: Simultaneously, Buffett steered clear of then-popular "greed-driven" sectors, such as the U.S. tech stock bubble (e.g., overvalued stocks like Tesla). His choice of low-profile Japanese trading houses reflected "being fearful when others are greedy"—eschewing market frenzies and awaiting sentiment reversals.
• Long-Term Perspective: Buffett publicly stated this was a long-term hold (planned for at least 10 years) and further increased stakes in 2023, validating the contrarian approach. To date, the investment has delivered substantial returns for Berkshire, with stock prices rising over 50% alongside steady dividends.

3. Insights and Impact

• Lessons for Investors: This case demonstrates how to leverage market sentiment swings for contrarian investing. Buffett’s move was not short-term speculation but a deeply analyzed bet on fundamentals (e.g., the trading houses’ global supply chain advantages) amid widespread fear.
• Risk Management Reminder: While contrarian investing offers high rewards, it requires rigorous risk assessment—such as Buffett’s emphasis on "economic moats" and cash flow stability—to avoid blind imitation.

In summary, this investment not only vividly illustrates Buffett’s strategy but also proves the power of contrarian thinking in volatile markets, guiding investors toward rational decisions during emotional extremes.