I heard that Buffett has also invested in Japan. What exactly attracted him? Can we follow his investment?

Hey, that's a great question. It's definitely a hot topic lately. Warren Buffett's every move moves the market, and his heavy bet on Japan this time genuinely surprised many. But upon closer analysis, it perfectly aligns with his long-standing investment philosophy.

Let me break it down in plain language and share my thoughts.

What Exactly Did Buffett See in Japan?

Think of Buffett's investment as a "treasure hunt." He found a few overlooked gems in the seemingly "old" warehouse that is the Japanese market. Specifically, he was drawn to these key points:

1. Cheap, Seriously Cheap!

This is the core principle, the essence of value investing. When Buffett started building his position in 2020, the overall valuation of the Japanese stock market was very low.

An analogy: Imagine shopping. Other stores are selling at full price, or even marked up, but the Japan section is offering 50% off, even 70% off. The stock prices of many excellent companies were even below their book value (meaning a price-to-book ratio less than 1). This meant you could buy assets worth ¥1 for less than ¥1 – a deal that sounds incredibly attractive.

2. He Didn't Buy "Japan," He Bought "Cash-Generating Machines"

Buffett didn't cast a wide net over the entire Japanese market. He very precisely invested in Japan's Big Five trading houses (Mitsubishi Corp., Mitsui & Co., Itochu Corp., Sumitomo Corp., Marubeni Corp.).

What do these companies do? Think of them as Japan's "national champions," massive commercial conglomerates. Their businesses span the globe, covering almost everything from the coffee you drink and the iron ore for the cars you drive, to the natural gas used for power generation.
Key characteristics:
- Stable Operations: Highly diversified operations that ensure stability – if one area struggles, another thrives. Extremely resilient.
- Strong Cash Flow: Generate cash flow like a steady stream from a tap.
- High Dividends: These companies are very willing to return profits to shareholders through generous dividends. For Buffett's scale of capital, receiving a substantial, stable dividend payout annually is crucial.

3. A "Masterstroke": Near-Zero-Cost Funding

This is the part that's nearly impossible for ordinary investors to replicate – Buffett's "secret sauce."

Buffett raised large amounts of capital by issuing yen-denominated bonds in Japan at almost zero interest rates.
Simply put: He essentially borrowed money at almost no cost and used it to buy stocks in companies yielding over 5% in dividends. The spread between the near-zero borrowing cost and the dividend yield is pure profit. This deal was a winner from the start.

4. Positive Changes Underway in Japan

Buffett also saw positive internal changes happening in Japan when he placed his bet:

Ending Deflation: After decades of deflation (persistently falling prices), Japan is finally experiencing mild inflation. Inflation benefits these trading houses holding vast resources and assets, as they can sell their products and services at higher prices.
Corporate Governance Reforms: The Tokyo Stock Exchange is pushing listed companies to prioritize shareholder returns, such as increasing dividends and share buybacks. This plays right into Buffett's hands, as it means better protection for his interests as a shareholder.

Summing up Buffett's logic: Using almost free money to buy severely undervalued, globally significant companies with stable operations, strong cash flow, and high dividends, all while the country's macro environment is improving. This is practically a textbook example of value investing.

So, Should We Follow Him and Buy?

My advice on this question: Be extremely cautious; it's best not to simply "copy his homework."

Here's why:

1. Your "Ticket" is Much More Expensive

Buffett entered the market in 2020, near the bottom. Now, partly thanks to his "endorsement," Japanese stocks have surged significantly, especially the specific companies he bought, whose share prices have often doubled.

Your entry cost is now much higher. The biggest advantage – "cheapness" – is far less apparent for you now. You might be buying halfway up the mountain, while he started at the base.

2. You Don't Have His "Secret Sauce"

Ordinary investors cannot issue bonds in Japan like Buffett did to obtain near-zero-cost yen funding. We use our hard-earned RMB or USD, which comes at a much higher cost. His "risk-free arbitrage" playbook is out of our reach.

3. Your Mindset and Time Horizon Differ

Buffett thinks in decades. When he buys a company, he's prepared to hold it long-term and isn't bothered by short-term fluctuations over a year or two.
Ordinary investors? Many panic when a stock drops 20% and start questioning everything. Can you guarantee you'll hold on steadfastly, like him, no matter how volatile the market gets?

4. You See the News; He Does Deep Research

We know Buffett bought because he disclosed his holdings. But we don't know the depth of due diligence his team performed or how many times they met with company management. We are following the trend; he invests based on a profound understanding of the business fundamentals.

Advice for Ordinary Investors

Instead of blindly following Buffett into those specific Japanese trading houses, focus on learning his investment principles:

Seek Value Opportunities: Look long-term for high-quality assets that are temporarily out of favor, fundamentally sound, and cheaply valued. This "opportunity" could be in Japan, elsewhere globally, or even within A-shares or H-shares.
Circle of Competence: Invest only in companies you truly understand. If you can't even explain what those Japanese trading houses do beyond "Buffett bought them," steer clear.
Margin of Safety: Always buy when the price is significantly below your estimate of intrinsic value, leaving a comfortable safety buffer.

If you are genuinely bullish on the Japanese market but want to avoid single-stock risk, consider investing in broad Japanese market index funds (like a Nikkei 225 ETF). This allows you to participate in the overall market's potential upside while diversifying risk, which is much safer than betting on individual stocks.

Remember this final point: Investing is a marathon, not a sprint. Learning the Sage's way of thinking is far more important than simply copying his trades.