What Do Comprehensive Trading Companies Like Mitsubishi and Mitsui Do? Why Does Warren Buffett Favor Such 'Diversified' Companies?

Okay, no problem. Let's talk about this topic in plain language.

What do "Sogo Shosha" like Mitsubishi and Mitsui actually do?

Imagine you have an incredibly capable neighbor living downstairs.

You want to open a ramen shop but lack money? He lends it to you. Need flour? He finds the best in the world and ships it via the cheapest route. Need a gas connection? He hooks you up. Even if your ramen shop expands overseas, he can help you secure locations and handle local paperwork.

Japan's "Sogo Shosha" are essentially this kind of "global-level" all-purpose neighbor.

They started as pure trading companies, essentially "buying and selling" goods. For example, when Japan needed iron ore, they bought it from Australia. When the Middle East had oil, they procured it and sold it worldwide. Because their operations became so vast, they gradually developed several core competencies:

Super Traders (The Original Business) This is their foundational activity: they buy and sell practically everything, "from instant noodles to rockets." With countless offices and employees globally, their information network is incredibly sophisticated. They know where to find the cheapest goods and who needs them most.
Global Logistics Masters Just trading isn't enough; you need to move the goods. So, the trading houses also run their own shipping fleets, manage warehouses, and handle insurance, ensuring goods move safely, on time, and cost-effectively from point A to point B. They are the masterminds behind global supply chains.
Financial Service Providers Handling such massive deals requires enormous cash flow. The trading houses function like mini-banks, offering loans and financing to partners upstream and downstream to help with cash flow. If you want to buy a shipload of iron ore but lack funds temporarily, the trading house can front the money.
Strategic Investment Firms (The Modern Core) This is the most crucial point and represents their biggest shift from the past. The trading houses realized that instead of constantly scrambling to buy resources, it's better to directly own them.
- Need iron ore? They directly invest in Australian mines.
- Need oil and gas? They form joint ventures with energy companies to develop oil fields.
- Convenience stores doing well? They take a stake in Lawson.
- Bullish on renewable energy? They invest in wind farms and solar projects.

Therefore, today's "Sogo Shosha" can't be viewed as simple trading companies anymore. They resemble massive investment holding groups, with stakes in mines, oil fields, power plants, convenience stores, food processors, chemical plants... covering almost everything. They use their trading and information networks to connect these investments, forming a vast commercial empire.

Why Would Buffett Like These "Do-Everything" Companies?

Buffett famously prefers "simple, easy-to-understand" companies like Coca-Cola or Apple. So why did he suddenly fall for these complex Japanese giants that "do everything"?

This actually highlights Buffett's investment wisdom. He was drawn to the following:

1. Cheap is the Hard Truth

When Buffett made his first major purchases in 2020, these trading house stocks were practically "dirt cheap." They had low Price-to-Earnings (P/E) ratios, high Dividend Yields, and their stock prices were even below the companies' Net Asset Value (Price-to-Book Ratio < 1).

In plain terms: You paid less than $1 to buy over $1 worth of the company's net assets, and the company paid you a decent dividend every year. For a value investor like Buffett, this was an irresistible bargain.

2. A Natural "Risk-Resistant Portfolio"

"Doing everything" here isn't a flaw; it's a strength.

If oil prices fall, their energy division might lose money.
But simultaneously, metal prices might rise, making their mining division profitable.
Even if energy and mining struggle, people still need to buy things at convenience stores? Their retail business provides stable cash flow.

This extreme diversification acts like a built-in, risk-diversified "investment portfolio." It won't explode with growth in any single year, but it's also unlikely to collapse suddenly. This "stability" is precisely what Buffett sought in his later investment style. He wasn't betting on one industry; he was investing in Japan's entire economic backbone and its global trade network.

3. An "Anti-Inflation Weapon"

When Buffett bought, signs of global inflation were emerging. Trading houses are perfect inflation hedges.

Why? Because they hold vast amounts of "hard assets."

When inflation hits, money loses value, but mines, oil fields, ports, forests, farms – these tangible assets – their prices rise with inflation. Since the trading houses profit from these assets, their earnings power is well-protected, even enhanced, during inflationary periods.

4. Improved Corporate Governance (The "Sleeping Lion" Awoke)

Historically, large Japanese companies didn't prioritize shareholder returns, preferring to hoard cash. But recently, this changed. Under pressure from the Tokyo Stock Exchange and investors, these trading houses began massively repurchasing their own stock and increasing dividends to shareholders.

This shift was the "icing on the cake" for Buffett. He bought cheap assets, and now the companies themselves were actively taking steps to boost the share price and shareholder returns – essentially giving him a "double bonus."

To Summarize

Buffett's investment in Japanese trading houses is a textbook case of "value investing":

He bought at rock-bottom prices when no one was paying attention.
He bought not just companies, but a highly diversified commercial system deeply intertwined with the global economy.
This system provides stable cash flow and effectively hedges against inflation risk.
Simultaneously, he bet correctly on Japan's corporate governance reform wave, reaping the rewards as value returned.

So, Buffett's investment might look like buying a few "do-everything" general stores. In reality, he secured a core ticket – at a discount – on the giant ship "Japan Inc." sailing the global economic ocean.