Warren Buffett’s surprise move on the Japanese market during the pandemic has been deemed a unique opportunity to generate significant profits with minimal risk, according to his right-hand man, Charlie Munger.
In an interview with the Acquired podcast, Munger described Buffett’s investment in five Japanese trading houses through Berkshire Hathaway as an extraordinary idea that only comes along a few times in a century.
The decision to invest $6 billion in these stocks stood out as Buffett and his team typically favor American companies like Apple and Coca-Cola. Munger explained that the low interest rates in Japan, at just 0.5% per year for 10 years, made the opportunity too tempting to resist.
The trading companies Berkshire invested in were known for their solid foundation and valuable assets such as copper mines and rubber plantations. With the ability to borrow money at such attractive rates, Berkshire Hathaway was able to purchase stocks that paid a consistent 5% dividend yield, resulting in a significant cash flow without requiring much effort.
This strategy, known as the carry trade, has proven even more advantageous considering the recent increase in interest rates in the US. Since last spring, the Federal Reserve has raised rates from virtually zero to over 5% in an attempt to control inflation. Berkshire’s ability to secure cheap funds for its investments has become increasingly advantageous in this current scenario.
Munger emphasized that Berkshire’s exceptional credit rating played a crucial role in being able to borrow money on such favorable terms. It took a considerable amount of time for Berkshire to gradually increase its stake in the five companies, growing from approximately 5% in August 2020 to a consistent 7.4% across the board by April.
Munger compared the experience to having an abundant source of easy money, as Berkshire patiently and steadily built up its investments over time. He highlighted the necessity of being patient and persistent, as it required significant effort to accumulate $10 billion in investments. However, the returns were well worth it.
Overall, Warren Buffett’s decision to venture into Japan’s market during the pandemic has proven to be a highly profitable move with minimal risk, showcasing Berkshire Hathaway’s ability to seize unique opportunities and generate substantial returns.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years.