Lighting up Japan Inc 点燃日本公司
What Warren Buffett sees in Japanese trading giants
TO UNDERSTAND WHY it was a shock in August when Berkshire Hathaway invested $6.5bn in five Japanese trading houses that have been around for far longer even than its 90-year-old chairman, go back to a talk Warren Buffett gave to business students in Florida in 1998. As a sprightly sexagenarian with his sleeves rolled up, the Sage of Omaha was at his witty—and wicked—best.
The first question he fielded was about investing in Japan. He replied that the country’s 1% interest rates made it look attractive. Nonetheless, he considered Japanese firms poor bets because of their lousy returns. Low-profit businesses could be worth buying based on what he called the “cigar-butt” approach. “You walk down the street and you look around for a cigar butt someplace. Finally you see one and it is soggy and kind of repulsive, but there is one puff left in it. So you pick it up and the puff is free.” But not even this theory would draw him to Japan Inc, the pride of the country’s post-war revival, he explained. It is hard to think of an analogy more distasteful in a spick-and-span country like Japan.
Some 22 years of rock-bottom interest rates later, Mr Buffett has finally overcome his stogy-phobia. Berkshire’s investment in 5% each of Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo, though small relative to his investment firm’s $140bn mound of cash, was its biggest outside America. It said its stakes could increase to as much as 9.9% over time. But the acquisitions were a head-scratcher. What, if anything, had changed over the past few decades to make the trading houses appealing all of a sudden? Or had Mr Buffett simply succumbed to the temptation of a few cheap puffs because money was burning a hole in his pocket?
At first glance, the acquisitions make it look like he has lost the plot. The trading houses, or sogo shosha, make a mockery of many of the investment principles he has stuck to all his life. He says he likes easy-to-understand businesses like Coca-Cola and Apple. He argues that companies should not just be cheap but have reliable returns—and, ideally, “moats” to keep competitors at a safe distance. On each count the trading houses fail dismally.
Start with simplicity. In Western eyes no Japanese company is a model of Anglo-American shareholder capitalism. But few seem as far-removed from it as the trading houses. They are shaped by history, which dates back to the 19th-century zaibatsu and post-war keiretsu system of corporate loyalties and cross-shareholdings. In the modern era their business models have twisted and turned. From the 1950s to the 1980s they acted as go-betweens, scouring the world for energy, metals and minerals, helping to underpin Japan’s economic miracle. Then they invested in mines and hydrocarbons to feed the China-led commodities boom before shifting “downstream”, buying everything from convenience stores to cable companies. In the process they accumulated assets faster than they sold them. The results are unwieldy. Mitsubishi peddles everything from coking coal to Kentucky Fried Chicken. Itochu, the most profitable, calls its consumer division the 8th Company, implying it has run out of names after seven other units.
What about returns and value? Undoubtedly, the trading companies are cheap. Of the five, only Itochu trades at a market price higher than the book value of the net assets on its balance-sheet. That is not to say they are a bargain, though. Kikkawa Tatsuya of JPMorgan Chase, a bank, says their low-return legacy assets, which sometimes suffer big write-downs, increase investors’ perception of risk. Their complexity raises their cost of equity, which is higher than for more focused commodities producers, such as ExxonMobil or Rio Tinto.
And then there is the traders’ competitive position. Perhaps Mr Buffett is betting that as a venerated corporate species in Japan, the sogo shosha’s survival is safe. But as individual companies, their returns suggest they have nothing like the moats of other Berkshire stalwarts. If anything, they are each other’s bitterest rivals.
Look below the surface, though, and there may be a method in Mr Buffett’s madness. As he admitted in 1998, his view on Japan could change if managers became “more shareholder responsive”. In recent years they have, even in the trading houses, which once viewed corporate governance with disdain. Zuhair Khan of Union Bancaire Privée, a Swiss bank, says views started to change as a result of shareholder-friendly reforms promoted from about 2014 by Abe Shinzo, who stepped down as prime minister earlier this month. In some trading houses, executives bought large quantities of shares to align their interests with those of other shareholders. Pay became more performance-based. The focus moved from investing to generating cash and beefing up dividends. The pandemic is expected to slow but not derail the trend. Suga Yoshihide, Mr Abe’s successor, looks keen on further measures to empower shareholders, Mr Khan says.
不过，深入来看，巴菲特的失常中也许有某种条理。正如他在1998年承认的那样，他对日本的看法可能会改变，如果管理层变得“对股东利益更敏感”的话。近年来管理层确实发生了一些转变，即使是在曾经对公司治理不屑一顾的贸易公司。瑞士瑞联银行（Union Bancaire Privée）的祖海尔·可汗（Zuhair Khan）表示，9月初卸任首相的安倍晋三自2014年左右推动了股东友好的改革，从那时起观念开始转变。在一些贸易公司中，高管购买了大量股票，使自身利益与其他股东保持一致。薪酬变得更多与绩效挂钩。关注重点从投资转移到了产生现金和增加股息。预计这一趋势将因疫情而放缓，但不会被阻断。安倍晋三的继任者菅义伟看来希望采取进一步措施赋权股东，可汗说。
Mr Buffett may see other attractions. He likes energy firms, and all the trading houses, particularly Mitsui and Mitsubishi, have big energy businesses. They stand to benefit from a post-pandemic economic rebound that boosts demand for power. The companies are also wellsprings of talent. Jeremy White of Baker McKenzie, a law firm, says they maintain a tradition of recruiting from the best Japanese universities, and rival investment banks and tech firms as the most prestigious companies to work for. And if anyone can find their way around bewildering corporate organigrams and balance-sheets, it must be the people behind Berkshire Hathaway, America’s biggest financial conglomerate.
巴菲特可能还看到了其他亮点。他喜欢能源公司，而这五家贸易公司都有大规模的能源业务，尤其是三井和三菱。疫情后的经济反弹将增加对电力的需求，让它们从中受益。这些公司也是人才的源泉。贝克·麦坚时律师事务所（Baker McKenzie）的杰里米·怀特（Jeremy White）说，它们保持了从日本顶尖大学招募人才的传统，与投资银行和科技公司同为最负盛名的热门就业选择。而且，要说有谁能理清令人头晕眼花的公司组织结构和资产负债表，那一定是美国最大的金融企业集团伯克希尔·哈撒韦背后的人。
Stogy? Or just stodgy?
It is no sure bet. History is littered with fortunes lost to the belief that Japanese firms can become more Anglo-Saxon. If that is the case, Berkshire’s shareholders will rue Mr Buffett’s nonagenarian adventure. If, by contrast, his investments reinforce a view taking root in Japan that shareholders, domestic and foreign, are a constituency worth fighting for, he will deserve a fat Cohiba.