What Warren Buffett sees in Japan Inc

TO UNDERSTAND WHY it was a shock last month 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 $...



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