Great fanfare and trumpets broke out last week when Berkshire Hathaway purchased $6 billion in shares in Japan’s five biggest investment trading companies.
The so-called “sogo shosha” that were deemed worthy of the funds are as follows:
- Mitsubishi (not the cars!)
As Frugal Investors we don’t want to just hear about the news, we want to think about safe and reliable ways to PROFIT from this news and actually grow our own net worth over time.
I’m going to jump straight into it.
Let’s pick off Mitsubishi and see why this is such a cunning investment and why the market hasn’t yet realised it, because the shares in these firms haven’t jumped that much on the news.
Overview of Mitsubishi – Fundamentals
For me this chart says a lot about the business and why and how it is structurally a stock with a lot of potential:
At the height of the last big bubble in 2007 Mitsubishi traded hands at $15.66 per share. There was a slow, disastrous fizzle that took it down to a low of $4.05 in March 2009. That’s really strange, because the price of the ADR shares in the US (on the NYSE) are sitting at $4.22 USD as I write this.
Mitsubishi Corp – a banking and financial services giant with $2.46 trillion in investments and assets – trades at nearly the same price as it did in 2009. Actually, if you account for inflation, it technically trades for less.
The business has a P/E of 18, which is slightly lower than its American peers, and what strikes me as safe is the blistering 5.47% dividend yield. The dividend has had a 9.53% growth rate over 5 years, it’s got a stable 50% payout ratio, and it is on-track to deliver more this year.
If you think Buffett is using fancy machine algorithms or complex math to determine that this is an undervalued business, well, you’re mistaken. He’s at heart a conservative growth and dividend investor who projects forward into the future where the business will be in 3-, 5- and 10- year time horizons.
Briefly let’s remind everybody that Japan suffered from one of the world’s fiercest bear markets and the Nikkei 225 index is still HALF the level it was in 1989. That’s what, 31 years of brutal returns?
The world’s most successful investor has just decided to part ways with the US stock market, for part of his funds, and seek shelter in a foreign currency, in a fundamentally undervalued set of businesses.
I believe that Buffett sees the next stock market Bubble coming and rather than trying to get caught up in the waves, he’s looking to unexpected areas of the market to flood cash into that will achieve two objectives:
- Give a market beating return over the next 5-10 years
- Act as a conservative hedge against rising equity markets and valuations in the United States, which have benefitted Berkshire owners but won’t last forever
How to Invest & Benefit
The routes to benefitting from this are numerous, but what we have to factor in, is that it is very difficult for the average retail investor to get direct exposure to foreign companies in the same way that Buffett and Berkshire Hathaway can.
However, where there is a will, there is a way!
In the US I would go down one of three routes:
- You could buy Berkshire Hathaway directly – the BRK.B shares on the open market
- You could – if you know how to trade options – Sell to Open a Berkshire Hathaway BRK.B put
- The BRK.B MAR 19 ’21 195 Put trades for $7.40 today. That’s a decent profit. You get to keep the premium if you sell the Put, and if it executes at 195, your effective cost for buying shares is $187.60
- You could look at each individual share and buy the stock directly through ADRs. In the case of Mitsubishi Corp the ADR trades under the ticker MUFG and it’s a great looking business at a very reasonable price. My mouth waters seeing that dividend….
In the UK I would suggest one of two routes:
- You could buy Berkshire Hathaway directly – the BRK.B shares on the open market. Watch out for fees on trading US shares and also consider currency risk
- You could benefit from a similar theme and look at a Japan Investment Trust, two of which I would consider are Baillie Gifford Shin Nippon (LSE:BGS) and JPMorgan Japan Smaller Companies (LSE:JPS)
With tech shares melting down these past few days, some of you will be thinking that you just need to double and triple down on Big Tech. While that may be true for some – there certainly is merit in buying tech when it reaches some sort of bottom – there are pockets of value in other places.
You just need to know where to look & not be afraid to stand out from the crowd!