We don’t always know which Berkshire Hathaway (NYSE:BRK.B) moves are down to Warren Buffett specifically. But it’s fairly clear the recent investments in Japanese trading houses are.
Investors like me, however, don’t have the ability to match Buffett’s Japanese deals. But I’m looking to follow a similar principle when it comes to my own portfolio.
Berkshire’s Japanese investments
Since 2019, Berkshire Hathaway has been buying shares in each of Japan’s five major trading houses. And it has recently received permission to increase its stake in each to above 10%.
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This, however, isn’t the most interesting part of the deal. Despite having huge cash reserves, Buffett’s company has been financing the investments using debt.
More specifically, it has been using bonds denominated in Japanese yen that pay between 1% and 2.6% in interest. And the reason for this is extremely interesting.
Buffett’s stated plan is to make money by receiving more in dividends than it pays out in interest. But if it uses US currency, there’s a risk exchange rates might move.
A weaker yen could make the value of Berkshire’s dividends fall. But using bonds denominated in Japanese currency means that if the yen falls, Berkshire’s interest payments also drop.
This is a move that exploits Berkshire’s unique strengths — not many have the balance sheet to structure an investment in this way. In a similar spirit, I’m also looking to stick to areas where I have a similar advantage.
UK stocks
Berkshire has a unique ability to operate at scale, which is why I’m pleased to be a shareholder. But its size is also its biggest challenge – and the main risk with the stock over the long term.
That, however, isn’t a problem for someone like me. And while Berkshire’s balance sheet gives it some advantages, being based in the UK gives me some valuable insights.
Despite the S&P 500’s recent challenges, UK shares generally trade at lower valuations than their US counterparts. And some of them have very strong competitive positions.
Rightmove is a world away from Japanese trading houses but it’s a good example of my point about investors maximising advantages. It’s the first place buyers and sellers in the UK housing market go and I think this competitive position is going to be difficult to disrupt.
There are important risks, including the possibility of interest rates not falling as quickly as expected. And weighing these against the company’s impressive margins isn’t straightforward.
In 2024, the firm generated £389.9m in sales, which is about $507m. That makes it far too small to be on Berkshire Hathaway’s radar, but it’s been on mine for a long time.
Sticking to strengths
Warren Buffett’s investments in Japan are about taking advantage of situations where Berkshire Hathaway has an advantage. And I’m looking to take the same approach with my own investing.
That means looking at stocks like Rightmove, where I have first-hand experience of the business. It might not be big enough for Buffett, but that’s no problem for me.
It’s not the only stock I’m considering at the moment. But when I’m next in a position to invest, I’ll see where the share price is and take a view about buying it.
