Warren Buffett is turning Japanese, I think he’s turning Japanese, I really don’t think so…
Value investing has been a tough slog for superstar investors like Warren Buffett for the last decade or so. I am not sure I really understand how to classify Value (as opposed to Growth) investing, but Warren Buffett’s approach is to cuddle up to strong brands with strong cash flow in boring established businesses and just meek out consistent above market returns. This worked for many years until the exciting, disruptive technology businesses took over the hearts and minds of investors leaving the boring established businesses to underperform. Suddenly friendless in the US, Buffett announced yesterday that he was taking a $6billion stake in 5 of Japan’s top boring established businesses – the trading companies.
Buffett famously tells his acquisitions’ management to just go ahead and do what they do. The Japanese trading houses, however, are remarkable for what they don’t do – they don’t pay dividends, they don’t make profits and they don’t seem to focus on a core brand/skill/product. They follow Shogun and Samurai-like traditions which foster and protect an elitist management culture. The companies operate for the benefit of its employees not its shareholders. Warren-san is gai-jin, to make things more difficult, with ‘down-home’ US values that are as opposite to Japan as sushi and sake is to steak and Coke.
The irony is that the Presidents’ of the trading houses will see Buffett’s appearance as a validation of their strategies. They will take photo opportunities to kneel at the feet of the Sage of Omaha, attentively listening, while powerless to effect any change within bureaucratic organisations that operate on full consensus decision making where one middle ranking manager can stymie an entire initiative simply by doing nothing…Fortunately, Buffett is not an activist investor since inaction is the rule.
Is Buffett making a good investment? On the face of it, yes. The trading houses are so opaque and hundreds of years old that there are hidden treasures in their balance sheets that have never been mentioned (real estate, supply monopolies, contracts), let alone the political influence these organisations can wield to further their interests. Unlocking this value is near impossible as cultural values would not allow it. But as the saying goes, there is no such thing as a bad investment, just a bad price. We shall see whether Warren manages to turn a $6billion investment into $3billion or $10billion
…plus what is Vegas saying about Trump?
The Donald has moved into the lead in Vegas with the betting now 19/20 for Trump versus 1/1 for Biden. That is pretty close but it should be remarked that it is very hard to find people who admit to voting for Trump. The silent majority rules in this market. The Money v Mischief theory of elector behaviour is still firmly in favour of Trump. Vegas is the natural place for Trump supporters to express their silent belief by opening their wallets instead. Trump is already odds-on with 3 months to go and this will shorten. I am calling the US Presidential election for Trump!