Has Warren Buffett lost his mind?
Last year, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A, BRK.B) purchased a 5% stake in each of the five Japanese trading companies. Businesses (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumimoto) are part of a group known as “soga sosha”, which refers to companies that market a wide range of products and materials.
In total, Berkshire has shelled out around $ 6 billion, a small amount compared to its size and holdings. Still, these are Buffett’s biggest buys since the start of the pandemic, and he has said he could potentially increase his stake to 9.9%.
Companies are diversified both geographically and in their businesses. They trade in commodities and hold ownership positions or stakes in areas ranging from hospitals and finance companies to infrastructure development and logistics.
But overall, these companies have not been the best performers in the market. Only one has achieved double-digit (non-annualized) total growth over the past decade, while two have experienced negative growth. On average, they significantly underperformed the benchmarks of Japanese equities.
So what attracted Buffett? Some analysts say stocks are high value games, others say Buffett, 90, may have lost some of his marbles. Stocks trade at low valuations as measured by book value and free cash flow returns. But as Berkshire’s own unmatched long-term record shows, investing in value requires more than looking at a few metrics. Based strictly on their performance, you could argue that stocks are value traps, not value games.
Big changes to come
However, before you conclude that Buffett lost him, know that the world has changed a lot in the last generation. These changes give trading companies the relevance Buffett might well have perceived. The century began with the United States as the undisputed hegemony of the world. Since then, as the world has moved to relatively free trade, international trade has become by far the main engine of global growth. While the world’s gross domestic product (GDP) grew by less than 80%, global trade tripled.
China was the biggest beneficiary. You can argue that China has played with the system by subsidizing state-owned enterprises to give them an unfair advantage in exports. On the other hand, if China had not been able to accelerate its growth when the world desperately needed it, the entire global financial edifice might not have survived the financial crash. from 2008-2009. And today, you could argue that Chinese and Asian growth during the pandemic also saved the global economy.
Read this story: Red Dragon Rising: China’s Profits and Perils
China’s rise to power has presented the United States with an obvious rival for world leadership. The United States has responded by toughening the rules that govern trade. Donald Trump has implemented tariffs and his successor Joe Biden has so far maintained them.
The problem, however, is that if we stifle the free flow of goods between countries, we could end up in big trouble and run out of essentials for our industries that we do not produce ourselves.
The table lists the raw materials and minerals essential to both US industry and the military on which we depend on other countries for a large part and in some cases for all of our needs. The second column indicates the percentage of our needs in these materials that we must import.
One of the critical raw materials is rare earths, essential metals for making the strongest permanent magnets. Without these magnets the United States would be unable to produce most computer products as well as some advanced military products, or at best we could only produce inferior versions. China completely dominates the production, refining and distribution of rare earths.
So far, China, which also controls materials like graphite, needed for lithium-ion batteries, has not restricted exports. But if the current tendencies against free trade and animosity between the two countries worsen, that could change, putting the United States in serious stalemate.
These tensions could even affect trade, especially between East and West, in raw materials such as copper and zinc. If the world wants electric vehicles (EVs) to be as widely adopted as optimistic forecasts predict, we’ll need a lot many different materials.
Connecting East and West
Enter Japanese trading companies. They could play a major role. These Japanese-domiciled companies are ideally placed to be links between East and West, especially in the trading of critical commodities and basic commodities like liquefied natural gas (LNG), petroleum and metals. basic.
A recent business commentary from a Japanese trade publication states that “much less has been reported on the depth to which sogo shosha have become established in mining in general, and rare metals in particular … trading companies have one of the best prospects … related to movements in the metals market.
The importance of raw materials and minerals in technology and infrastructure cannot be overstated. These companies’ emphasis on logistics allows them to profit from commodity trading, but this is just the start.
Watch this video: The raw materials of wealth
Of course, don’t forget the companies that produce these essential materials that are about to see a big increase in demand. We are particularly excited about the profitable potential of lithium miners.
Lithium is one of a multitude of raw materials that are poised for huge price gains as demand for raw materials explodes. Global infrastructure projects will also increase lithium needs.
Lithium is crucial for a variety of industrial applications. The main growth driver for lithium is the demand for lithium-ion batteries used in electric vehicles. For more details on America’s number one lithium game, click here now.