Warren Buffett wins big with ‘Moneyball’ bet
Warren Buffett has always understood this, at least according to recent Berkshire Hathaway betting indications on Japan.
In September 2020, “The Oracle of Omaha” shocked even Tokyo’s most vocal bulls with a $7 billion bet on five century-old Japanese trading companies. At a time when financial media was gushing from Jack Ma’s fintech giant Ant Group and the FAANGs — Facebook, Amazon, Apple, Netflix, Google — Buffett was getting seriously old school and old economy.
Few are scratching their heads now as Buffett’s retro-Japanese bets show signs of paying off.
In recent weeks, shares of ‘sogo shosha’ trading conglomerates have rallied as prices for energy, metals and crop commodities surged amid geopolitical tensions and supply chain issues. supply. The management teams of Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp., backed by Buffett, have improved forecasts – or are in the process of doing so in a short time. weather.
Turns out Buffett silver ball the experiment is a success. By the end of 2020, it was clear that Buffett was trying to do what Oakland Athletics manager Billy Beane had attempted on the baseball field in 2002. As Michael Lewis detailed in his 2003 book – and as dramatized in the 2011 Brad Pitt film – Beane tried to put together a winning team based on extensive empirical analysis.
the silver ball The approach uses out-of-the-box analysis to recreate a low-cost, high-performance team as a whole. As Tokyo investment alumni have observed, Buffett appeared to be taking a similar gamble in Japan: to rebuild the steady, if boring, bottom line of his multinational conglomerate Berkshire Hathaway in a predictable, low-risk Japan. Mission accomplished, it seems.
Caveats abound, of course. Surges in crude oil, iron ore and other goods filling Buffett’s coffers seem unlikely to continue through 2022 and beyond. At some point, prices reach a certain level, businesses and consumers don’t pay. Prices will slide from there.
Yet, it’s all about diversification. Over the past decade, Japanese business conglomerates have reduced the debt and bloat that hampered profits in the 1990s. They have moved into financial services, food, logistics, machinery, real estate and have forged ties with consumer-facing giants like Fast Retailing’s Uniqlo brand.
It would be wise for other multinational conglomerates silver ball their operations as well. Take SoftBank founder Masayoshi Son, who in recent years flirted with a $10 billion stake in reinsurance giant Swiss Re. It was a Buffett-esque strategy. Just as General Re helps stabilize Berkshire Hathaway’s balance sheet, Swiss Re would add stability to Son’s empire. Unfortunately, the plan failed.
If Japanese Prime Minister Fumio Kishida were wise, he would find a way to build on Buffett’s success.
One of the few successes of economic reform that his Liberal Democratic Party can claim over the past 10 years is to incentivize CEOs to internationalize management practices and increase returns on equity. Although this is a work in progress, Japan Inc. is slowly but surely adding more external directors.
As Kishida seeks to revitalize the structural reform process, it is wise to impress the Buffetts of the world. And, of course, getting the attention of millennials who are now calling many shots on Wall Street.
The best way to capture global attention is to catalyze a startup boom to create more economic power and wealth from scratch. This means regulatory and fiscal adjustments to make the nation of 126 million more entrepreneurial, competitive and productive. The immediate to-do list: Cut red tape to make it easier to start a business and craft a tax code that encourages innovation and risk-taking.
It is vital to catch up with China, South Korea, Indonesia and other economies that are doing much better jobs producing tech “unicorns” than Tokyo.
Look no further than Son’s $100 Vision Fund. Son’s venture capitalist colossus is spreading billions here and billions there all over the world. To date, SoftBank has distributed only negligible amounts of cash to the house.
Buffett reminds the world that the biggest names in Japan Inc. are more than the wings of a corporate wax museum. They can indeed be profit centers for those who want to watch and move forward patiently.
Kishida must not miss a single opportunity to play the Buffett in Japan. And to remind the world that even in the era of China, there are also serious investments to play in Japan.