Warren Buffett’s Japan trade was a rare chance to win big with minimal risk, Charlie Munger said.
Berkshire Hathaway borrowed money at 0.5% in Japan and invested in stocks paying a 5% yield there.
“It was like having God just opening a chest and just pouring money into it,” Munger said.
Warren Buffett’s surprise bet on Japan during the pandemic was a once-in-a-lifetime chance to make a boatload of money with virtually zero risk attached, Charlie Munger says.
Buffett’s Berkshire Hathaway disclosed stakes worth a combined $6 billion in five Japanese trading houses in the summer of 2020. The bets stood out because the investor and his team famously favor American companies like Apple and Coca-Cola. Munger, Buffett’s right-hand man and Berkshire’s vice-chairman, said the opportunity was too juicy to resist.
“If you’re as smart as Warren Buffett, maybe two, three times a century, you get an idea like that,” he told the Acquired podcast in an interview released this week.
“The interest rates in Japan were 0.5% a year for 10 years, and these trading companies were really entrenched old companies,” Munger said. “They had all these cheap copper mines and rubber plantations, and so you could borrow for 10 years ahead all the money and you could buy the stocks, and the stocks made 5% dividends, so there’s a huge flow of cash with no investment, no thought, no anything.”
In other words, Berkshire was able to very cheaply raise the money needed for its investments, then plow the cash into stocks that reliably paid dividends of about 5% each year. The so-called carry trade looks especially smart now that interest rates in the US have climbed from virtually zero to over 5% since last spring, as the Federal Reserve has scrambled to rein in runaway inflation.
“We could do that, nobody else could,” Munger said, explaining that Berkshire’s stellar credit rating meant it was the only company that could borrow money on such attractive terms. He underscored that it took a long time for Berkshire to build up its bet — the company raised its stakes in the five companies from about 5% in August 2020, to around 7.4% across the board as of April.
“The only way you could get it was to be very patient and just pick away at little pieces at a time,” Munger said. “It took forever to get $10 billion invested, but it was like having God just opening a chest and just pouring money into it. It was awfully easy money.”
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