Itochu
Company Overview
Itochu Corporation is one of Japan's five largest general trading companies (sogo shosha), with operations spanning textiles, machinery, metals, food and beverages, energy, and information and communications technology. Berkshire invested approximately 5% in each of Japan's five major trading companies in 2020.
Investment Story
2020: Five Japanese trading company investments. Berkshire disclosed in August 2020 that it had invested approximately $6.25 billion total — roughly $1.25 billion each — to acquire approximately 5% stakes in Japan's five largest trading companies: Itochu, Mitsubishi, Mitsui, Marubeni, and Sumitomo. The investments were made over 12 months using yen-denominated bonds Berkshire had issued in Japan.
The investment thesis. Buffett explained that the five trading companies were similar to Berkshire in their diversified holding structures — they own significant stakes in businesses across numerous industries domestically and internationally. Their dividend yields were attractive (3-5%), their price-to-book ratios were very low by global standards, and their long histories of operational performance suggested genuine competitive durability rather than statistical cheapness.
Yen-financed structure. Crucially, Berkshire issued yen-denominated debt with yields of 0.5-1.5% to fund the investments — creating a natural currency hedge while borrowing at extraordinarily low Japanese interest rates. The trading companies' dividends paid in yen roughly matched the yen debt service, making the investment nearly self-financing from a currency exposure perspective.
2023: Stake increases. In April 2023, Buffett traveled to Tokyo — his first overseas investment trip in years — and met with the management teams of all five trading companies. Berkshire subsequently increased its stakes to approximately 7-9% in each, committing to remain a long-term shareholder.
Buffett's Own Words
*Company . . . . . . . . . . . . . . . . . . . . 3.7 1,616 2,206 81,304,200 Itochu Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 1,862 2,336 28,697,435 Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 2,390 2,347 24,669,778 Moody’s Corporation . . . . . . . . . . . . . . . . . . . . . . . . 13.2 7,160 148,176,166 U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 5,638 6,904 146,716,496 Verizon Communications Inc. . . . . . . . . . . . . . . *
Company . . . . . . . . . . . . . . . . . . . . . . 3.6 1,616 3,106 89,241,000 ITOCHU Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 2,099 2,728 81,714,800 Mitsubishi Corporation . . . . . . . . . . . . . . . . . . . . . . . . 5.5 2,102 2,593 93,776,200 Mitsui & Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 1,621 2,219 24,669,778 Moody’s Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 9,636 143,456,055 U.S. Bancorp . . . . . . . . . . . . . . . . . . . .
In certain important ways, all five companies – Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo – follow shareholder-friendly policies that are much superior to those customarily practiced in the U.S. Since we began our Japanese purchases, each of the five has reduced the number of its outstanding shares at attractive prices. Meanwhile, the managements of all five companies have been far less aggressive about their own compensation than is typical in the United States. Note as well that each of the five is apply
*Berkshire itself. The five are (alphabetically) ITOCHU, Marubeni, Mitsubishi, Mitsui and Sumitomo. Each of these large enterprises, in turn, owns interests in a vast array of businesses, many based in Japan but others that operate throughout the world. Berkshire made its first purchases involving the five in July 2019. We simply looked at their financial records and were amazed at the low prices of their stocks. As the years have passed, our admiration for these companies has consistently grown. Greg has met many *
Investment Lessons
Complex businesses with low price-to-book and consistent dividends deserve analysis, not dismissal. The Japanese trading companies had been considered uninvestable by many Western investors for years — too complex, too diversified, too Japan-specific. Buffett's analysis focused on what he understood: they owned good businesses across many sectors, generated consistent earnings, paid reliable dividends, traded at low multiples of book value, and had long operating histories. The complexity was real but not a reason to forgo the investment case.
Currency hedging through yen-denominated borrowing is elegant financial engineering. By issuing yen bonds to acquire yen-denominated equities, Berkshire creates a natural hedge: if the yen weakens relative to the dollar, both the asset (Japanese stocks) and the liability (yen bonds) decline in dollar terms, neutralizing the currency exposure. This structure simultaneously captures low Japanese interest rates and eliminates the primary risk (currency) that deters many international investors.