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Warren Buffett’s Japan trade was a rare chance to win big with minimal risk, Charlie Munger said.
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Berkshire Hathaway borrowed money at 0.5% in Japan and invested in stocks paying a 5% yield there.
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“It was like having God just opening a chest and just pouring money into it,” Munger said.
Warren Buffett’s surprising bet on Japan amid the pandemic presented a unique opportunity to profit immensely with minimal risk, according to Charlie Munger.
In the summer of 2020, Buffett’s Berkshire Hathaway disclosed its combined $6 billion investment in five Japanese trading houses, which diverged from their usual focus on American companies like Apple and Coca-Cola. Munger, who serves as Buffett’s right-hand man and Berkshire’s vice-chairman, highlighted the incredible appeal of this opportunity.
In an interview on the Acquired podcast, Munger explained, “If you’re as intelligent as Warren Buffett, an idea like that only comes around maybe two or three times in a century.” He further elaborated on the attractiveness of Japan’s interest rates and the established nature of the trading companies, stating, “They had all these affordable copper mines and rubber plantations, so you could borrow money for 10 years and invest it in stocks that yielded 5%, resulting in a substantial cash flow without much effort or consideration.”
To put it simply, Berkshire easily raised funds at a low cost, allowing them to invest in stocks that reliably provided dividends of approximately 5% per year. This carry trade strategy appears even more advantageous now that interest rates in the US have risen from near-zero to over 5% since last spring due to the Federal Reserve’s efforts to control inflation.
Munger emphasized that Berkshire’s exceptional credit rating enabled them to borrow money on such favorable terms, stating, “We were the only ones who could do it.” He also noted that building up their investment took time, as the company gradually increased its stakes in the five Japanese companies from around 5% in August 2020 to approximately 7.4% across the board by April.
“The only way you could succeed was to be patient and gradually accumulate small portions,” Munger said. “It took a long time to invest $10 billion, but it felt like divine intervention, like someone pouring endless money into a chest. It was remarkably easy money.”
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