Prominent tech investor Chamath Palihapitiya expressed his admiration towards Warren Buffett, calling the “Oracle of Omaha” the greatest of all time after analyzing his latest bet on Japan. The 92-year-old Buffett recently hiked his stakes in five Japanese trading houses — Itochu , Marubeni , Mitsubishi , Mitsui and Sumitomo — to more than 8.5%. These companies, which are roughly akin to a conglomerate structure just like Berkshire, make good investments because they are stable dividend payers and earning growers, Palihapitiya said. “He found a group of companies that had very low volatility, grew earnings predictably, had a good dividend yield and, in most cases, were buying back their stock,” Palihapitiya said in a Twitter post. But Social Capital’s Palihapitiya said what makes the trade so brilliant is how Buffett is able to hedge currency risk by selling Japanese debt and then pocket the difference between dividends from the investments and bond coupon payments he pays out. “He issues Japanese debt at very low rates, uses the proceeds to buy the stocks and then uses the dividends he then gets from owning these stocks to pay the coupon!” Palihapitiya said. “What’s left over is a near-risk less bet where he’s borrowed trillions of Japanese Yen for free to buy billions of dollars of companies growing earnings in the mid teens.” Berkshire has become one of the largest overseas issuers of yen debt, after selling billions of dollars worth of Japanese bonds to fund his purchase of the stocks. Buffett first acquired these stocks on his 90th birthday in August 2020 through regular purchases on the Tokyo Stock Exchange, saying he was “confounded” by the opportunity and was attracted to their dividend growth. The 92-year-old Buffett paid a visit to Japan and met with the heads at these Japanese firms earlier this year. Berkshire said it intends the Japanese investments as long-term positions, but Buffett pledged he will only purchase a maximum of 9.9% in any of the five firms unless given specific approval by each company’s board of directors. Palihapitiya said Buffett becomes insensitive to currency volatility over a 10 to 20 year holding period, while locking in earnings growth along with the spread he gets to keep between dividends and coupons. Similar to Berkshire, the Japanese trading firms, also known as sogo shosha, are conglomerates involved in a wide range of products and services, including energy, machinery, chemicals, food, finance and banking. Palihapitiya said the only way this trade could fail is if the Japanese economy craters, but he said even then it’s very unlikely to be a loser for Buffett because these conglomerates’ businesses are very much tied to the rest of the world. “It’s inspiring to see folks act this intelligently at scale,” Palihapitiya said.
