Warren Buffett appears to be turning his back on his pro-U.S. investment strategy in favor of better-prepared Japanese firms.
Back in 2008, when the financial crisis left the stock market in ruins, Warren Buffett became an iconic symbol of recovery when he stepped in and started buying. He advised investors to bet on America, saying the market slump was a buying opportunity. This time around, Buffett has been notably absent from the buying flurry that followed the coronavirus crash—a fact that puzzled his long-time followers.
Back in May, when asked whether this was another occasion to invest in the future of the nation, Buffett struck a notably more cautious tone. “Bet on America,” the investing legend advised this time around, but with a significant caveat—do so with caution.
Many ridiculed Buffett in the weeks that followed as the stock market defied gravity and soared to new highs. Ultimately, Buffett and his followers were missing out on some impressive gains. But in the long-run, it could be Buffett who has the last laugh.
Fast forward a few months, and it appears Mr. Buffett is no longer confident in the U.S. stock market. That was made clear by his decision to dump $6 billion into Japanese stocks.
Last week, Berkshire Hathaway revealed that the firm had taken up 5% stakes in five of Japan’s largest investment houses. The firm can boost its position in each firm by an additional 4% without board approval.
Buffett’s investment in Japan marks a turning point for the 90-year-old investing guru. Twenty years ago, he advised against putting money into Japanese equities because he said they didn’t make for suitable long-term investments. But times have changed, and Buffett’s investment makes that exceedingly clear.
Instead of “betting on America” the way he did in 2008, Buffett is looking further afield to navigate this crisis. It makes sense—Japanese companies have become the sort of stocks that Warren Buffett has long preached about.
For one thing, they offer investors a sense of security because of their rock-solid balance sheets. Buffett has always favored cash-rich companies, especially in times of financial difficulty. Nicholas Weindling, who manages JPMorgan’s Japanese Investment Trust, pointed out that Japanese companies have some of the strongest balance sheets in the world:
If you look at the balance sheets, 50% are net cash positions and in Europe and in the US, it’s about 15% to 20%. So, we haven’t seen wholesale dividend cuts or equity raises. And actually, in that respect, it’s been a much – somewhat easier time, I think, for the corporates because they’ve got those resilient balance sheets.
While Buffett’s investment says something about his view of the future of the Japanese market, it speaks volumes about his viewpoint on the U.S. market. It shouldn’t surprise investors to see Buffett taking a step back from his historically pro-America investment strategy, though.
Buffett preaches value investing—he believes in buying shares of quality companies and holding on to them. Buffett has always advised investors to be cautious when a buying frenzy ensues, and the most recent rally appears to be precisely that.
Watch the video below to see a market strategist describe how the stock market could be heading for another 20%-30% drop.
The Federal Reserve’s easy-money policies have distorted the equity market and given investors a false sense of confidence. The contentious presidential election in November should be enough to make investors pause, let alone the economic impact of the months-long shutdown that rendered millions jobless.
Add to that the threat of a second wave of coronavirus, a looming credit crisis, and the possibility that hundreds of thousands of jobs won’t return to the market, and you have reason to be wary. But instead, the stock market hit all-time highs.
It makes sense that Warren Buffett is looking elsewhere for value. If the stock market’s recent pullback turns into a rolling W-shaped crash as some are predicting, he will again be hailed for his level-headed patience.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.
Last modified: September 23, 2020 2:28 PM