Mohnish Pabrai: Japanese Bets: How Buffett’s Genius Has Yielded Infinite Returns

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During this discussion, Mohnish Pabrai explains how Warren Buffett’s Japanese bets have yielded infinite returns based on the way he structured the deal. Buffett didn’t use any of his own capital for this investment. Instead he borrowed yen at a low interest rate in Japan, and over time, the subsequent dividends and value of the investments have grown significantly. Here’s an excerpt from the discussion:

Pabrai: On his birthday in 2020, August 30th, Berkshire announced that they have taken more than a 5% stake in five Japanese trading companies Itochu, Mitsui, Mitsubishi, Marubeni, Sumitomo.

And he did a couple of interesting things with this Japanese bet.

First, he didn’t put up any capital. He invested I believe about 5 billion and he borrowed the entire 5 billion in yen in Japan at a half a percent interest per year fixed.

These five trading companies had a 8% dividend yield.

He was going to be paying on 5 billion about 25 million a year in interest, and he was going to be collecting about 400 million a year in dividends.

These companies have been around for decades and decades.

He visited with Greg Abel earlier this year to Japan and he met all the five companies and he’s bumped up the positions now, they’re about 8% or so each.

What has happened in the last 3 years since that filing, the 400 million dividend is now 800 million, and the 5 billion is maybe 12 billion something.

The return on equity on that bet is infinite because there was no equity put up.

If you look at the 2022 letter that Buffet wrote which came out this year, he said that in 58 years of running Berkshire there have been 12 ideas, or 12 things that he has done that have moved the needle.

If we look at the last several years for Buffett, the two ideas that really stand out have been Apple and the Japanese bets.

You can watch the entire discussion here:

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