Warren Buffett Wins Big With ‘Moneyball’ Gamble

Warren Buffett’s still got it, at least if recent indications about the Berkshire Hathaway’s Japan bets are any guide.

In September 2020, the “Oracle of Omaha” shocked even Tokyo’s most vocal bulls with a $7 billion bet on five centuries-old Japanese trading companies. At a moment when the financial media was gushing over Jack Ma’s fintech giant Ant Group and the FAANGs—Facebook, Amazon, Apple, Netflix, Google—Buffett was getting seriously old school and old economy.

Few are scratching their heads now as Buffett’s retro-Japan bets show signs of paying off handsomely.

In recent weeks, stocks of “sogo shosha” trading conglomerates rallied as commodity prices of energy, metals and crops surged amid geopolitical tensions and supply-chain snafus. Management teams of Buffett-backed Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. boosted forecasts—or are seen doing so in short order. 

Turns out, Buffett’s Moneyball experiment is a hit. Back in late 2020, it was clear that Buffett was trying to do what Oakland Athletics manager Billy Beane had attempted on the baseball field in 2002. As Michael Lewis detailed in his 2003 book—and as dramatized in the 2011 Brad Pitt film—Beane tried to build a winning team relying on advanced empirical analysis.

The Moneyball approach uses out-of-the-box analysis to recreate in the aggregate a low-cost, high-performance team. As investment old-timers in Tokyo observed, Buffett seemed to be trying a similar gamble in Japan—to rebuild the steady, if boring, results of his multinational Berkshire Hathaway conglomerate in predictable, low-risk Japan. Mission accomplished, it seems.

Caveats abound, of course. It seems unlikely that the surges in crude oil, iron ore and other goods filling Buffett’s coffers will continue through 2022 and beyond. At some point, prices hit a certain level companies and consumers won’t pay. Prices will slide from there.

Yet it’s all about diversification. Over the last decade, Japan’s trading conglomerates reduced the debt and bloat that stymied profits in the 1990s. They shifted into financial services, food, logistics, machinery, real estate and entered into tie-ups with consumer-facing giants like Fast Retailing’s Uniqlo brand.

It would be wise for other multinational conglomerates to moneyball their operations, too. Take SoftBank founder Masayoshi Son, who in recent years flirted with grabbing a $10 billion stake in reinsurance giant Swiss Re. It was a Buffett-esque strategy. Just as General Re helps stabilize Berkshire Hathaway’s balance sheet, Swiss Re would add stability to Son’s empire. Unfortunately, the plan fizzled.

If Japanese Prime Minister Fumio Kishida were wise, he’d find a way to take Buffett’s success out for a ride.

One of the few economic reform successes his Liberal Democratic Party can claim these last 10 years is prodding CEOs to internationalize management practices and increase return on equity. Though it’s a work in progress, Japan Inc. is slowly but surely adding more outside directors.

As Kishida looks to revitalize the structural reform process, it’s wise to impress the Buffett’s of the globe. And, of course, catch the attention of millennials now calling many of the shots on Wall Street.

The best way to capture global attention is to catalyze a startup boom to create more economic energy and wealth from the ground up. That means regulatory and tax tweaks to make the nation of 126 million more entrepreneurial, competitive and productive. The immediate to-do list: cutting bureaucracy to make it easier to start a business and crafting a tax code that encourages innovation and risk taking.

There’s a vital need to play catchup with China, South Korea, Indonesia and other economies doing much better jobs of producing tech “unicorns” than Tokyo.

Look no further than Son’s $100 Vision Fund. Son’s venture capital colossus is sprinkling billions here and billions there all over the globe. To date, SoftBank has only doled out only negligible amounts of cash at home.

Buffett is reminding the world that Japan Inc.’s biggest names are more than wings of a corporate wax museum. They can indeed be profit centers for those willing to look and proceed patiently.

Kishida mustn’t miss a single opportunity to play up the Buffett in Japan. And to remind the globe that even in the age of China, there’s serious investment ball to be played in Japan, too.