2/27/2024: Warren Buffett Betting Big on Japan
Berkshire Hathaway just published its 2023 Shareholder Letter a few days ago. As usual, it was a great read. It started with a tribute from Warren Buffett to Charlie Munger who passed away last November, crediting him as the architect of Berkshire.
One big thing Berkshire did in 2023 was to invest in five large Japanese companies: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo for a total of 1.6 trillion yen. To hedge the currency risk, the company purchased stocks of these Japanese companies by issuing yen denominated corporate bonds. WOW! What a savvy move. The year end market value of Berkshire owned Japanese stocks is 2.9 trillion yen. Warren is Warren for a reason!
The other thing that caught my attention in the shareholder letter is his comments about utilities:
Other electric utilities may face survival problems resembling those of Pacific Gas and Electric and Hawaiian Electric. A confiscatory resolution of our present problems would obviously be a negative for BHE, but both that company and Berkshire itself are structured to survive negative surprises. We regularly get these in our insurance business, where our basic product is risk assumption, and they will occur elsewhere.
Berkshire can sustain financial surprises but we will not knowingly throw good money after bad. Whatever the case at Berkshire, the final result for the utility industry may be ominous: Certain utilities might no longer attract the savings of American citizens and will be forced to adopt the public-power model. Nebraska made this choice in the 1930s and there are many public-power operations throughout the country.
Eventually, voters, taxpayers and users will decide which model they prefer. When the dust settles, America’s power needs and the consequent capital expenditure will be staggering. I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire’s two partners at BHE, I made a costly mistake in not doing so.
I am a disgruntled PG&E customer. I think the current utility business model is broken. PG&E is practically a monopoly and their incompetence has dragged on for years with no consequences. PG&E raised our already insane utility bill by another 20+% this year despite heavy criticism. From Warren’s comment, apparently not only do the customers hate it, the investors are also frustrated. It seems the utility company and the government just point fingers at each other for the mess but no one is interested in coming up with a proper solution. My friends who have municipal power in Palo Alto and Santa Clara pay less and get better services. Perhaps municipal power is the way to go. A heavily regulated corporate monopoly appears to be a recipe for disaster.