In this episode of MarketFoolery, host Chris Hill chats with Motley Fool analyst Bill Mann about the latest headlines from Wall Street.
Now that Warren Buffett just revealed a bet in Asia, the duo discuss the legacy Shinzo Abe leaves behind as he steps down as the longest-serving prime minister of Japan. They also help provide some clarity on what stock splits mean for investors.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Aug. 31, 2020.
Chris Hill: It's Monday, Aug. 31st. Welcome to MarketFoolery. I'm Chris Hill, with me today the one and only Bill Mann. Good to see you. Thanks for being here.
Bill Mann: Nice shirt, Chris.
Hill: Thank you.
Mann: I know this is radio for a lot of people, but I just ... [laughs] that is a shirt for radio. [laughs]
Hill: No, I try to do my best. I try and, you know, spiff up every now and then. We're going to talk about those stock splits that are making news. We're going to start by heading to Japan by way of Omaha, Nebraska. Warren Buffett celebrated his 90th birthday doing what a lot of folks like to do when they want to treat themselves: he went shopping. Berkshire Hathaway has bought stakes in the five leading trading companies in Japan: Sumitomo, Itochu, Marubeni, Mitsui & Co., and Mitsubishi Corp. They import everything from energy and metals to textiles and food.
And this is [laughs] clearly a big move in and of itself. What does this investment, on Buffett's part, say to you? Let's start there.
Mann: Well, once again, as always, we have to remember that with Berkshire Hathaway, sometimes the numbers almost feel like cheat codes, because $6.5 billion is not a huge investment for Berkshire Hathaway. Its stake in Apple (AAPL +0.73%), its stake in Coca-Cola are much larger than this. But Buffett, after years of not really looking outside of the United States, has really started doing so. He's bought Israeli companies, he's bought German companies, he's invested in China, in Brazil, and now he's investing heavily in a very interesting segment of Japan. These are extremely economically sensitive trading companies, in Japanese are called "sogo shosha," and they will trade in almost anything.
And I believe that one of the reasons that he wants a stake in these companies is that because these companies are chameleons, they will invest in everything. They have joint ventures all over the world. And so, yet another way for Berkshire Hathaway to have additional boots on the ground, additional eyes and ears looking for new things that they can invest in. So, really interesting timing for this. It may be -- again, his suggestion, in a soft way, that it's really hard to find opportunities here in the U.S. -- that the Japanese market, relatively inexpensive.
And like everyone else, you know, I'm sure everyone woke up this morning and was surprised by what Buffett has done. And by now a lot of people are saying, huh! that makes sense.
Hill: You look at those five stocks, they're all up 5% to 10%. A lot of times when Buffett makes a move one of the things we talk about is how Buffett is quick to tell people like, look, just don't blindly follow me, you shouldn't blindly follow anyone, do your own research and all of that. But is this something U.S. investors should look at given the comments you just made about, sort of, the relative value of the market in Japan?
Mann: The best-performing stock index in the entire world over the last decade is the S&P 500, and it's really not even close. When you denominate it in dollars, it's the No. 1. Japan's is, actually since Abe came to power, it has outperformed every other major stock exchange with the exception of China and the U.S. S&P 500. We tend to think of it as being moribund. I think American investors still have a dramatically too low exposure to markets that are outside of the U.S.
And yeah, I think that in the U.S. almost every opportunity has at least in some ways been monetized, whereas in a lot of other countries that is not the case, and Japan, definitely one of those countries.
Hill: I'm glad you mentioned Shinzo Abe. His reign as the longest-serving prime minister of Japan is coming to an end. His term ends in September of 2021. He very recently announced he is stepping down due to health reasons. Yet to be determined who's going to be replacing him. What is the economic legacy of Shinzo Abe? I'm wondering how big are the shoes to fill for whoever comes next.
Mann: They're actually massive. And Shinzo Abe, he's an interesting character, because it's almost Nixon-esque. How Nixon was basically the only U.S. President who could have gone in and recognized China. Like, he was an unreformed right-winger when he came into power. But he believed in Japan and he believed in the power of the Japanese experiment. And so, he set about a number of economic reforms that are wide-reaching. He set out as a target to get Japan up to 2% inflation. It had been in a deflationary environment for years, and so there was a lack of spending. He's broken the Japanese culture of crossholdings, in which more healthy companies will prop up weaker ones.
The most amazing thing that he did was that he is the one, and his administration is the one that has gone about a sweeping program of structural reform where females in Japan were such a low component of the overall workforce, and he has set out a program to make sure that there's a much higher component of female workers in the Japanese industry. And they had to do things, Chris, like for example, there were not enough day care centers in Japan. And so, they had -- you can't just simply say, OK, we should have more female workers, because the conditions beforehand were not conducive to a two-income family, you know, to having both members of the family outside of the home.
So, yeah, what he has done and what his government has done, not only has it been immense, but in some ways, it's been a surprise.
Hill: It sounds like someone's got really big shoes to fill. [laughs]
Mann: Yeah, that's the other part of your question. Yeah. But it's a pretty good place to be in, right? You know, you're not talking about -- well, the thing that...
Hill: You're not being handed some enormous mess.
Mann: Right. You're not being handed an enormous mess. You're being handed now an aircraft carrier that's pointing roughly the right direction. So, he has done a lot of the hard work. And a lot of people would point to the outcomes. And maybe they're not as great as what he had said they would be, but it is definitely far better. I mean, we might not even think about it here, but he managed to reform the agriculture industry in Japan. And if you've spent time in Tokyo in the 1980s, the 1990s, in the middle of these huge office buildings there will be a little rice farm. You know, like a guy out there and he goes every day; and the land was absolutely priceless and it was a tiny little plot, and the farmer is like, well, I'm not moving, and couldn't be moved. There was nothing that they could do to move him. And so, all of these things have made Japan a much more economically competitive force than it was before he came in. So, yeah, big shoes to fill, but you're talking about big shoes in something that's going definitely the right direction.
Hill: Shares of Apple up 3% today, shares of Tesla (TSLA 2.60%) up 8%. And that makes perfect sense because today is the day that both of these companies' respective stock splits have taken effect. Apple splitting 4-for-1; Tesla splitting 5-for-1. Where do you want to start? [laughs] Should we start with your utter disgust for what is happening in the market today with these two stocks? Should we start there?
Mann: You know, it's not that I care. I don't care that these stocks are up, I care very much that this is sending the exact wrong message to a lot of investors. We have heard in The Motley Fool morning show over and over and over again, should I buy before the split, should I buy after the split or is the split good for the stock? If you are talking about, if you are depending on market mechanics to drive your returns, you are going to get burned. So, the fact that these companies are up today, so the people who think stock splits matter, have had that belief reinforced. To me, it's a problem. It's a problem because at some point they're going to lose. And I don't mean lose like, hey, you won this one, you lost that one, you're one and one. I mean, you win this one, you lose the next one, and you are one and 15, right, because the scale of it will matter a lot more.
So, I mean, it's great. I have no problem with Tesla going up 6% today or 8% or who could tell at this point. I have no problem with Apple going up, you know. But it's the exact wrong lesson.
Hill: The timing, I think, adds to your point. The fact that it's not that Apple split their stock, it's not that Tesla split their stock, it's that they both did it at the same time, it's a massive split. And by massive, I mean, anything greater than 2-for-1, because that gets attention. We've seen fewer splits. I mean it's really the combination of all these factors. And in the same way that I have thought, over the last six months or so, as companies have, rightly so, put a hold on giving out financial guidance, and thinking, boy! you know, if you're the chief financial officer in all of these companies, and you're in the meeting and someone, hey, should we stop giving guidance? If you're the CFO, you're absolutely like, yes, yes...
Mann: You're stamping off someone's hand to get that. [laughs]
Hill: Yes, let's stop giving guidance. On the flip side, I think one [laughs] of the ripple effects of what's happening today with Apple and Tesla is going to be more questions coming up than we've seen in the past six to 12 months of successful large companies, whether it's Amazon, whether it's Booking Holdings, you know, any stock price that hasn't split in a very long time and is either at or approaching, you know, triple-digits or quadruple-digits. You know, I just feel like it's going to be more oxygen that those people have to deal with of, hey, are you thinking about this, because -- and by the way, these are not fly-by-night companies, with Apple and Tesla, and in the case of Tim Cook, on the shortlist of the most respected CEO in America.
Mann: Definitely in the top two or three follow-up acts of all time, of all time, I think. Yeah, you know, it's funny, so this weekend I checked into my Fidelity account, as I tend to do on the weekends, and there was a warning that came up right away and it said, as these stocks go through their stock split this weekend, some parts of the experience are still in the midst of [laughs] updating. Chris, did you realize you don't have a portfolio, that you actually have an experience?
Hill: I didn't realize that, I don't have my money with Fidelity, so maybe I may just have a boring portfolio as opposed to, like, Fidelity's. Is that part of their marketing? Come join the experience, Fidelity.com.
Mann: You know, I think -- and again, I don't want to overstate this, I'm not actually opposed to stock splits, they just don't matter. It is just simply...the only people it matters to are options holders. To everybody else, especially in a world where you don't have to buy in round lots, where brokerages' trades are free, and you can buy fractional shares, they literally don't matter. But people are excited about it, so I guess I'm wrong. Who has a scoreboard, I guess, right?
Hill: People are excited, because more is better, [laughs] more shares are better, that's it, it's just that simple.
Bill Mann, always good talking to you; thanks for being here.
Mann: Thanks, Chris. Good to see you.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.
