Famed stock-picker Charlie Munger is 99 years old and still going strong. The Berkshire Hathaway (BRK.A 0.77%) (BRK.B 0.72%) vice chairman remains an astute investor, along with his business partner of nearly 50 years, Warren Buffett.
The Acquired podcast released an interview with Munger this week that covered a wide range of topics. And the legendary investor singled out five stocks Buffett has bought that he views as "no-brainer" picks.
Munger's fabulous five
Buffett and Munger don't always see eye to eye. As Buffett wrote to Berkshire shareholders earlier this year, though, when they disagree, Munger has a go-to line: "Warren, think more about it. You're smart, and I'm right."
But in the Acquired interview, Munger heaped praise on Buffett's decision to invest in the stocks of five Japanese trading houses, known as sogo shosha. In 2020, Buffett made the call to initiate new positions in the following five Japanese stocks:
- Mitsubishi (MSBHF 4.45%)
- Mitsui (MITSF 4.96%) (MITSY 4.58%)
- Itochu (ITOCF +4.11%) (ITOCY 0.36%)
- Marubeni (MARUF +3.41%) (MARUY 3.28%)
- Sumitomo (SSUM.Y 0.84%)
Earlier this year, Buffett scooped up a lot more shares of these companies. Mitsubishi now ranks as Berkshire's ninth-largest holding, valued at close to $5.5 billion. Mitsui and Itochu are right behind it, holding down the No. 10 and No. 11 spots. Berkshire's stakes in these two companies are currently worth roughly $4.6 billion and $4.4 billion, respectively.
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Key Data Points
The other two Japanese stocks aren't as high on the list of Buffett's holdings. However, Berkshire owns more than $2 billion of shares in Marubeni and Sumitomo.
All five of these Japanese companies are giant conglomerates that operate in a wide range of industries. Mitsubishi is the biggest of the group, with a market cap of around $65 billion. It owns around 1,700 companies in 10 industries, including automotive, chemicals, food, materials, and natural gas.
"Awfully easy money"
In his inimitable way, Munger explained why he enthusiastically supported Buffett's move to buy these five stocks in the Acquired podcast interview. He stated, "It was awfully easy money."
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What did Munger (and Buffett) like so much about Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo? For one thing, all five companies are exceptionally stable. Several have histories dating back to the 1800s. They generate strong free cash flow. Also, their stocks were cheap.
Berkshire Hathaway borrowed at really low interest rates to fund its purchases of these Japanese stocks. As Munger explained, "These trading companies were really entrenched, old companies, and they had all these cheap copper mines and rubber plantations, and so you could borrow [easily]." It also helped that the companies paid great dividends with high yields.
Great investing opportunities like this are rare, according to Munger. He said, "Something like that -- if you're as smart as Warren Buffett, maybe two, three times a century, you had an idea like that."
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Should you buy these Buffett stocks?
It's not advisable for retail investors to borrow money to buy the stocks of these five Japanese trading houses, as Berkshire did. However, I agree with Munger that Buffett made the right call to invest in them. And I think that they're still, to use his term, "no-brainer" picks for many investors today.
My rationale is pretty much the same as what Munger detailed in his recent interview. Mitsubishi, Mitsui, Itochu, Marubeni, and Sumitomo are low-risk picks in a generally volatile market. Even though all five stocks have delivered solid gains so far this year (especially Mitsubishi), their valuations remain attractive.
Several of these Japanese stocks also offer juicy dividends. In particular, Sumitomo's and Marubeni's dividend yields of nearly 4.1% and 3.8%, respectively, stand out.
Munger described Berkshire's initial investment in these stocks in a colorful way: "It was like having God just opening a chest and just pouring money into it." I wouldn't go as far as to say that buying these stocks right now will live up to that divine standard. However, I'm generally on the same page as Munger and Buffett. These five stocks should be winners for long-term investors.
