Mitsubishi Announced A Buyback, Making Warren Buffett’s Present Even Better

Mitsubishi Announced A Buyback, Making Warren Buffett’s Present Even Better
Paul Allison, CFA

23 days ago2 mins

What’s going on here?

Japanese trading company Mitsubishi announced a buyback, proving that if you want a birthday gift worth keeping, you need to buy it yourself like Buffett.

What does this mean?

Warren Buffett tends to stick to what he knows: cherry cola, ice cream, and US companies with strong prospects that are trading for decent prices. But he treated himself to something a little different on his 90th birthday around three years back. He bought serious stakes in five Japanese trading firms with similar business models – investing in a chocolate box of different types of companies – to Berkshire Hathaway. That trip out of the States paid off. The stock prices of all five have more than tripled since then, with Mitsubishi’s pulling ahead by another 10% on Wednesday after the carmaker promised to buy back a tenth of its own shares.

Mitsubishi stock

Why should I care?

For markets: Backing buybacks.

Buffett loves buybacks, even calling their critics “economic illiterates”. The plus side is clear: shareholders can end up with a bigger stake since there are fewer shares in the market. What’s more, because buybacks tend to be a show of confidence, many new investors flock to a stock when they happen, bringing up the price for existing shareholders. Still, even Buffett agrees that they can go awry if a company buys its own shares back at too high a price. Investors won’t bite if the newly increased price is at odds with the company’s profit and prospects, so the stock could end up lower than it started.

The bigger picture: Test your patience.

Japan has successfully turned economy-bruising deflation into a healthy dose of inflation, while government incentives are shaping Japanese companies into profit-making machines. That wasn’t the case when Buffett took his punt, though. This isn’t proof of any truth behind the “Oracle of Omaha” nickname, of course. Instead, it’s a point for long-term value investing, when you spot a bargain with potential and patiently sit on it.



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