Shareholder Returns of Japanese Trading Companies Invested By Warren Buffett Vs Top Korean Trading/Holdcos

• “In the next 50 years... we won’t give a thought to selling those [Japanese trading companies].... Japan’s record has been extraordinary.” (Warren Buffett)

• In this insight, we provide detailed comparisons of the five major Japanese trading companies and five major Korean holdcos/trading companies.

• Japanese trading companies have higher points for market cap, ROE, DPS increase, and shares cancellation. Korean holdcos have higher points for dividend yield, deb/equity ratio, ROIC, and valuations.

Source: Photo by Grok

Warren Buffett recently announced that he will be retiring at the end of this year. In this year's Berkshire Hathaway Annual Shareholders Meeting in early May, Buffett also gave an extraordinary compliment to the five Japanese trading companies invested by Berkshire Hathaway has invested including Itochu Corp (8001 JP), Marubeni Corp (8002 JP), Mitsubishi Corp (8058 JP), Mitsui & Co Ltd (8031 JP), and Sumitomo Corp (8053 JP).

These five Japanese conglomerates were essentially ignored by many overseas institutional investors nearly a decade ago. Berkshire started to build positions in these Japanese trading companies in 2019 and Berkshire's holdings in these companies totaled $23.5 billion at the end of 2024.

More than a decade ago, many investors were disillusioned by these Japanese trading companies' business diversification and lack of business focus. However, the Oracle of Omaha saw great value in these companies and his investments in them have been handsomely rewarded in the past five years.

In fact, Buffett even mentioned that these five Japanese trading companies “very successfully operate in a manner somewhat similar to Berkshire itself.” Similar to Berkshire, these conglomerates compete in diverse industries including energy, metals, machinery, chemicals, food, and textiles. Unlike Berkshire which operates a large insurance unit, these Japanese conglomerates use their operating cash flow and funds generated from divestments to fund new investments.

Buffett has also praised the capital return strategies of these Japanese trading companies. He mentioned that "Each of the five companies increase dividends when appropriate, they repurchase their shares when it is sensible to do so, and their top managers are far less aggressive in their compensation programs than their U.S. counterparts.”

Many of the Korean holding companies are modeled after the Japanese trading companies. These Korean holding companies operate in diverse industries such as the ones invested by Warren Buffett. In this insight, we provide detailed comparisons of the five major Japanese trading companies and five major Korean holdcos/trading companies.

Top 8 Comparisons of Japanese Trading Companies vs Korean Holdcos/Trading Companies

1) Market Cap - The market cap of the five Japanese trading companies average US$54 billion versus $6 billion for the five Korean holdcos/trading companies that we have selected. These Japanese companies' market cap have increased much more in the past five years, especially with the investments by Berkshire Hathaway. Thus, these Japanese trading companies are more liquid. [Japanese trading companies > Korean holdcos/trading companies]

2) Dividend Yield - The dividend yield of the five Japanese trading companies averaged 3.5% from FY21 to FY25 (fiscal year ending March). In comparison, the five Korean holdcos' dividend yield averaged 4.1% from 2020 to 2024 (year ending December). [Japanese trading companies < Korean holdcos/trading companies]

3) DPS Increase - The Japanese trading companies had an average annual DPS increase of 19.2% from FY21 to FY25. In comparison, the Korean holdcos had an average DPS increase of 8.5% from 2020 to 2024. In this category, the Japanese trading companies have done a much better job of increasing their DPS in the past five years. [Japanese trading companies > Korean holdcos/trading companies]

4) ROE - The Japanese trading companies had an average ROE of 13% from FY21 to FY25. In comparison, the Korean holdcos had an average ROE of 6% from 2020 to 2024. This is a big difference. However, if the Korean holdcos could improve their ROE to 8%-10%, this could result in attracting a lot more global investors. Even Berkshire Hathaway may become more seriously interested in investing in Korean holdcos/trading companies if their ROE improves. [Japanese trading companies > Korean holdcos/trading companies]

5) Debt/Equity Ratio - The Japanese trading companies had an average debt/equity ratio of 85% from FY21 to FY25. The Korean holdcos/trading companies had an average debt/equity ratio of 76% from 2020 to 2024. In general, the Korean companies tend to have stronger balance sheets than their Japanese counterparts. Plus, the higher ROEs of the Japanese trading companies is partly due to the higher leverage of these companies. [Japanese trading companies < Korean holdcos/trading companies]

6) ROIC - The Japanese trading companies had an average ROIC of 3% from FY21 to FY25. The Korean holdcos/trading companies had an average ROIC of 4% from 2020 to 2024. [Japanese trading companies < Korean holdcos/trading companies]

7) Reduction in outstanding shares - The five Japanese trading companies' outstanding shares declined by 6.8% on average from end of March 2021 to end of March 2025. In comparison, the Korean holdcos/trading companies' outstanding shares declined by only 1.5% from end of 2020 to end of 2024. Overall, the Japanese trading companies have done a better job of buying back shares and cancelling them, which have also helped to improve their ROE. [Japanese trading companies > Korean holdcos/trading companies]

8) Valuations - The five Japanese trading companies had average P/E, P/B, and EV/EBITDA ratios of 9.6x, 1.0x, and 15.3x, respectively from FY21 to FY25. In comparison, the Korean holdcos/trading companies had average P/E, P/B, and EV/EBITDA ratios of 9.3x, 0.6x, and 8.2x, respectively from 2020 to 2024. All in all, the Korean companies are trading at much lower valuation multiples, especially on P/B and EV/EBITDA multiples. [Japanese trading companies < Korean holdcos/trading companies]

In summary, the Japanese trading companies wins over the Korean holdcos/trading companies over the following criteria:

• Market Cap

• DPS Increase

• ROE

• Reduction in outstanding shares

The Korean holdcos/trading companies have better scores on the following criteria:

• Dividend Yield

• Debt/Equity Ratio

• ROIC

• Valuations

All in all, given the overwhelming support that Warren Buffett has given to the Japanese trading companies, they could continue to outperform the market and also versus the Korean holdcos/trading companies in the near future.

However, the key catalyst that we look for among the Korean holdcos/trading companies is the reduction in outstanding shares. Some of these Korean companies including SK Inc have significant amounts of treasury shares that could be cancelled which could materially improve ROE as well.

If the Korean holdcos/trading companies consistently generate ROE of 8-10%+, this could significantly increase their global investor base. In order for them to improve their ROE to this level, they would need to engage in greater share buybacks/cancellations and generate higher returns on their core holdings/investments.

In order for the Korean holdcos/trading companies to catch up to the Japanese counterparts, they need to focus on cancelling treasury shares and improve overall ROE. Companies such as LG Corp could increase leverage to engage in higher share buybacks/cancellations.