Rotating the portfolio in earnest (2024)

The question of what to hold and what to let go

The heart of this decision lay less in the merits of any single deal than in the fact that a general trading house relativized, by its own hand, the “hold on forever” management it had long taken for granted. Renewing record profit on high resource prices, Mitsubishi stepped — precisely when it had room to — into deciding to let go of flagship consumer businesses such as Japan KFC and Lawson. There is no denying that a low price-to-book ratio, the market’s gaze on capital efficiency, and the rising presence of foreign investors epitomized by Berkshire Hathaway pushed it forward. In re-selecting the businesses it held while conditions were strong lies the substance behind the phrase “cyclical growth model.”

Rotation, though, is no cure-all. That trading houses have walked alongside their businesses through long holding and grown their value over time was itself a strength of the general trading house. How reliably, and into which growth fields, it can direct the capital and revaluation gains raised by selling rests on execution still to come. What to hold and what to let go — this decision, looking beyond an earnings structure dependent on resources, stands as an attempt to re-examine the general trading house’s very model of investment.