Warren Buffett is expanding his investment horizons beyond his usual focus to utilize more of Berkshire Hathaway’s capital.
Known for his saying that his preferred holding period is “forever,” Buffett has made it clear that only a small number of companies in Berkshire Hathaway‘s (BRK.A 0.55%) (BRK.B 0.62%) equity portfolio are ones he intends to hold indefinitely. This intention has been reinforced over the last few years.
In the past nine quarters, Buffett has sold more stock than he has purchased, leading to net sales of $173 billion. His stock sales in 2024 have resulted in Berkshire Hathaway achieving a new record for tax payments in a single year due to capital gains. Despite this enormous tax burden, Berkshire is now holding a record amount of cash.
Buffett’s New Investment Strategy
In his letter to shareholders for 2024, Buffett outlined his plans for investing the increased cash reserves, which have been detailed in recent regulatory filings. He has made significant investments in five stocks that he intends to hold indefinitely and is expected to continue buying into them in 2025 and looking ahead.
Buffett directly addressed concerns about Berkshire’s accumulating cash in his February letter to shareholders, reassuring them that a large portion of their capital will continually be invested in equities—primarily American equities. However, he also highlighted an exception involving five major foreign companies with extensive international operations. He characterized his approach to these investments as “indefinite” and “very long-term,” expressing a commitment to supporting their boards of directors.
The Five Japanese Trading Houses
These five companies are the largest Japanese trading houses: Itochu (ITOCF -3.00%), Marubeni (MARUY -0.09%), Mitsubishi (MSBHF -0.52%), Mitsui (MITSF 0.35%), and Sumitomo (SSUM.Y -0.51%). Each of these conglomerates operates a diverse range of businesses in Japan and globally, akin to Berkshire Hathaway.
Why Buffett Is Committed to These Investments
Initially, Buffett viewed his investments in these five Japanese firms as an arbitrage opportunity, utilizing low borrowing costs in yen and Berkshire’s strong credit rating to invest in businesses with solid free cash flow and stable dividends. Yet, after visiting Tokyo with Vice Chairman Greg Abel in 2023, he revealed his intention to hold these assets for the long term.
Buffett commended the management of all five companies, noting their compensation practices are much more conservative than those in the U.S. They wisely increase dividends and repurchase shares when it makes sense to do so. Notably, he indicated that only about one-third of each company’s earnings are allocated to dividends, with the remainder invested in business growth and share repurchases.
