Proactive Investors - Famed Berkshire Hathaway (NYSE:BRKa) chairman Warren Buffett used his annual shareholder letter to lament the paucity of attractive investment opportunities currently available, both at home in the US and abroad.
“There remain only a handful of companies in this country capable of truly moving the
needle at Berkshire, and they have been endlessly picked over by us and by others,” he stated.
“Some we can value; some we can’t. And, if we can, they have to be attractively priced.
“Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire.
“All in all, we have no possibility of eye-popping performance.”
An apprehension toward non-US investments is not a new sentiment from Buffett and Co, whose focus has almost always been on domestic firms, albeit with some notable exceptions.
Buffett’s recently deceased lieutenant Charlie Munger was a big fan of Chinese electric carmaker BYD, in which Berkshire invested around $270 million in 2008.
Berkshire began selling down its stake in BYD in 2020. That original $270 million investment was estimated to be worth some $8 billion in October 2023, when Munger touched on the investment in an interview with the Acquired podcast.
Successes like these are why, for over half a century, Buffett has espoused the virtues of long-term investing.
“The stock market is a device for transferring money from the impatient to the patient," as one of his many oft-repeated quotes goes.
That philosophy resonated in his latest shareholder letter, where he remarked that “it is more than silly, however, to make judgments about Berkshire’s investment value based on ‘earnings’ that incorporate the capricious day-by-day and, yes, even year-by-year movements of the stock market”.
Today, Japan is the only non-US market where Berkshire has a significant investment footprint.
As Buffett told shareholders: “Berkshire continues to hold its passive and long-term interest in five very large Japanese companies, each of which operates in a highly-diversified manner somewhat similar to the way Berkshire itself is run.”
Since 2019, Berkshire has accrued significant stakes in each Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.
Buffett, evidently, is attracted to the shareholder returns of this mix of Japenese trading, diversified and automotive companies.
He said: “All five companies… follow shareholder-friendly policies that are much superior to those customarily practiced in the US.
“Since we began our Japanese purchases, each of the five has reduced the number of its outstanding shares at attractive prices.
“Meanwhile, the managements of all five companies have been far less aggressive about
their own compensation than is typical in the United States. Note as well that each of the five is applying only about 1⁄3 of its earnings to dividends.
“The large sums the five retain are used both to build their many businesses and, to a lesser degree, to repurchase shares.”
Unlike Berkshire itself, whose cash pile continues to go largest unused at an all-time record of $167.6 billion.