Warren Buffett calmed fears over Berkshire Hathaway’s cash stockpiling as he said he intends to invest heavily in the near future, particularly in one emerging market.
The billionaire, 94, told investors in his annual letter that while his firm has more cash on hand than ever, the value of the businesses that it owns has also increased.
It comes as Berkshire Hathaway’s investment strategy in recent times has drawn scrutiny as Buffett sold huge swaths of stock, and the firm ended 2024 with a staggering $321.4 billion in cash and Treasury bills on hand.
In his annual letter to shareholders on Saturday, Buffett wrote: ‘Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities.
‘That preference won’t change.’
Berkshire has particularly focused its recent investments on Japan, and Buffett wrote that he anticipates increasing the firm’s stocks in five Japanese trading houses – Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.
Buffett began buying shares in the five companies in July 2019, and the chief said this week that they have agreed to allow him to buy more than the 9.9% ownership limit that had been in place.
‘As we approached this limit, the five companies agreed to moderately relax the ceiling,’ Buffett wrote. ‘Over time, you will likely see Berkshire’s ownership of all five increase somewhat.’
Warren Buffett, 94, calmed fears over Berkshire Hathaway’s cash stockpiling as he said he intends to invest heavily in the near future, particularly in one emerging market – Japan
Buffett (pictured on a trip to Japan in 2011) began buying shares in five major Japanese companies in July 2019, and the chief said this week in his annual shareholder letter that he intends to increase investments in the nation
Some skeptics had seen Berkshire Hathaway’s cash pileup as a sign that Buffett was expecting a market crash, despite the S&P 500 reaching new record highs in recent weeks.
According to the Wall Street Journal, Berkshire has been holding onto its cash by not going ahead with stock buybacks for the second consecutive quarter.
The firm made no stock buybacks for the final three months of 2024, which the financial outlet says, ‘suggests Buffett doesn’t think Berkshire’s stock is cheap.’
At the end of 2024, Berkshire’s Japanese holdings had reached a market value of $23.5 billion, which Buffett said he expects will continue to increase.
The Japanese trading houses that Berkshire bought into in 2019 trade in a wide variety of industries, and Buffett told Nikkei in 2023 that he was attracted to them because they are ‘really so much similar to Berkshire.’
Known as ‘sogo shosha,’ the Japanese trading houses trade in a wide variety of materials, products and food, often serving as intermediaries, and provide logistical support.
They are also deeply involved in the real economy in such areas as commodities, shipping and steel.
Buffett prefers to avoid businesses he says he does not understand, and as the trading houses are seen as sturdy in the market due to their central place in the Japanese economy, Buffett indicated he has no plans to remove his business interests from the companies.
In his message to shareholders, Buffett praised his investors for sticking with his approach of not paying dividends on their returns, which he has never done except for one occasion in 1967.
He said that re-investing Berkshire’s revenues rather than paying percentages out to its clients has yielded far larger returns.
Buffett, pictured visiting the opening of a new power plant in Japan in 2011, said his holdings in Japan had reached a market value of $23.5 billion, which he said he expects to continue increasing
Berkshire’s total market value passed $1 trillion for the first time last year, which Buffett wrote in the letter was a result of the strategy ‘mushrooming.’
‘In a very minor way, Berkshire shareholders have participated in the American miracle by foregoing dividends, thereby electing to reinvest rather than consume,’ he said.
‘Originally, this reinvestment was tiny, almost meaningless, but over time, it mushroomed, reflecting the mixture of a sustained culture of savings, combined with the magic of long-term compounding.’
The annual letter concluded with an optimistic outlook on Berkshire’s 2024 results, reporting profits of $89 billion.
While this was down from $96.2 billion the year prior, Buffett urged shareholders to pay closer attention to operating earnings, which rose to $47.4 billion, up from $37.4 billion in 2023.
The billionaire noted that net income is far more vulnerable to market fluctuations, however the company was holding firm as its Class A and Class B shares both rose about 5.6% compared to the S&P 500’s 2.2% gain.