1. On February 22, 2025, Berkshire Hathaway released its annual shareholder letter.
2. The letter suggests that this might be Warren Buffett’s final message to shareholders.
3. It hints that future letters may be penned by his successor.
A Toast to the Land of the Rising Stocks
4. A particularly intriguing section of the letter is Buffett’s discussion on Japanese trading companies.
5. In the letter, Buffett stated:
Our investments are primarily U.S.-based, with a notable exception: our growing investments in Japan.
Nearly six years ago, Berkshire began purchasing shares in five Japanese trading companies (in alphabetical order): Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo. These enterprises operate successfully in a manner somewhat similar to Berkshire, holding interests in a vast array of businesses, many based in Japan but also operating globally.
We initiated our investments in July 2019 after reviewing their financial statements and noting their undervalued stock prices. Over time, our confidence in these companies has grown steadily.
Greg Abel has met with their leaders multiple times, and I regularly monitor their progress. We both admire their capital allocation strategies, management teams, and their approach to shareholders. These companies increase dividends when appropriate, repurchase shares sensibly, and their executive compensation is far less aggressive than that of U.S. companies.
We plan to hold our stakes in these companies for the long term and are committed to supporting their boards. Initially, we agreed to keep our ownership below 10% in each company. As we approached this limit, the companies agreed to moderately relax this cap. Therefore, you can expect Berkshire’s ownership in all five to increase over time.
As of year-end, our total investment cost was $13.8 billion, with a market value of $23.5 billion.
Additionally, Berkshire has been increasing its yen-denominated debt, all at fixed rates, aiming for currency neutrality since we have no view on future currency movements. According to GAAP, we must report gains or losses from these yen borrowings. At year-end, we recognized $1.15 billion in after-tax foreign currency gains due to a stronger dollar, with $850 million occurring in 2024.
I anticipate that Greg and his successors will hold these Japanese positions for decades, and that Berkshire will find additional productive ways to collaborate with these companies.
We are pleased with the profitability of our current yen balance strategy. As of this writing, we expect annual dividends of approximately $812 million from our Japanese investments in 2025, against interest costs of about $135 million on our yen-denominated debt.
6. Warren Buffett’s Shareholder Letter Highlights Two Key Points About Japanese Trading Companies
- Berkshire Hathaway will hold its shares in Japanese trading companies for decades.
- Berkshire Hathaway will increase its ownership stake in Japanese trading companies beyond 10%.
Alphazen insights
The idea that Japanese trading companies have another leap ahead remains valid. However, they’re no longer the kind of stocks you can just buy and forget. It’s time to step up monitoring and start thinking about the right exit timing. After all, cherry blossoms fall in the blink of an eye. 🌸
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