Warren Buffett has stated that his favorite holding period is “forever.” This philosophy is most evident in the companies wholly acquired by Berkshire Hathaway (BRK.A)(BRK.B), which are rarely sold. However, when it comes to the company’s securities investment portfolio, Buffett demonstrates greater flexibility, willing to adjust holdings based on market conditions. This trend has been particularly pronounced over the past three years: since the fourth quarter of 2022, Buffett and his team have cumulatively sold stocks worth $212 billion, while purchases amounted to only $34 billion.
Few stocks in Buffett’s portfolio are immune to selling. American Express (AXP) and Coca-Cola (KO) are typical examples; Buffett has not engaged in any buying or selling of these two stocks since the mid-1990s. In recent years, however, he has turned his attention to building the next generation of “forever hold” assets for the conglomerate and has increased holdings in two stocks, with an investment of approximately $170 million. Buffett has explicitly stated that Berkshire Hathaway will not sell these holdings for at least the next fifty years.
Buffett’s stock investment strategy is consistent with his approach to acquiring entire companies: he first assesses the quality of the target business, but even if the company meets his strict criteria, he only acts when the price is right. This strategy was fully demonstrated in the acquisition of OxyChem from Occidental Petroleum earlier this month. By positioning Berkshire Hathaway advantageously, Buffett achieved a win-win situation in a transaction with a closely related company, with Berkshire Hathaway likely benefiting more significantly.
Unfortunately, as Buffett noted in his shareholder letter in February: “Truly outstanding businesses are rarely offered for sale in their entirety.” Indeed, the acquisition of OxyChem is Berkshire Hathaway’s largest acquisition in three years. But Buffett also pointed out: “Small portions of these high-quality businesses can be bought on Wall Street from Monday to Friday, and occasionally at very attractive prices.” The biggest bargain he encountered recently was in 2019 when he began increasing stakes in five Japanese trading companies: Itochu, Marubeni, Mitsubishi Corporation (MSBHF), Mitsui & Co. (MITSY)(MITSF), and Sumitomo Corporation. Berkshire continued to increase its holdings in these companies, eventually reaching stakes close to 10% in each.
Earlier this year, Buffett obtained permission from the management of these five trading companies to increase the ownership stake to over 10%. Over the past six months, this plan has been partially realized: from March to September, Berkshire, through its insurance subsidiary National Indemnity Company, increased its holdings by 6.6 million shares of Mitsui & Co. and 1.9 million shares of Mitsubishi Corporation, raising the ownership stakes to 10.1% and 10.2%, respectively. Based on Japanese stock prices and exchange rates, the total cost of these two investments is approximately $170 million.
These stocks still represent good value: Mitsubishi Corporation trades at a price-to-book ratio of 1.5 times, while Mitsui & Co.’s price-to-book ratio has fallen below 1.4 times. Although these metrics might be above historical averages, they remain attractive compared to other large-cap stocks, particularly U.S. companies. Overall valuations in the Japanese stock market are also relatively low, with the MSCI Japan Index trading at a price-to-earnings ratio below its 30-year average.
