Berkshire Hathaway, the Warren Buffett’s conglomerate, just revealed it acquired stakes in five Japanese trading houses with major ventures throughout the world. It is the second investment Buffett makes during the pandemic and one that differs completely from the investment he made during the 2008-2009 Great Financial Crisis.
It invests outside the United States.
Why Would Buffett Increase the International Portfolio?
The move came as a surprise to many. At a time when the stock market rallied from the lows to all-time highs (in the case of Nasdaq100 and S&P 500) or close to all-time highs (Dow Jones), many investors mocked Buffett’s decision to stay on the sidelines when the market dipped lower in March. Some voices even said that the “old man” (Warren is about to turn 90) had lost his touch.
Fast forward a few months, and Berkshire reveals it has made two major moves during the crisis so far. Others, probably, are ongoing, but the market will find out later.
In fact, it made three moves, not two. We must remember that one of the first things Buffett did was to get rid of the airlines in Berkshire’s portfolio. Sold them all. Of course, the airlines bounced from the lows, and he was mocked – lost his touch, remember?
The next move Buffett made was to invest half a billion dollars into – surprise, surprise – Barrick Gold – a miner. That was a shocker for those unfamiliar with Mr. Buffett’s investment style. Judging by the size of the investment, relatively small when compared to the pile of cash Berkshire has, it suggests more the desire to acquire some gold as a hedge against inflation. Or, insurance against uncertain times.
The last of the three moves have been announced recently. Berkshire has been acquiring shares in five Japanese trading houses – Mitsui, Sumitomo, Marubeni, Mitsubishi, and Itochu and it keeps buying. Currently owning a 5% stake in each, Berkshire intents to stop at 9.9%, so not to exceed the 10% target.
One cannot miss the point Buffett tries to make with his own money. It is time to diversify a portfolio. Diversification has many faces and benefits. One way to diversify a portfolio is to include in it uncorrelated assets. Gold is known for its negative correlation with the stock market. Also, international stocks traditionally had a correlation below 0.5 with the U.S. stock market, which makes them suitable candidates for obtaining diversification benefits.
Mr. Buffett seems to have chosen not to keep all his eggs in the same basket. As such, he just bought himself a bit of an insurance policy.