Warren Buffett Played the Stock Market Sell-Off Perfectly. Now, the Billionaire Investor Is Shopping Abroad.

As the market raged in 2024, Warren Buffett and his company, Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.62%), did very little. They were net sellers of stocks; Berkshire repurchased less of its own stock than in years prior, and the large conglomerate also hoarded a staggering $334 billion of cash and short-term U.S. Treasury bills.

It turns out that Buffett and his team of investors knew exactly what they were doing. Market gains after President Donald Trump’s election victory faded quickly and many investors are concerned about a potential recession or even stagflation.

Berkshire is now viewed as a flight to safety and has a war chest should the sell-off present interesting opportunities. In fact, Berkshire has already started to shop abroad.

Buffett has found a market abroad he likes

While Buffett is a true believer in U.S. exceptionalism, he is also extremely disciplined and won’t be tempted by an expensive market. As a value investor, he looks for stocks trading below their intrinsic value.

Buffett has also never been afraid to buy stocks abroad. He’s purchased many stocks in Latin America and in recent years has gotten very interested in Japan. In 2019, Berkshire launched stakes in five of the largest trading houses in Japan:

In recent regulatory filings, Berkshire disclosed that it increased its position in each of these five stocks to between 8.5% and 9.8%. The Japanese trading companies do a little bit of everything from trading and moving products and materials like textiles, metals, and food, and also working on the logistics behind moving these materials in Japan and globally. In this sense, they are kind of like Berkshire Hathaway, a company that operates a number of different businesses itself.

Buffett is effectively saying that he sees value in the Japanese economy and this is a good way to gain exposure.

In Berkshire’s most recent letter to shareholders, Buffett discussed these investments in Japan, saying Berkshire plans to invest long-term and will not raise its stake in any of the trading houses to more than 10%. Berkshire has also increased its yen-denominated borrowings. Furthermore, Buffett explained why he likes these companies:

As the years have passed, our admiration for these companies has consistently grown. Greg [Abel] has met many times with them, and I regularly follow their progress. Both of us like their capital deployment, their managements and their attitude in respect to their investors. Each of the five companies increase dividends when appropriate, they repurchase their shares when it is sensible to do so, and their top managers are far less aggressive in their compensation programs than their U.S. counterparts.

As you can see below, all trade at fairly reasonable earnings multiples. If Japan’s economy performs well, then these stocks may also see multiple expansion, and therefore higher stocks prices:

ITOCF PE Ratio data by YCharts

How is Japan’s economy doing?

Japan is seeing green shoots, but also has risks. Interest rates are lower than a lot of other developed economies and the country’s central bank is trying to balance the process of reining in inflation without impeding progress in the labor market.

Still, the Bank of Japan is expected to keep raising interest rates, albeit at a slower pace, making some believe that consumption is improving.

According to a report from Deloitte, employment has improved and real wages recently grew at the fastest level since the mid 1990s. This leads economists to believe that consumer spending will improve. However, inflation has moved higher as well, so central bankers will need to keep an eye on this.

If anything, Buffett’s recent investment in Japan is a good lesson for investors that economic growth is a big driver of stock market returns. Look how quickly growth concerns in the U.S. sent investors abroad.

That’s why it’s never a bad idea to get some geographical diversity in your portfolio, so you are not overly exposed to one economy. Foreign markets can also present more attractive valuations instead of trying to buy stocks in an expensive market.