Berkshire Hathaway's Greg Abel Is Building on 1 of Warren Buffett's Best Investments With This $1.8 Billion Purchase

When Greg Abel took over as Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) chief executive officer earlier this year, he was charged with managing nearly $700 billion in assets. His legendary predecessor, Warren Buffett, had left him with a big pile of cash (roughly $369 billion) and even bigger shoes to fill.

But Abel appears to have no problems picking up where Buffett left off. He restarted share repurchases in early March as the stock price dropped back down to an attractive valuation. More recently, he added a $1.8 billion investment, building on one of the best investments Buffett made in recent history. It's already produced a handsome return for Berkshire investors, and it could signal where Abel and his team currently see value in the stock market.

Image source: The Motley Fool.

The newest addition to Berkshire's portfolio

Greg Abel is returning to Japan for Berkshire Hathaway's latest equity purchase. He helped orchestrate the investment in Tokio Marine Holdings (OTC: TKOMY), one of the world's largest reinsurance businesses.

Along with the equity stake, roughly 2.5% of the company, Berkshire subsidiary National Indemnity Company will absorb some of the Japanese insurer's risks through a quota share agreement. That gives Berkshire even more upside in the investment and commits the conglomerate to holding it long term. It also has the authorization to purchase as much as 9.9% of the company's shares without further approval.

The investment has already paid off. Shares of Tokio Marine are up more than 20% since the deal's announcement as of this writing. That may be attributed to Berkshire's investment and management's plans to repurchase shares to ensure the deal doesn't dilute existing shareholders.

Tokio Marine is an attractive insurance stock that has historically produced earnings growth well above its closest competition. Management outlined expectations for 8% earnings-per-share growth through 2026 at its analyst day in December, which follows a period of 20% annualized earnings growth, and it projects ahead of most of its competitors. It's also seeing strong progress in its international expansion, including operation in the U.S.

But the biggest attraction may be its ability to return capital to shareholders through repurchases and dividends. Management has consistently increased capital returns year after year, and that trend doesn't appear to be slowing.

Berkshire will receive a dividend yield of about 1.77% on its $1.8 billion investment. That dividend is set to grow as Tokio Marine aims to increase its capital returns every year. Meanwhile, Berkshire has borrowed Japanese yen at just 1.2% thanks to the country's low interest rates. Effectively, Berkshire is getting paid to take an equity stake in the Japanese company.

That echoes Buffett's investment several years ago to buy stakes in the five Japanese trading houses. The five conglomerates all paid attractive dividends while interest rates were low.

The move turned out to be an excellent investment, with Buffett increasing his stakes in all of them to about 10% by the end of 2025. The combined value of Berkshire's Japanese trading house investments stands at about $43.8 billion as of this writing. Berkshire's cost basis was just $15.4 billion, and it receives roughly $862 million in dividends.

Finding value overseas

Abel's move to add another Japanese stock to Berkshire's portfolio is indicative of the value available in Japanese companies. It's not just the five Japanese trading houses and Tokio Marine; the entire Japanese stock market trades at a much more attractive valuation than U.S. stocks.

Despite Buffett's long love for U.S. companies, he didn't find very many attractive domestic stocks to buy during the past few years. The few he did find for Berkshire are relatively small.

If you're looking for an explanation, you need look no further than the S&P 500's (SNPINDEX: ^GSPC) price-to-earnings (P/E) ratio. Its forward P/E ratio climbed to more than 22 in mid-2025, and it's remained relatively elevated during the past few years. That's well above its historic average in the mid-to-high-teens.

The S&P 500 CAPE ratio, which looks back at 10 years of inflation-adjusted earnings, currently sits at one of the highest levels in history. The CAPE is generally a good predictor of returns during the next 10 years: the higher the ratio, the lower future returns.

The CAPE ratio for Japanese stocks, however, sits just below its 20-year average at 26.4. However, the 20-year lookback also includes periods of extremely high valuations in the mid-2000s. Even so, the CAPE is still roughly inline with the past 15 years, which should result in average returns going forward.

For investors looking for great value stocks, it may be worthwhile to explore beyond the U.S. Berkshire may prefer Japan because of its existing relationships with the trading houses and its low borrowing costs to hedge currency risk. But value investors can also find great opportunities in Europe, Canada, and other international markets.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.