Why did Warren Buffett commit to holding no more than 9.9% of shares? Is it to avoid becoming an 'active investor' with additional responsibilities?

Analysis of Buffett's Commitment to Cap Shareholding at 9.9%

Background Overview

Warren Buffett, through Berkshire Hathaway, invested in Japan's five major trading houses (Itochu, Mitsubishi Corporation, Mitsui & Co., Marubeni, and Sumitomo Corporation) and publicly pledged that his shareholding ratio would not exceed 9.9%. This commitment was made during the initial investment in 2020 and reiterated in subsequent share purchases. It aligns closely with Buffett’s investment strategy, which emphasizes long-term value investing over short-term intervention.

Primary Reason: Avoiding "Activist Investor" Status and Additional Responsibilities

Yes, your speculation is largely correct. Buffett’s move primarily aims to avoid being labeled an "activist investor," thereby sidestepping associated additional responsibilities and regulatory obligations. Specifically:

• Avoiding the Activist Investor Label:

  • Activist investors typically influence corporate decisions—such as pushing for board reshuffles, strategic shifts, or dividend policies—by acquiring significant stakes (e.g., exceeding 10%). This imposes greater "shareholder responsibilities," including involvement in corporate governance, media scrutiny, and legal risks.
  • Buffett consistently adheres to a passive investing style, preferring to "buy and hold" quality companies rather than intervene in management. By capping ownership at 9.9%, he signals clearly to these Japanese trading houses that Berkshire will not seek control or board seats, acting solely as a long-term shareholder sharing in the companies’ growth. This helps maintain positive relationships with executives and avoids potential conflicts.

• Regulatory and Disclosure Requirements:

  • Under Japanese and international securities regulations, shareholding exceeding certain thresholds (e.g., 5% or 10%) triggers stricter reporting obligations. For example:
    • Holdings above 5% require submitting a "large shareholding report" (similar to the U.S. Form 13D/G), disclosing investment intent.
    • Approaching or exceeding 10% may classify the investor as a "major shareholder," necessitating additional disclosures about control intentions or triggering antitrust reviews.
  • Buffett’s choice of 9.9% as the upper limit keeps him within the "passive investor" safe harbor, avoiding cumbersome regulatory procedures and potential legal liabilities. It also aligns with his investment philosophy: focusing on intrinsic value rather than short-term market manipulation.

• Strategic Considerations:

  • Japanese trading houses (like the five majors) often have complex ownership structures and cultural traditions, where high foreign ownership could trigger local resistance. Buffett’s commitment alleviates such concerns, demonstrating respect for corporate autonomy.
  • From an investment perspective, this reflects Buffett’s prudence: even while optimistic about these companies (e.g., their stable dividends and global operations), he avoids introducing uncertainty through excessive ownership.

Practical Impact and Label Association

• Investment Strategy: This embodies Buffett’s "value investing" principle, emphasizing patient ownership over aggressive intervention.
• Shareholder Responsibilities: As a passive investor, Buffett avoids obligations typical of activist shareholders, such as driving ESG (environmental, social, governance) reforms or facing shareholder lawsuits.
• Latest Shareholding Update: As of recent reports, Berkshire’s stake in these trading houses is nearing 9% but remains strictly below 9.9%, honoring the commitment.

In summary, this commitment is not merely a regulatory tactic but a reflection of Buffett’s investment philosophy: maximizing long-term returns through quiet ownership rather than pursuing control. Exceeding the threshold could force a shift from "value investor" to "activist investor"—a role inconsistent with his longstanding approach.