Introduction
Long-Term Investments are stakes in other companies that the parent company plans to hold for years. They can be minority (<20%), significant influence (20-50%), or control (>50%).
Explanation
Companies like Berkshire Hathaway have huge portfolios of long-term investments: Apple, Coca-Cola, American Express. Google has investments in Uber, SpaceX. These investments generate dividends and capital gains.
Formula
There is no specific formula, but they impact the balance significantly
Example
Berkshire Hathaway: - LP Investments: $350B+ (mostly Apple) - Generates dividends of $5-6B annually - Represents >60% of Berkshire's total assets
How to read it
High LP investments can be positive (company generates return on excess capital) or negative (distracts from core business). Warren Buffett accumulates investments because Berkshire generates more cash than it can reinvest. Tech companies invest in startups for access to innovation. Red flag: LP investments with low returns or recurring losses.
Key takeaways
- LP investments = stakes in other companies
- Berkshire has $350B+ in LP investments
- They generate dividends and capital gains
- Good if they generate adequate return
- Bad if they distract from the core business
- Buffett: Invests excess cash that he cannot reinvest