Does Buffett ever trade, rather than acquire?
From time to time, Buffett has made changes in his portfolio – including divesting assets such as Union Pacific when he no longer felt that the value was there. However, for the most part, no one has ever accused Buffett of speculative trading – he has the reputation of being the ultimate value investor.Except, perhaps, when it comes to currencies.
Buffett and the foreign currency market
Back in 2002, Buffett did something he never did before – he started to take positions in the foreign currency market. This was because he became increasingly concerned about the growing trade deficit in the United States. He was aware of the issue before hand, but by 2002 felt that global appetite for continued US trade deficits was starting to falter badly.Buffett grew the positions that he took in 2002 further in 2003 as his view of the US dollar became increasingly bearish. In fact, the dollar did start to slide at the end of 2002, leaving Berkshire Hathaway in the relatively enviable position of owning about $12 billion of foreign currency contracts, spread across a number of different currencies. At the same time, Buffett also held about $1 billion in euro-denominated bonds with high yields.
So, despite having built his empire based on buying into high-value, well-run businesses, the Sage of Omaha has shown that he is definitely not above betting on currencies to hedge risk and drive profits. Clearly, this is a lesson that we can all benefit from – Buffett did not become one of the richest men in the world by ignoring opportunities or failing to manage downside. In fact, Buffett’s moves in the currency markets clearly show that trading – not investing – in the currency market is a perfectly valid strategy, even for hard-core value investors.
Editors’ Picks
EUR/USD consolidates weekly gains above 1.1150
EUR/USD moves up and down in a narrow channel slightly above 1.1150 on Friday. In the absence of high-tier macroeconomic data releases, comments from central bank officials and the risk mood could drive the pair's action heading into the weekend.
GBP/USD stabilizes near 1.3300, looks to post strong weekly gains
GBP/USD trades modestly higher on the day near 1.3300, supported by the upbeat UK Retail Sales data for August. The pair remains on track to end the week, which featured Fed and BoE policy decisions, with strong gains.
Gold extends rally to new record-high above $2,610
Gold (XAU/USD) preserves its bullish momentum and trades at a new all-time high above $2,610 on Friday. Heightened expectations that global central banks will follow the Fed in easing policy and slashing rates lift XAU/USD.
Week ahead – SNB to cut again, RBA to stand pat, PCE inflation also on tap
SNB is expected to ease for third time; might cut by 50bps. RBA to hold rates but could turn less hawkish as CPI falls. After inaugural Fed cut, attention turns to PCE inflation.
Bank of Japan set to keep rates on hold after July’s hike shocked markets
The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session.
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