Warren Buffett is a legend in investing circles, mostly for his highly successful strategy of buying and holding stocks. However, although he purchases huge numbers of stocks, it is probably a mistake to say that he is a stock trader. The Sage of Omaha does not buy stocks looking for short-term returns or technical moves – he’s actually buying businesses that are well run and have significant growth potential. In other words, he invests in businesses, not in stocks. This is the secret behind the success of Berkshire Hathaway – Buffett knows how to recognize a good business and become a partner with it for the long run.
Except, perhaps, when it comes to currencies.
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.
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.
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