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.
Editors’ Picks
EUR/USD off highs, back to around 1.1900
EUR/USD keeps its strong bid bias in place despite recedeing to the 1.1900 zone following earlier peaks north of 1.1900 the figure on Monday. The US Dollar remains under pressure, as traders stay on the sidelines ahead of Wednesday’s key January jobs report, leaving the pair room to extend its upward trend for now.
GBP/USD hits three-day peaks, targets 1.3700
GBP/USD is clocking decent gains at the start of the week, advancing to three-day highs near 1.3670 and building on Friday’s solid performance. The better tone in the British Pound comes on the back of the intense sekk-off in the Greenback and despite re-emerging signs of a fresh government crisis in the UK.
USD/JPY bounces off lows, back above 156.00
USD/JPY is starting the week markedly on the defensive, sliding back toward the 155.50 area where it has met some decent contention for now. The move lower in spot follows FX intervention chatter after PM S. Takaichi scored a landslide win in Sunday’s election..
Editors’ Picks
EUR/USD off highs, back to around 1.1900
EUR/USD keeps its strong bid bias in place despite recedeing to the 1.1900 zone following earlier peaks north of 1.1900 the figure on Monday. The US Dollar remains under pressure, as traders stay on the sidelines ahead of Wednesday’s key January jobs report, leaving the pair room to extend its upward trend for now.
USD/JPY bounces off lows, back above 156.00
USD/JPY is starting the week markedly on the defensive, sliding back toward the 155.50 area where it has met some decent contention for now. The move lower in spot follows FX intervention chatter after PM S. Takaichi scored a landslide win in Sunday’s election..
Gold picks up pace, retargets $5,100
Gold gathers fresh steam, challenging daily highs en route to the $5,100 mark per troy ounce in the latter part of Monday’s session. The precious metal finds support from fresh signs of continued buying by the PBoC, while expectations that the Fed could lean more dovish also collaborate with the uptick.
Crypto Today: Bitcoin steadies around $70,000, Ethereum and XRP remain under pressure
Bitcoin hovers around $70,000, up near 15% from last week's low of $60,000 despite low retail demand. Ethereum delicately holds $2,000 support as weak technicals weigh amid declining futures Open Interest. XRP seeks support above $1.40 after facing rejection at $1.54 during the previous week's sharp rebound.
Japanese PM Takaichi nabs unprecedented victory – US data eyed this week
I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.
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