Warren Buffett Now Trades Currencies

Many out there still buy into the notion that Warren Buffett buys and holds. A reader wrote in and argued to us:

I did happen to stumble on your Buffett comments. Your comments continually say that Buffett’s methods do not work for trading. If you ever get the chance to speak with him he’ll probably agree with you because he doesn’t trade stocks and therefore his “system” wouldn’t obviously work. The first mistake you make is to think your investing when your actually trading. It seems you need to learn that fundamental difference before you trying to make a comparison. Buffett does not “trade stocks”. He buys businesses. He has said over and over again, that he looks at buying into great businesses not buying a stock…While I have nothing at all against trading in stocks, your website is littered with the word “trading” and in-fact is even in the title of your website. Finding an article about Buffett on your site would be similar to opening up Car and Driver and having them slam Tiger Wood’s choice of clubs in their editorial. Indeed most “trading” magazines don’t have articles about Buffett nor would I expect to find one. Instead you’ll find articles about Berkshire in Forbes or Fortune, who seem to have gotten in right, when they are focusing on the fact that he buys businesses.

Does Buffett ever sell stock? If so, when and why? If you ever buy and or sell, you are a trader. For those that don’t accept our words, then explain this excerpt from the news wire of CNN/Money:

‘During 2002 we entered the foreign currency market for the first time in my life…In 2003, we enlarged our position, as I became increasingly bearish on the dollar.‘ Buffett made clear that he’s not entirely comfortable — personally or professionally — making currency bets. ‘The cemetary for seers has a huge section set aside for macro forecasters,” he quipped. He explained that the trade deficit has him spooked. “In recent years our country’s trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world,’ he said. ‘Late in 2002, however, the world started choking on this diet, and the dollar’s value began to slide against major currencies.’ He noted that at year end, Berkshire held approximately $12 billion in foreign exchange contracts, within five (unspecified) currencies. He also said Berkshire owns about $1 billion worth of high-yield bonds denominated in euros.

Do you buy and hold currencies forever? How does that work? Give us a break. Buffett is running a hedge fund just like other managers. Just admit it. He is a trader. He is speculating on currencies and freely says so. However, Buffett’s currency trading goes squarely against that well honed image of the “value” player that so many have bought into for decades. You can’t just blindly believe in heroes, you have to apply critical thinking.