Warren Buffett on why U.S. fiscal policy 'scares' him

Summary

Berkshire Hathaway discusses its approach to managing currency risk, particularly regarding its Japanese investments. The company has borrowed in yen to hedge currency fluctuations, but this strategy is not a broader policy. Warren Buffett emphasizes that short-term earnings fluctuations are not the focus for the company; instead, long-term value is the priority. He expresses concern about the devaluation of currencies globally, especially due to government fiscal policies, but highlights the company's comfort with holding yen-denominated assets for the long haul. Ultimately, currency risk is managed with a long-term perspective rather than short-term earnings optimization.

Takeaways

• 😀 Berkshire Hathaway does not base decisions on short-term currency fluctuations or quarterly earnings, focusing instead on long-term performance.
• 😀 The company borrowed in Japanese yen to fund investments in Japanese companies due to the cheap financing options, not as a regular currency hedging strategy.
• 😀 The use of foreign currency-denominated assets is not a standard policy at Berkshire Hathaway, but rather a strategy for specific long-term investments, like in Japan.
• 😀 Warren Buffett expressed concern over the natural tendency of governments to debase their currencies over time, particularly with the US dollar.
• 😀 Berkshire Hathaway's decision-making does not involve manipulating numbers to meet short-term earnings targets, focusing on long-term stability instead.
• 😀 The company does not attempt to hedge against currency risks, viewing them as part of the long-term investment landscape.
• 😀 The potential devaluation of the US dollar is seen as a global systemic issue, not a problem unique to the United States.
• 😀 The strategy of borrowing in yen and investing in Japanese stocks is viewed as a comfortable and predictable investment, without concern for short-term currency shifts.
• 😀 Buffett highlighted that fiscal policies are a significant risk factor for currency stability, mentioning the consistent historical trend of currency devaluation worldwide.
• 😀 Berkshire Hathaway’s approach is not driven by short-term fiscal concerns but by investments they are willing to hold for decades or more, with minimal interference from currency movements.

Q & A

What is Berkshire Hathaway's approach to managing currency risk?

Berkshire Hathaway does not actively hedge against currency risk or adjust its strategy based on its impact on quarterly or annual earnings. Instead, the company focuses on long-term value and sustainability, without manipulating short-term financial results.

How does Berkshire Hathaway handle currency fluctuations when it comes to investments in foreign currencies?

Berkshire Hathaway does not specifically adjust for currency fluctuations in its investments. They allow the market to determine the currency's value over time, as they are more concerned with long-term performance rather than short-term impacts on earnings.

Why does Warren Buffett emphasize the long-term perspective in currency risk management?

Warren Buffett emphasizes the long-term perspective because focusing on quarterly or annual earnings could lead to temptation to manipulate numbers. Berkshire Hathaway’s strategy is centered around long-term sustainability, not short-term fluctuations in currency values.

What is the relationship between Berkshire Hathaway’s Japanese investments and the yen?

Berkshire Hathaway has invested in five Japanese companies and, due to the low borrowing costs in Japan, they borrowed in yen to offset some of the currency risk. This approach is specific to their Japanese investments, as they plan to hold them for decades.

Does Berkshire Hathaway have a general policy of hedging currency risks in all foreign investments?

No, Berkshire Hathaway does not have a general policy of hedging currency risks. The borrowing in yen is specific to their Japanese investments and is not a broad strategy for all foreign currency denominated assets.

How does Berkshire Hathaway’s approach to currency risk differ from other companies?

Berkshire Hathaway differs from other companies by not focusing on short-term currency fluctuations. While many companies may hedge currency risk to manage quarterly earnings, Berkshire Hathaway prioritizes long-term investments and avoids adjusting its strategies based on short-term changes in currency values.

What concerns does Warren Buffett express about the value of currency over time?

Warren Buffett expresses concern that governments tend to debase their currency over time, leading to a gradual decrease in value. He believes that this is an inherent issue that no system has fully overcome, and it can lead to significant economic consequences.

What role does fiscal policy play in currency debasement, according to Warren Buffett?

Warren Buffett believes that fiscal policy is a major factor in currency debasement. He suggests that the motivations behind government fiscal policies often push towards weakening the currency, making it a long-term risk for investors.

How does Berkshire Hathaway view its investment in Japanese yen in terms of long-term stability?

Berkshire Hathaway is comfortable with its Japanese yen investments because it expects to hold them for a very long period (50 to 100 years or more). The stability of the yen, combined with the favorable borrowing rates in Japan, makes it a predictable investment for the company.

What is Warren Buffett’s stance on fiscal risks and currency devaluation?

Warren Buffett is concerned about fiscal risks and the tendency of governments to engage in policies that lead to currency devaluation. He points to historical examples of hyperinflation and suggests that it is a global issue, not limited to the United States.