How Billionaire Investors Hedge Against Geopolitical Black Swans
Investors must always be comfortable with the idea that the market bears risk.
Sometimes this risk flies under the radar and isn’t as pronounced as it probably should be.
However, in other cases, the topic of risk can catapult to the forefront of discussion. There can be specific events or signals unfolding that give investors the jitters – and during these times, investors will make adjustments to their portfolios to avoid getting caught off guard.
How Billionaires are Hedging
In the following infographic from Sprott Physical Bullion Trusts, we explain the particular geopolitical risks that have the world’s most elite investors concerned today – and what moves they are making to protect themselves from black swans.
The world isn’t predictable at the best of times – but after unanticipated occurrences such as Brexit and the election of Trump in 2016, the geopolitical tea leaves are getting even more difficult to read.
The world is approaching a major inflection point and the intense amount of global angst we’re experiencing now stems from deep, structural forces that have been building over decades.
– Reva Goujon, VP Global Analysis of Stratfor
According to Reva Goujon, VP Global Analysis of Stratfor, we are experiencing the perfect storm of “-isms”: nationalism, nativism, protectionism, and isolationism.
As a result, the following potential geopolitical risks are at the top of the agenda for experts and top investors:
Unpredictability of the Trump administration, government inaction, a trade war with China, and NAFTA renegotiations
Economic nationalism, further “exits” from the EU, Russia and China seeking to assert authority, terrorism, escalation of Middle East conflicts, and North Korea’s nuclear ambitions
Elite Investors Taking Action
With these risks perceived to be on the table, some of the world’s most elite investors like Ray Dalio and Warren Buffett are taking action. Here’s what they are up to:
Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates, had this to say:
When it comes to assessing political matters we are very humble.
-Ray Dalio, Aug 2017
Dalio’s advice: to stay liquid, stay diversified, and not be overly exposed to any particular economic outcomes. He also recommends a 5%-10% position in gold.
The Oracle of Omaha has a similar but very different perspective.
No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media.
– Warren Buffett, Feb 2017
With this in mind and with equities expensive, the seasoned value investor holds onto piles of cash to prepare for potential buying opportunities. Berkshire Hathaway now has $99.7 billion in undeployed cash, the most in the company’s history.
Billionaire hedge fund manager Bill Ackman took a position in “out of the money” call options on the VIX.
This will protect against stock market risk.
– Bill Ackman, Aug 2017
The billionaire founder of Greenlight Capital says he is keeping gold as a top position.
The (Trump) administration comes with a high degree of uncertainty.
– David Einhorn, Feb 2017
Lastly, the famous value investor Howard Marks warned his clients to move into lower-risk investments to protect against future losses.
The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology.
– Howard Marks, July 2017
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