He has only talked about macro trades a couple of times in his career, but these have always turned out to be highly lucrative investments.
In his position as the CEO of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial), Buffett has always sat atop a corporation with multiple divisions, which deliver information to him from different parts of the U.S. economy.
Being in this unique position gives the Oracle of Omaha unique insights into different sectors, industries and the general state of the economy. He can use this data to inform further investments and macroeconomic trades.
Toward the end of the 1990s, Buffett revealed two macro trades in his annual letter to investors. He informed Berkshire's shareholders that he had acquired U.S. Zero-coupon Treasuries and a large volume of silver:
"Last year. We purchased 11.2 million ounces. Marked to market, that position produced a pre-tax gain of $97.4 million for us in 1997...Thirty years ago, I bought silver because I anticipated its demonetization by the U.S. Government. Ever since I have followed the metal's fundamentals but not owned it. In recent years, bullion inventories have fallen materially, and last summer Charlie and I concluded that a higher price would be needed to establish equilibrium between supply and demand. Inflation expectations, it should be noted. play no part in our calculation of silver's value. (Another] non-traditional position at year-end was $4.6 billion, at amortized cost, of long-term zero-coupon obligations of the U.S. Treasury: These securities pay no interest. Instead, they provide their holders a return by way of the discount at which they are purchased, a characteristic that makes their market prices move rapidly when interest rates change. If rates rise, you lose heavily with zeros, and if rates fall, you make outsized gains. Since rates fell in 1997, we ended the year with an unrealized pre-tax gain of $598.8 million in our zeros."
Based on the information we have available, these trades yielded around $1 billion in profits for Berkshire's investors.
Buffett has always been on the lookout for interesting trades and investments. He has never been one to place limits on his investment universe. Over the past several decades, we know he has traded oil, silver, Treasury bonds, junk bonds, Coca-Cola (KO, Financial) options and he has placed a number of short-term arbitrage deals.
The Oracle has only discussed these trades on a few occasions. I think he is not too open about these investments because he does not want to encourage individuals to speculate in the macro markets. Investors can lose a lot of money very quickly, speculating on financial instruments like silver and distressed debt. Berkshire can take these losses, and it can also afford to hold on to these securities through periods of extreme volatility. Individual investors cannot.
Buffett is also extremely patient. He is prepared to sit and wait for years for the perfect macroeconomic opportunity to come along. Berkshire does not need to trade to earn profits. Its operating businesses keep the cash flowing on a daily basis. With this backstop in place, Buffett can take advantage of these opportunities when they present themselves without having to put the rest of the business under pressure.
The lesson for investors here is that speculating on the prices of assets such as bonds and commodities can be profitable, but it is not something Buffett supports. If investors want to copy his success, they need to be patient and wait for the perfect opportunity, even if it takes years to arrive.