By Eric Rosenbaum 02/06/10 – 11:00 AM EST
OMAHA, Neb. (TheStreet) — Longtime Berkshire Hathaway(BRK.B Quote) investors and kneel-at-the-feet-of-Warren Buffett devotees have not been happy about recent coverage of Berkshire Hathaway B shares as a tradeable investment.
Indeed, TheStreet has received numerous reader comments describing the very notion of trading Berkshire Hathaway stock — as opposed to holding it for all eternity — as “pure drivel.”
The value investing, buy-and-hold approach — with which Warren Buffet and Berkshire Hathaway are virtually synonymous — is, by their way of thinking, not one to be argued against.
Indeed, the long-term data on Berkshire Hathaway is seemingly incontrovertible: in its early days, Berkshire Hathaway was a $4 stock, yet by 1979 that $4 stock was worth $577 a share.
Over the past four years, while the S&P 500 Index was down 23%, Berkshire Hathaway managed a 4% gain. Over the past 15 years, Berkshire Hathaway has outperformed the S&P 500 by two-thirds.
Granted, Berkshire did trail the S&P in 2009, and analysts say the two-thirds long-term outperformance of the S&P 500 by Berkshire has been narrowed. Nonetheless, Berkshire Hathaway has proven itself as a good long-term investment, which should hardly be news to anyone.
Still, since the Berkshire Hathaway B shares split in late January, bringing the shares down to a retail investor-friendly price range of $70, it has been a legitimate question for interested investors to consider if now is an opportune time to bet on the Oracle of Omaha’s ‘all-in wager’ on the U.S. economy.
Berkshire Hathaway shares have hit four 52-week highs since the stock split in January. On Monday of this past week, Berkshire attained a share price of $78 on its B shares.
Market uncertainty dominated the latter half of the week. In particular, the uncertain employment outlook in the U.S. — even with total unemployment falling below the 10% level for the first time since August — and increasing fears that European nations, weighed down by woes in Spain and Greece, won’t recover as fast as hoped, led to a market selloff that brought Berkshire Hathaway’s share price back to a price of $73.57 at the close of trading on Friday.
Berkshire Hathaway shares hadn’t closed at a price as low as Friday afternoon’s price since January 27. In fact, Berkshire has closed above $70 every day over the last eight trading days, whereas before the Jan. 21 stock split, Berkshire Hathaway had not closed above $70 since early August.
Technical traders — and the very mention of the term “technical trader” makes the Buffett faithful steam at the ears like a Burlington Northern(BNI Quote) coal train — have been monitoring the Berkshire Hathaway trading dynamics and believe that a price level of $70 in the B shares may be an important trading threshold that Berkshire shares will be able to stay above for the long-term.
Long-term trading charts — and again, master Buffett’s flock of sheep would take shears to any long-term trading charts they could get their hands on — indicate that after the $70 mark, Berkshire Hathaway shares have historically run into congestion once they reach the area of $87.50.
It is not as if the active trading community has anything but the utmost respect for the man, the investing legend, the Oracle of Omaha Warren Buffett.
Short-term traders have told TheStreet that, above all else, Buffett stepped into a crippled market last year in a way no other capitalist had the guts to do, and his investment in Goldman Sachs — which has turned out to be a sweetheart deal for Buffett and Berkshire investors — is the prime example.
Scott Redler, chief strategic officer at T3 Capital said, “Most traders like Buffett, and when things hit the fan last year, he was the one who came out with a plan to buy U.S. stocks, as opposed to adding fuel to the fear fire. His companies aren’t sexy, but his mantra is something you have to respect, and fundamentally, traders like Warren Buffett.”
Traders are also evaluating Berkshire Hathaway shares as a potential defensive equities proxy during periods of market unrest. On Friday, Berkshire’s B shares closed up 1.3%, while the S&P 500 and Dow Jones Industrial Average were up marginally — 0.3 and 0.1%, respectively.
For those Buffett faithful who are adamant in their belief system that anything other than an eternal hold on Berkshire Hathaway stock is “pure drivel,” it is almost as if they are unwilling to accept the fact that the January stock split and S&P 500’s planned inclusion of Berkshire Hathaway have changed the trading dynamic in the stock.
Actually, the stock split and the S&P 500 planned inclusion of Berkshire Hathaway have provided a trading dynamic for a stock that, more or less, had no trading previously.
Berkshire Hathaway is the same company, but that same company is seeing a lot more interest from retail investors — and, you can bet, from retail brokers once all the big Wall Street firms add coverage — as well as from the trading community. What’s more, since the Berkshire Hathaway B shares spiked by $10 in the two weeks from the stock split to this past Monday, it is not unfair to ask whether investors might be better off waiting for another entry point.
In addition, taking into consideration the fact that Berkshire Hathaway operating subsidiaries from Clayton Homes to carpet market Shaw Industries are intricately linked to a sustained economic recovery in the U.S., it is not at all clear that Berkshire Hathaway’s stock chart should go higher and higher. If an investor bought on Monday at $78 and the U.S. economy slips in its recovery, that Berkshire stock could be back to the $60s, where it was for much of 2009, very quickly.
It all begs the legitimate question: Buffett faithful not withstanding, are you a bull or bear on Buffett’s Berkshire?
Long-time Berkshire Hathaway investors should be happy to hear at least one thing related to the recent trading focus on Berkshire Hathaway: the bulls, or maybe we should say the Omaha steer, have it!
More than 80% of survey takers think that it is time to go long Berkshire Hathaway, and the stock is headed for $90.
Only 20% of TheStreet survey takers expressed a bearish outlook on Berkshire Hathaway shares — and these survey respondents were split evenly in their bearishness among two responses: approximately 10% of these Berkshire bears think it is time to short Berkshire Hathaway shares because the shares are in fact headed back to the $60s; the other 10% of our bears think investors should stay away from Berkshire shares entirely, because the U.S. economic recovery will continue to be stymied by lack of job growth.
Survey says, Go forth and go long on Warren Buffett.
Ultimately, that should even make the buy-and-hold Buffett faithful a happy bunch, though in the end, we know it’s all just “pure drivel”.
— Reported by Eric Rosenbaum in New York.
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