We've all wondered. At least I think we all have. To buy some Berkshire Hathaway or not to buy Berkshire Hathaway?
Of course, laying out more than $300 grand for a single share is not realistic except for the "beyond elite." That would rule out the "A" shares (BRK.A) for most folks.
The "B" shares (BRK.B), while not inexpensive in dollar terms, are more so in that regard than say one share of Tesla TSLA or Netflix NFLX. Not to mention, they are far cheaper in appearance after doing a little fundamental analysis. That said, let's put our heads together (in other words, I welcome feedback), and see if this is, directionally, somewhere we should be headed.
Under the Hood
Old School. You know the names. Staples. Financials. The consumer... Kraft Heinz (KHC) - Get Report , Wells Fargo (WFC) - Get Report , Bank of America (BAC) - Get Report , Apple (AAPL) - Get Report , etc.
In the post-conglomerate age, the people still love Warren Buffett. I spoke to Warren Buffett once as a junior trader. I didn't know who he was at the time. I merely answered a telephone and held him on the line for the party that he had called for. Mind you, this was back in the days when land lines ruled the earth.
Though down with the markets over the past year, Berkshire is healthy, to say the least. Trading at just eight times trailing earnings, while producing operating cash flow of more than $34.8 billion, the company can boast cash and equivalents of more than $111 billion. For those keeping score, and you should be, total debt is now under $100 billion, and outsized by total assets by roughly 7.6 to 1.
Am I a fan of Buffett? Kind of. I have taken the other side of some of his highest profile trades. Generally, over time, when my opinion is in disagreement with that of Warren Buffett's, I either lose money, or end up spending a great deal of time and effort figuring out how not to.
On the Surface
Amazingly, we find Berkshire's B shares trading almost precisely at the midpoint of not only their December range, but their 2018 range. Whether one measures the retracement of the June through October run, or the December meltdown, either way, the Fibonacci levels will end up almost exactly in the same neighborhood.
That means even with Relative Strength, and the daily Moving Average Convergence Divergence (MACD) looking quite improved, that short term, support lives just below the $200 level, with some resistance offered at $207. Longer term, anyone can see the quadruple top up around $223, and the double bottom at $184.
I might be willing to venture into a long position of entry-level size, usually about 1/8 or 12.5% of my intended size, if succession at the top for Berkshire Hathaway were not something to focus on. We already know that two of the company's board members,Greg Abel and Ajit Jain, were named vice chairs in early 2018. How markets will react to the naming of a single successor at some point is unknowable. For that reason, I think that I would rather play the name as a benefactor of what I expect to see as investors return to a more sound form of investment.
--Purchase 100 shares of BRK.B at or close to $204.37.
--Sell one BRK.B Feb. 8 $207.50 call (implied val: $5.53)
--Sell one BRK.B Feb. 8 $185 put (implied val: $1.19)
Note: These option trades can, in theory (they trade thinly), provide a credit of $6.72 in aggregate, reducing net basis to $197.65. There is potential to be called away at $207.50. This would lock in a quick 5% profit over a month's time.
On the flip side, the trader could end up having 100 shares put to them at $185. In this case, that trader would be long 200 shares at a net basis of $189.33.
At the time of publication, Guilfoyle was long AAPL equity.