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  • Analyzing Berkshire Hathaway Using SIA-Charts 0 comments
    May 4, 2012 1:30 PM | about stocks: BRK.A, BRK.B, KO, IBM

    It was recently announced that Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) has trailed the S&P 500 now for the third straight year. So you have to ask yourself the questions what should I do now? Should I sell?

    Well the hardest part of investing is not when to buy a stock, but is actually figuring out when to sell. I am by trade a fundamental analyst and I have never had a problem picking winners as I do an intense amount of research before I buy something, so I have that part covered. The selling part has always been my problem as I have figured out over the past three decades as an investor that a growth investor's biggest problem is selling too soon, just as value investors have the exact opposite problem of buying too soon.

    I believe that I have solved both of these problems by introducing technical analysis into the equation. This was a big step for me because as a Buffettologist I like most of my fellow fundamental analysts, always laughed at those practicing technical analysis and treated their work as some kind voodoo science or even related it to astrology.

    But that is no longer the case as I am proud to say that I am now a convert after having figured out my "Moving Train vs. Falling Knife" theory. I still use fundamental analysis to buy stocks, but then use technical analysis to determine when to sell or hold.

    For those new to my work, I have recently written an article on Seeking Alpha introducing my revelation and you can read it by going here

    Therefore now that everyone has been introduced to my theory let's see what the chart tells us on whether one should sell or hold Berkshire Hathaway?

    Here is the chart:

    The time to sell is not now but would have been last May when Berkshire Hathaway's 50 day moving average broke below its 100 day moving average and experienced a "Death Cross". Anyone selling then would have saved themselves a lot of pain as the stock tanked at around $82 and went all the way down to $66.

    Back in October 2011 Berkshire Hathaway's price broke above its 100 day moving average and then above its 50 day moving average by more than 5%, which signaled that a "Super Cross" was coming soon and just a month later it happened.

    Since then anyone holding Berkshire Hathaway stock would have done very well and as long as the 50 day moving average stays above the 100 day moving average my theory says to stay put and not sell. At what price should one think of selling? Well the theory states that if Berkshire's price goes 5% below its 100 day moving average then it might be time to go to the sidelines as a "Death Cross" would most certainly be around the next corner (usually two weeks). As of today that price would be $75.05 ($79 times .95).

    Here are two other charts of Berkshire's largest holdings which you can use as comparison:

    IBM (NYSE:IBM)

    Coca-Cola (NYSE:KO)

    IBM has been smooth sail upward since 2009 and Coca-Cola has just erupted. As of today's numbers we would not need to sell Coca-Cola until it drops below $66.63 or need to sell IBM until it drops below $185.78. So if the two major holdings for Berkshire Hathaway are off to the races, it is only logical that Berkshire Hathaway will as well.

    Disclaimer: Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. The information contained in this article represents the opinions of Peter "Mycroft" Psaras, and should not be construed as personalized investment advice. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.

    Disclosure: I am long KO, IBM.

    Themes: technical analysis Stocks: BRK.A, BRK.B, KO, IBM
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