While the much-covered bull market may appear to be losing steam, one steady voice has helped investors navigate the turmoil of price discovery: Warren Buffett. Known as the Oracle of Omaha, Buffett has been at the helm of Berkshire Hathaway Inc (NYSE:BRK) (NYSE:BRK) for several decades, translating to a magnitude of experience that’s practically unprecedented.
Stated differently, anyone can look like a genius in a bull market. It’s when circumstances and paradigms diverge in the negative direction that sound fundamentals are truly distinguished from passing fads.
On paper, BRK-B stock might not be the most exciting idea on the planet. Since the beginning of the year, the security gained a little over 8%, which is below the roughly 15% lift of the benchmark S&P 500. What’s interesting, though, is that over the trailing five years, BRK-B is up more than 130%. That’s superior to the S&P’s 94.45% during the same frame.
As icing on the cake, Berkshire stock’s performance also beats out the tech-centric Nasdaq Composite, which is up roughly 99% during the aforementioned period. One could argue that the technical print represents proof of concept. After all, Buffett has always been a conservative investor, focusing on core business principles over chasing the latest trends.
To be sure, the slow-and-steady approach — which involves concepts like compounding interest — might not be everybody’s cup of tea. However, it’s difficult to argue with the results.
Yes, in some years, Berkshire will be viewed as a laggard. However, because the industrial conglomerate is a bet on everything — with exposure to insurance companies, railroads, utilities, manufacturing and retail — the odds of eventual upside are presumably above average. Significantly, Berkshire’s diversification gives it natural resilience: when one business underperforms, others might pick up the slack.
Very few people (if any) would label BRK-B stock as exciting. But amid the current market chaos, Berkshire may provide a home for investors seeking defensive cover.
The Direxion ETFs: Still, the market is full of diverse voices, and not everyone agrees with the Oracle of Omaha. For those who want to place trades on either side of the conglomerate, financial services provider Direxion provides two countervailing products.
First, for the optimists, Buffett fans may consider the Direxion Daily BRKB Bull 2X Shares (NASDAQ:BRKU). Essentially, traders would be getting the Oracle’s wisdom but with 200% leverage of the daily performance of BRK-B stock. Second, pessimists may consider the Direxion Daily BRKB Bear 1X Shares (NASDAQ:BRKD), which tracks 100% of the inverse performance of the namesake security.
In both cases, Direxion ETFs provide a convenient mechanism for speculation. Typically, those interested in leveraged or inverse positions must engage the options market, which may have complexities that might not align well with all investors. In contrast, these specialized funds are debit-based transactions that operate much like any other publicly traded security. Therefore, the learning curve is mitigated.
Of course, Direxion ETFs come with risks that all prospective participants must understand. First, adding leverage or an inverse profile to a security tends to bolster its volatility. Second, all ETF traders must be cognizant of illiquidity risks. Finally, Direxion funds are designed for exposure lasting no longer than one trading session. Otherwise, going beyond this recommended period may lead to positional decay due to the compounding of volatility.
The BRKU ETF: Since the start of the year, the BRKU ETF lost about 3%. In the trailing six months, the loss has been steep, down almost 22%.
- Currently, the price action has suffered a momentum drag, slipping below both the 50-day moving average and the 20-day exponential moving average.
- A natural upside target moving forward is the 200 DMA, which currently stands at $26.17. However, investors should note the fading acquisition volume, which is a concern.
The BRKD ETF: Compared to the January opener, the BRKD ETF has lost 8.5%. However, in the trailing six months, the inverse fund is up nearly 9%.
- Recently, the price action bounced off its 20-day EMA, along with the 50 DMA. The next natural target is $24.27, which previously acted as resistance.
- While near-term momentum is relatively strong (up almost 2% in the trailing month), volume for the BRKD ETF is very low, which raises illiquidity concerns.
Featured image by wal_172619_II on Pixabay.