Many investors consider Warren Buffett to be the smartest market mind in modern history. Ranked as one of the richest men in America by Forbes, the interesting fact is that Buffett is the only one in the Forbes top 10 list, now or ever, who has made his money investing in stocks of different companies.
Buffett’s company, Berkshire Hathaway, is a diverse holding company. Berkshire holds interests in other companies that Buffett and his team believe to be great investments. Savvy market followers watch Berkshire stock as an indicator of where the general market is going. The thinking here is that watching the stock of the smartest investing mind of our time is a good leading indicator of where the general market (and the portfolios held by regular people) may be going.
By analyzing three different price charts on Berkshire Hathaway stock, we can present you with three pictures:
— On a 10-year chart, we see Berkshire stock topped out in mid- 1988, about two years before the tech bubble burst. Buffett was never into the tech stocks, so Berkshire stock never sold at the huge multiples high tech stocks did.
— On a five-year chart, Berkshire stock bottomed out at about $40,000 a share (yes, that’s a share) in early 2000. When the tech bubble burst, Buffett’s stock actually started to rise. Maybe investors were rewarding him for being right all along about his negative views on tech.
— On a one-year chart, we saw that Berkshire stock topped out at $96,000 a share in late February of this year. Ever since then, the stock has been in a downtrend, trading yesterday at $84,800 a share, down 12% from February.
While the market has been rallying of late, Berkshire stock certainly hasn’t. And since Buffett is usually a better investor than most others are, a large majority of funds are likely down more than 12% so far this year.
As a leading indicator, Buffett’s stock did not lead the current rally, which is a negative indicator. Big-cap and blue-chip stock investors beware.