Berkshire Hathaway's Best Days Appear to Be Over After Leadership Shakeup

Regular readers may recall that until this past April, Berkshire Hathaway's "B" stock (BRK.B)  had been one of the longest running positions in the Sargefolio. 

That name had been a solid and consistent performer for years and relied upon by investors my age (I am in my early 60s). I would have bought the "A" stock, but I never hit the lottery, and I never hit 60 home runs in a Major League Baseball season.

We all believed in Warren Buffett and Charlie Munger. They invested the way we were taught to invest when we were young. They were the very best there was at value-focused, fundamental-based investment. When I was young, Buffett was Wall Street's version of Joe Namath and Walt Frazier all wrapped up in one.

Modern day traders and investors all learn technical analysis (TA) first because it's easier to pick up the basics quickly than it is to learn how to interpret statements of income, statements of cash flows and balance sheets. Modern day traders all learn technical analysis first because it's easier to pick up the basics than it is to learn the basics of how macroeconomic data and political influence impact monetary and fiscal policy and how policy impacts financial markets.

Please Don't

For those of you about to send off angry emails, don't. I use technical analysis every day. TA has served me well and has only become more and more accurate over time since the use of algorithms increased and the use of human traders decreased. Aside from momentum-chasing, keyword-reading algorithms, algorithms do what the chart tells them to do. They don't factor in antiquated concepts like balance sheet health. Over time, Buffet's method for investing, though still quite valid over longer timelines, waned in popularity.

I still have trouble investing in companies with negative cash flows or sloppy balance sheets. I'll trade them, but not invest in them. My readers all know that I mention the fundamentals when I analyze a stock. Most of my peers no longer do. Talking to some, not all traders and investors who do this for a living but are 20 or so years younger than I, it has become clear that many do their jobs without even considering corporate fundamentals.

So, I had to evolve whether I liked it or not. Evolution turned out great. I can come at you from a technical, fundamentals or economic direction. Without trying to sound pompous (though it will come off that way), I have excelled across completely different eras. That's something I'm proud of. The question is though: Can Berkshire evolve?

Time to Get Back into Berkshire?

On May 5, after I was already out of my position, I wrote this:

"Of course, the firm's financial release played second fiddle to the news that would break toward the end of the meeting. We had known for quite some time that this would eventually happen. I had recently exited my long position in Berkshire Hathaway, the B stock (BRK.B). I did not know this would happen now. I held on to those shares for years, but one had to at least think that at one of these annual meetings soon, the firm's Chief Executive since 1970, Warren Buffett, often considered the greatest fundamental investor of all-time, would step aside. 

"At 94 years of age, holding down a terribly demanding position and executing his duties at a high level, had to have become difficult without his career-long friend and business partner, Charlie Munger. Not to mention, probably a lot less fun. Munger was in my opinion, just as revered as Buffet, even if slightly lower high-profile in nature, (and he) had passed on at the age of 99 in November of 2023. 

"Towards the end of the annual meeting, Warren Buffet told his audience, many of whom had been with him for a very long time... 'Tomorrow, we're having a board meeting of Berkshire, and we have 11 directors. Two of the directors, who are my children, Howie and Susie, know what I'm going to talk about there. The rest of them, this will come as news to, but I think the time has arrived where Greg (Abel) should become the chief executive officer of the company at year end.'"

It was over. I had exited in time. As of Monday morning, Berkshire senior vice president and CFO Marc Hamburg will retire on June 1. In addition, Todd Combs, who had been CEO of the GEICO division of Berkshire, will depart the firm to take on a new role at JP Morgan Chase (JPM) . Combs, it is believed, had taken on an increased level of importance after Munger's death as an investment voice in Buffett's ear.

I'm Sorry...​ 

Forget the bull flag. The stock did go higher and then it failed. ​The recent double-top pattern of bearish reversal takes precedence. The stock is struggling to hold onto its 50-day and 200-day SMAs on Monday. Losing both of those lines will force professional managers to decrease long-side exposure.

In addition, relative strength is relatively weak. The daily MACD is postured bearishly as well with the histogram of the nine-day EMA no below zero and the 12-day EMA crossing below the 26-day EMA. Don't get me wrong. I am rooting for incoming CEO Abel. I want this firm to do well. I just don't think the stock can do as well as it has without Buffett out in front and without Munger to bounce ideas off of. 

To me, this name is either a wait and see, or an outright short idea. This is not, in my opinion, a dip to be bought.

At the time of publication, Guilfoyle had no positions in any securities mentioned.