Like Berkshire Hathaway? Buy at these points in its Cycles

Berkshire Hathaway (NYSE:BRKa), led by Warren Buffett, is renowned for its consistent long-term performance, often defying market volatility.
This attached chart offers a view into Berkshire Hathaway's price history and reveals how its cycles provide potential buying opportunities.



Let's break down why patience, discipline, and strategic timing are crucial when investing in this stock.

Understanding the Cyclical Nature of Berkshire Hathaway

A close examination of Berkshire Hathaway's monthly price chart shows repeated patterns: the stock often returns to its simple 10 and 20 period moving averages. The green circles on the chart highlight these areas where the price interacts with the moving averages, typically signalling a reversion to the mean after periods of extended momentum.

These moving averages—the simple 10-period and 20-period—can be seen as organic trendlines that support price, acting as important benchmarks for the stock's trend. When the price approaches these moving averages, it often indicates that the stock is resetting, consolidating, or offering a point for value investors to step in. This cyclical return to key moving averages underscores why timing is an essential component of a disciplined investment strategy.

Why Buying During These Cycles Makes Sense

Statistically, buying when the price is inside these green spheres, which represent its proximity to the 10 and 20 moving averages, has historically proven to be a more favourable time to enter a position. During these periods, the stock is often seen as undervalued relative to its recent highs, and investors who capitalise on these retracements have tended to see solid gains over the longer term.

On the other hand, buying at times when the price is significantly far from the moving averages – particularly at new highs – can lead to unfavourable outcomes. Such instances often trigger emotional responses from investors, resulting in 'chasing the market'.

Historically, this has increased the probability of buying near a local top, where the risk of a pullback is elevated.

The Importance of Patience and Discipline

Patience and discipline play a pivotal role in investing in Berkshire Hathaway. Waiting for the stock to revert closer to its average price levels may mean forgoing short-term gains, but it often reduces the risk of buying at an unsustainable peak.
As seen on the chart, the stock's returns to these key moving averages have been consistent over time, providing opportunities for those willing to wait.

Managing Risk Wisely

While identifying good entry points is crucial, risk management is equally important. Investors should be conscious of their financial exposure and ensure they are not overextending themselves, even when the opportunity appears favourable. Allocating capital thoughtfully and diversifying the portfolio are key components to managing the potential risks inherent in the stock market.

Berkshire's Recent Moves and Portfolio Adjustments

Warren Buffett's investing strategy involves not just buying undervalued companies but also adjusting the portfolio in response to changing market conditions. Recently, Berkshire Hathaway has divested from several holdings while increasing exposure to others, which reflects a dynamic approach to maximising long-term gains. Examples include trimming positions in overvalued sectors or reallocating into industries poised for growth.
This approach can sometimes involve selling shares at elevated prices, only to buy them back later at a more attractive valuation.
This active management helps ensure that Berkshire's portfolio remains optimised for prevailing market conditions, and understanding these moves offers insights into the philosophy behind Buffett's investment decisions.

To wrap up, the historical performance of Berkshire Hathaway, its cyclical behaviour, and strategic management by Warren Buffett suggest a level of reliability that appeals to long-term investors. While no investment is without risks, and past performance is not a guarantee of future returns, understanding these cycles, having the discipline to wait for opportune moments, and managing one's financial exposure can make investing in Berkshire Hathaway a rewarding venture over time. I think patience can often be more important that discipline. Or to put it another way, the discipline to be patient.