BERKSHIRE HATHAWAY PORTFOLIO

Trading Warren Buffet's best stocks for greater returns..


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Everyone has no doubt heard of Warren Buffet, arguably the best investor in history, and no doubt less people will have heard of the equally credible Charlie Munger, both of which are chairmen of the company Berkshire Hathaway.


Berkshire Hathaway is an investment holding company which has achieved an average annual return of over 20% since 1964, which is considerably more than the S&P 500 with an average of 10.2% per year. To put this into perspective, we see here a chart showing the compounded returns from 1964 through to 2016.


Berkshire Hathaway managed an astonishing compounded return of over 1 million percent. Whereas the S&P returned 2300 percent over the same period.

An investment of 10,000 in Berkshire back in 1964 would have turned into 100 million 52 years later, whilst the same 10,000 in the S&P would have turned into 230,000.


The gains produced by Buffet and Munger were largely due to their value investing approach, investing into stocks which have good growth potential at a reasonable price and holding for the longer term.


We can see here the top 20 positions currently held in the portfolio, with Apple stock taking up a staggering 47.6% of its 330-billion-dollar portfolio value. As it stands, the company has 149 billion in cash.


Let’s bring the Berkshire stock price performance into more recent times, with this chart from the Motley Fool group. They title it “One of the greatest wealth creation engines in the history of capitalism”, a statement you could hardly argue against.


The only real negative you could possibly take from the chart are the periods of drawdown, although from a long-term investors perspective this is completely normal and should be expected. The drawdowns we see here are 52% in early 2000, 56% during the financial crash of 2008, 19% in 2015, and more recently, although not shown on the chart, the pandemic crash with a drawdown of 32%.


What if I told you that you could avoid these drawdowns significantly and improve the annualised returns?


The approach I’m about to show you does just that and has similar principles to the strategies I have shown on the channel previously.

In fact, the approach will reduce the maximum loss to just 6.8% whilst improving the annualised return from 20% to 35%, or for those looking to leverage their returns with the same buy and hold exposure, you could have achieved 280% annualised returns.


The approach is rather simple, yet people often frown upon simplicity and see complexity as the answer. Let’s take a look.


The approach is based on my dual mack dee strategy which uses the monthly mack dee to determine a trading window and the weekly mack dee to determine entry and exit points. In essence we are constantly following the trend direction from a macro and more recent perspective.


Using the Berkshire chart, we can see that In November 2020 the monthly mack dee turned positive, this created a trading window, at which point we then switch to the weekly mack dee to determine our entry and exit points.


When we look at the weekly chart, we can see that the mack dee is also positive at the point of the cross, we therefore enter a trade. Whilst in the trade we continue to ignore price action, we allow the mack dee, which is basically an average of price action, to continue its path. At some point the weekly mack dee will lose momentum and cross below the signal line, we see that cross in June 2021.


It is only at the cross of the weekly mack dee that we refer to the price action to consider a stop loss position, again on the weekly chart. We can see the long red candle which pushed the mack dee below the signal line, it is at this point we place a stop loss position, directly under the wick of that closing candle.


A few weeks pass without recovery until the price hits our stop loss and we sell the whole position.

This process continues, we look to ensure the monthly mack dee remains positive and wait for the weekly mack dee to cross back over the signal line. We see the cross here and once again make our purchase.