Veteran trader makes bold call on Berkshire Hathaway shares

Operating earnings declined 30% in Q4 to $10.2B and full-year 2025 operating earnings fell to $44.5B from $47.4B in 2024; insurance underwriting income dropped 19.5% to $7.2B. Berkshire shares underperformed the S&P 500 last year (BRK.A +10.85%, BRK.B +10.89% vs S&P +16.39%); BRK.B plunged 4.9% on March 2 and as of March 6 are YTD down 0.73% (BRK.A -0.93%) vs S&P -1.54%. New CEO Greg Abel has resumed buybacks, purchased $15M of stock personally and pledged to use his salary to buy shares annually; cash and U.S. Treasury holdings remain large at $373.3B. A veteran trader highlights a technical pivot at $494 with potential upside to $568 but prefers option spreads to manage risk.

Analysis

Berkshire’s core structural advantage is optionality: an unusually large liquidity buffer plus an insurance float creates a convex payout profile if management elects to deploy capital aggressively after a market dislocation. That optionality is underpriced when investors focus only on near-term operating noise; an opportunistic M&A program or stepped-up repurchases can compress the conglomerate discount quickly, producing asymmetric upside without requiring a re-rating of the underlying businesses.

Primary risks are operational (insurance underwriting cycle deterioration), investment-markets (large passive/active flows into the stock and its top holdings), and governance perception around succession execution. Time horizons matter: technical-driven moves and fund manager window-dressing can swing performance in days–weeks, while meaningful de-conglomeration or capital deployment outcomes play out over 6–18 months.

Second-order winners include broker-dealers and option-market makers who benefit if buybacks reduce float and concentrate share ownership, and cyclical names in Berkshire’s portfolio that would see amplified moves on any reallocation of capital. Conversely, highly concentrated holdings could amplify downside correlation: a material drawdown in one large holding could mechanically depress conglomerate NAV and investor confidence beyond what fundamentals justify.

The consensus trade is cautious; that’s sensible for headline risk but likely overstates permanency of the discount. If management demonstrates repeatable, predictable capital deployment (size, cadence), short-term skepticism will flip fast — the catalyst set is small and identifiable, making a defined-risk, event-driven approach the efficient way to express a constructive stance.

Key Decisions for Investors

• Defined-risk options entry (BRK.B): Buy a 3–6 month bull-call spread roughly 10–15% out-of-the-money (OTM), sizing the premium to 1% of portfolio value. Rationale: participate in a technical/repurchase-driven bounce with capped downside (max loss = premium) and potential 2–3x return if shares re-rate; cut position if spread value falls below 25% of peak value or if insurance metrics deteriorate materially.
• Market-neutral conglomerate-arbitrage (long BRK.B / short basket): Go long BRK.B and short a pro-rata basket of its largest public holdings to neutralize market beta; horizon 6–18 months, notional 0.5–1% of portfolio. Target: capture compression of the conglomerate discount (~5–10% target); rebalance monthly and tighten stops if net-beta deviates >0.15.
• Income-to-acquire (cash-secured puts on BRK.B): Sell 1–2 month cash-secured puts roughly 8–12% OTM, allocate 0.5% portfolio per leg. Rationale: collect premium while setting a disciplined entry price to accumulate shares if assigned; max risk is assignment at strike, manage via rolling only if premium coverage remains attractive.
• Tail-hedge for concentrated exposure: Buy protective puts or put spreads on the largest correlated holding(s) in the portfolio (e.g., the single largest equity exposure) with 3–9 month tenors sized to cap a catastrophic drawdown. Use this if taking meaningful long exposure to Berkshire to limit portfolio downside and keep overall hedging cost below 50–75bps annually.