Has this whole New Economy-Old Economy thing got your portfolio down? One month, high-concept tech stocks are all the rage, and old-fashioned value investing is squaresville, daddy-o. The next month, value is cool again, and tech is out.
How do you avoid getting creamed as fortunes reverse? You could do worse than to split your holdings between legendary Omaha square Warren Buffett's holding company, Berkshire Hathaway Inc., and New York City's Nasdaq exchange. Nasdaq bills itself as the stock market for the next 100 years--or the next 100 minutes at least. So-called QQQ units, also known as Qubes, mirror the performance of its 100 largest stocks.
As the accompanying chart shows, shares in Berkshire Hathaway and the Nasdaq Composite Index often move in opposite directions. At the beginning of 1999, Berkshire Hathaway's A shares were trading near $80,000 (U.S.), while the Nasdaq Composite had levelled off around 2,500.
But Nasdaq soon began to soar as Berkshire Hathaway sank. Buffett doggedly stuck to investing only in companies that he understands. This past January, New York Times columnist Maureen Dowd quipped that "your personal trainer knows as much about one-day price movements as Warren Buffett."
In March, Berkshire Hathaway's stock bottomed out at $40,800 (U.S.) the same day that the Nasdaq Composite hit an all-time high of 5,132.5. Buffett said he felt "like the quarterback whose report card showed four Fs and a D but who nonetheless had an understanding coach. 'Son,' he drawled, 'I think you're spending too much time on that one subject.'"
However, in April, Berkshire Hathaway shares jumped by nearly 45%, while the Nasdaq Composite nose-dived below 3,500. What will happen next? Often everything old is new again, and vice versa.