Is Berkshire Overvalued? The Rare Inverse Play for Those Betting Against the Oracle

Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) is often considered a rock-solid long-term investment. It's delivered an average annual return of nearly 20% ever since Warren Buffett took complete control of the company in 1965, compared to the S&P 500's average annual return of 10%.

Berkshire beat the market as Buffett transformed the aging textile maker into a diversified conglomerate that owned cash-rich insurance, railroad, utility, and consumer staples companies. It reinvested that cash into its massive portfolio of stocks, which is now worth $320 billion -- or 30% of its market capitalization of $1.08 trillion.

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Yet over the past 12 months, Berkshire's stock has risen by less than 4% as the S&P 500 has advanced nearly 12%. Three issues weighed down its stock. First, the company paused its buybacks for 5 consecutive quarters, indicating its shares were overvalued.

Second, Buffett sold a lot of Berkshire's top stocks and boosted its cash, cash equivalents, and U.S. Treasuries to a record $382 billion by the end of the third quarter of 2025. Those sales suggested the S&P 500, which trades at a historically high 30 times earnings, was getting overheated. Last but not least, Buffett retired at the end of 2025. For many investors, Buffett's departure marked the end of an era -- and the right time to sell Berkshire's shares.

Should you invest in an "inverse" play against Berkshire?

Some investors might think it's the right time to bet against Berkshire with Direxion's Daily BRKB Bear 1X Shares (NASDAQ: BRKD), an inverse ETF that replicates a short position against Berkshire Hathaway's B class shares. However, investors should understand that this leveraged ETF is geared toward short-term traders rather than long-term investors.

To replicate a short position against Berkshire, Direxion mainly uses total return swaps with banks to deliver the inverse return of Berkshire's stock. For example, if Berkshire's stock declines 1%, the ETF will rise 1%. But if Berkshire's stock rises 1%, the ETF will fall 1%.

However, this strategy is risky because it's highly leveraged. For each total return swap, Direxion takes out a "synthetic" loan based on the number of shares it's betting against. It pays interest payments on that contract until it expires. That's why it charges a high expense ratio of 0.97%. Moreover, its returns aren't cumulative; they're reset every day.

Berkshire Hathaway is also so large and well-diversified that it could easily beat the market over the long term as long as Buffett's successor, Greg Abel, doesn't drastically change its playbook. If that happens, a long-term bet on BRKD would be a disastrous investment.

What: Direxion BRK.B Bear 1X. Operation: Simple 1:1 inverse (short) of Berkshire. Tie-in: A "bold" contrarian take. Focus on Berkshire's massive cash pile or potential "post-Buffett" uncertainty.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.