Subject: Re: On Topic (really :): A Berkshire Hathaway question
I highly recommend running a backtest of the approach you have in mind as I did
I would like to do that, as I just found that my idea to base buy/sell actions solely on Price/PeakBV as in

- Buy calls when Price/PeakBV falls to 1.2 in Jim's table
- Sell at 1.4

is too simple --- no matter what thresholds used! The problem is the selling. That became clear by looking at EVBigMacMeal's Price/BV table, together with a 20 year chart. A good example is the stretch 2008-2014. To simplify let's use just Price/BV (instead of Peak).

- 2008 and 2009 Price/BV fell drastic, from 1,81 to 1,17 => somewhere in 2009 such a strategy would have bought calls, with the BRK/A share price then around $100,000.
- It would have taken a full 5 years until the sell threshold of 1.4 was reached again => the calls expired worthless or with the same effect would have been rolled out numerous times.

But while Price/BV stayed depressed for many years BV and share price did not. Already in 2009 the share price moved constantly upward from it's low and apart from 2011 continued to do so for all those years.

So buying when Price/BV = 1.2 would have enabled one to sell those shares bought in 2009 for $100,000 at nearly ANY point in time during the following 5 years of still depressed Price/BV very profitable: +20% end 2010, +15% end 2011, +78% end 2012 etc.

My conclusion:
- For shares it's simple: When Price/BV is really low put every cent you don't need for a while into Berkshire.
- For calls: The decision to sell has to be a function rather of Price appreciation than Price/BV!

It's probably not necessary to develop a mechanistic formula. But if so a 'sell formula' should weight Price appreciation FAR highest, followed by Price/BV and Time (which because of the price decay of options plays a role too in the sell decision).

I hope this thread continues. I am very curious what you, knighted, and other knowledgeable posters here think of that.


P.S.: EVBigMacMeal's tables provide one BV data point per year. To do a real backtest continuous BV and price data are required. Does anybody has a link to a FREE souce?