Subject: Living from Berkshire shares
This is a subject that comes up from time to time.
Let's assume you own nothing but Berkshire shares and intend to keep it that way, and you intend to live forever. You want your income over time to be as high as possible consistent with a reasonable expectation that your after-inflation income will rise, not fall. How much do you sell for income? A particular version of the old "safe withdrawal rate" discussion.
I thought I'd share a simple plan that I concocted. It's based on the notion that you need reasonably steady real income for an indefinite length of time, while recognizing that market valuation multiples can be temporarily very high for some stretches, which messes up some systems.
Here's my simple suggestion:
(1) Calculate a smoothed book value for Berkshire. Once per year take the last four annual reports, calculate book per share for each year, and average the four numbers. No need to get fancier. No need for an inflation adjustment or looking up quarterly numbers. It doesn't matter if you accidentally skip doing the calculation one year, or do it every quarter, just do it "whenever you remember".
(2) Calculate how much of that smoothed book value you own. Your current number of shares times that smoothed book per share figure.
(3) Each quarter, calculate how many dollars worth of stock to liquidate: 2.5% of the number calculated above.
The interesting thing is that the income generated is pretty darned smooth, and worked well going into and coming out of the big stock growth bubble, price bubble, and valuation bust of 1998-2002.
If you had started this in March 1996 and kept it up to date:
Rolling one-year real cash raised would never have dropped more than -4% from its peak. Inflation adjusting the income, it would never have dropped more than -5.4%. Note that this covers the stretch of valuation levels going from very high to very low in the 1998-2000 stretch.
The portfolio's real value would have risen over time. Skipping the rapid growth of value in the late 1990s, the real value of the portfolio would have risen 1%/year in the stretch 2002 to date. Flattish in the earlier half, faster in the later half. In the same stretch, the rolling-year cash withdrawals would have increased inflation + 1.55%.
In any given year, the real withdrawals ranged from 2.6% of the real portfolio value at the start of the year, up to 8.3% of the starting value, but an average of about 5.7%.
However, this is not the same as saying a SWR of 5.7% is a good pick. The plan varies income: if the rate of growth of the firm slows a little, the income gently adjusts. If the growth rate really slows or starts falling you will start eating into the capital, but the effect will be very gradual and you should still be good for many decades.
It works particularly well if you occasionally say "I don't actually need that much money this quarter, I'll sell less than what it recommends".
Here's a table of the annual inflation-adjusted income generated. Scaled to 100k income in 2025.
1996 27999
1997 33808
1998 42712
1999 57144
2000 66127
2001 71739
2002 72988
2003 69121
2004 69311
2005 69507
2006 70650
2007 74533
2008 75760
2009 75117
2010 75112
2011 74257
2012 71855
2013 74497
2014 78025
2015 81914
2016 84732
2017 86309
2018 89635
2019 91021
2020 95509
2021 98408
2022 97203
2023 94935
2024 96099
2025 100000
Jim