No. of Recommendations: 8
This is intriguing. We're still a few years out from needing to live off of Berkshire. When we do, my original thought was to sell, say, 1.5% of shares per quarter, perhaps selling nothing if price is below a certain threshold. But this approach may be preferable. It's a simple method, and I think it falls into the "good enough" category.
Though I think this is a better one
https://www.shrewdm.com/MB?pid=698430964A shorter summary:
Estimate what your position is actually *worth*, not market value. For Berkshire this could be a fancy value metric, or as simple as "1.5 times book value per share".
Do this a few years of data, do an inflation adjustment on all the figures, and smooth them a bit so it doesn't squiggle up and down from year to year. I used a four year (actually 16 quarter) smoothing.
You end up with something like the pink line here
https://www.stonewellfunds.com/SmoothedRealValuePe...Then,
each period, sell however many shares it takes to get the true value of your portfolio back to what it was the last time you did a withdrawal. That's it.
If Berkshire's trend rate of value growth slows, your withdrawals gradually decline, and vice versa.
But by construction, the true inflation-adjusted value of your portfolio never changes...you only ever spend the increase in value. Unlike most SWR schemes, you get to spend ALL of the value increase.
The very simplest approximation of that would be: Periodically calculate the four year average book per share, and sell the fraction of your shares that corresponds to the percentage rise in that number since last time. Using 16 quarterly figures and a quarterly withdrawal cycle is recommended but not necessary.
How does this compare to the system at the top of this thread? The year to year income is more variable...it will be a bit lower for a while after a bad bear market, for example. But this "constant portfolio value" system has no critical dependency on any particular long run average market valuation multiple, so you know precisely what the long run trend of your portfolio value will be: same as when you started.
Jim
