Jim: You might end up borrowing at a real 5.5% to see a value increase of a real 6.0%. Not great math.

I'd be interested to hear if you'd still make / are still making this trade, all else being equal, and/or how you'd think about the decision when the math is this close.

I can see how the risk/reward of an effectively permanent leveraged position in BRK has changed rather substantially, but if your (conservative) estimate of BRK's real growth rate is 6%, a +0.5% return every year is still a non-negligible boost to returns. The risk and reward also seem to cut equally both ways, assuming that a deep enough in the money call option won't expire worthless. So to me it still seems clear that the leverage is preferable.

I tend to trade in and out of my leverage (so I'd be waiting for the expected return to increase before I add leverage, and I'd drop it when the short terms prospects don't look as rosy), perhaps to my detriment, but I've begun to come around to the idea of holding a permanent or quasi-permanent leveraged position, if the cost of borrowing were to allow it. So I'm curious how you handle these close situations.

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.