Please be positive and upbeat in your interactions, and avoid making negative or pessimistic comments. Instead, focus on the potential opportunities.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 1
BUT,I wonder if any sharp money is looking at this trade, since I'm sure Buffett is as shocked as anyone?
" Berkshire still retains its year-to-date lead over the S&P but that lead hasn't been increasing lately.
The B shares' outperformance over the S&P rose to 25.2 percentage points on April 3, the largest it has been so far this year.
Today, the gap is 24.4 percentage points."
https://link.cnbc.com/public/39402682
No. of Recommendations: 2
6 months ago I thought about selling spy calls against my brkb, rather than selling brkb calls since we all agreed the Mag 7 were dangerously overvalued. However, I brilliantly concluded that was too dangerous, unless I bought spy calls, 15 % out of the money to hedge against spy smoking brkb, by june 2025. So far, brkb continues to be seen as a safer place to park, let's see what the annual meeting brings?
No. of Recommendations: 3
I have a smallish but not negligible short BRK position via puts. Not typically my thing. Thinking it effectively as insurance against things really hitting the fan -- out of the money, lots of leverage, so no payout if BRK keeps trucking. Not exactly long SPY though, the rest is a mix of equities and a significant sized cash position. I usually don't hold cash at all.
Rational Walk recently wrote up WEB's 2014 comment that "approaching double book value" was an unusually high price:
“This cheery prediction comes, however, with an important caution: If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this truth.”
RW focuses on double book value as the marker, but I think the language suggests the unusually high price is in the mere "approach" to double book -- otherwise he would have just said double book. 1.8? 1.9? I'm not sure, but 1.741 strikes me as at least approaching the approach, as reflected by the stock history since 2014.
There are other ways to get there, but WEB's own estimates of an "unusually high" price strike me as a useful heuristic (notwithstanding his recent distancing from price to book). And unusual things usually go back to usual.
In any event, my thought is that since (1) BRK is approaching an "unusually high" price,(2) BRK is heavily exposed to the U.S. market, and (3) the U.S. has a very good chance of having at least a short term wallop from recent events -- a lot is happening that is putting significant stress on a complex system -- it wouldn't hurt to buy some insurance in the event things go bad.
No. of Recommendations: 2
I have a smallish but not negligible short BRK position via puts. Not typically my thing...
I did too, but no longer. I closed them Apr 8-9 a moderate profit last week--they tend to evaporate worthless if you wait too long, and it looked to me like we'd at least get a bounce.
Berkshire is still a fair bit above the usual valuation level, especially considering that the coming year is likely to be worse than average, so why close them? I thought there were better bearish bets one could make: I used the proceeds to buy disaster puts against something that I thought might fall more in the next round of poop hitting the fan, a small cap fund. Aside from value, they tend to get hammered hard in big sell-offs.
Jim
No. of Recommendations: 0
I thought there were better bearish bets one could make: I used the proceeds to buy disaster puts against something that I thought might fall more in the next round of poop hitting the fan, a small cap fund. Aside from value, they tend to get hammered hard in big sell-offs.
Thanks for the idea. Do you have small cap funds you prefer for "disaster puts"?
My thinking with BRK at this price is there are at least two ways to get a decent drop in relatively short order (a significant market pullback; BRK return to normal price prices), but the small cap route is probably more effective as insurance against market decline, particularly given BRK's large cash holdings at present.
No. of Recommendations: 9
Thanks for the idea. Do you have small cap funds you prefer for "disaster puts"?
I didn't really overthink it, just picked something plausible, IWM tracking the Russell 2000. It's liquid.
Homilies about disaster puts:
They aren't usually a good investment. Not only do you have to be right about a market drop, you have to be right about when it will happen. Expect to have a total loss. It's like buying fire insurance for your house.
Decide in advance what situation will cause you to close them. Nothing worse than seeing your puts soar in value, then being hesitant to sell them and watching all that value evaporate again as the market rebounds. Rebounds after big sell-offs tend to be strong and rapid. One dumb strategy: buy puts in pairs. As soon as any contract has doubled in value, close half. That way at least you'll break even if you let the second half expire worthless!
If you want to get a bit fancy, the puts are very expensive at the moment. You can cut the cost a bit if you realize that you're unlikely to benefit from a HUGE loss...there is probably a target range of market lows that you think seems plausible. Say, you want to profit from drops between -20% and -40%. (those are for illustration, not predictions) In that case, buy a put 20% below the current level and sell a put 40% below, to offset the cost. Writing an index put seems risky, but it isn't if done in a pair trade like this PROVIDED you remember never to close the higher strike one first. If the market goes to -80% the put you've written at -40% will lose you a fortune, but the one you bought at -20% will be making a fortune cancelling that out.
Jim
