No. of Recommendations: 18
I'm a bit cash heavy, and Berkshire light, at the moment. I'm not exactly sure what a great re-entry price is...it depends in part how low the price goes in future, which is very much unknown.
One possible way to pass the time: write a put option that gets you the price you'd like, backed up by the cash you have sitting around earning interest.
The time to consider writing cash-backed put options is on a panicky day when the price is experiencing momentary weakness, as that's when premiums are decent. Down 2% today, so that counts.
A random example: a January 2025 $410 put option could be written for a premium about $16.80 right now.
There are two possible outcomes:
* The stock is assigned. You get a net entry price of (strike-premium)=$393.20 in nominal terms, which is 1.36 times current known book. That's about 2% cheaper than the 10 year average P/B. Berkshire has been buying back shares at prices over $400, so that doesn't seem too bad, and the stock will presumably be worth more at year end. But most importantly, the market price might be higher or lower, but the value will presumably be higher at expiry, especially after 8 months of inflation since the entry price is nominal. It's likely to be a good net entry price at around year end.
* Or, the stock is not assigned. As a function of the amount of capital tied up = net entry price, you get an annualized return of about 6.55%/year rate from the premium. But, this is in addition to whatever you're earning on the cash at the moment that would be backing up the put option, around 4.8%-5.4% depending on how you're managing it. Total around 10%/year, which is not that bad at all. In particular, it's somewhat above what I would expect from market returns on Berkshire's stock price in the next 8-12 months if valuation multiples and growth rates are typical.
Just a thought.
Jim
