No. of Recommendations: 6
Long time ago Jim mentioned:
My best approach (and my main personal investing approach) goes like this:...
Maybe in ditching the DITM calls for stock, maybe also sell covered calls?
Bear in mind that the "mechanical" method I described is just a specific example of the general principle.
When valuations get high, I lighten up...in a variety of ways. In this cycle I have outright sold some of the deep ITM calls I owned, I have sold some DITM calls and used the proceeds to buy plain stock, and I have written some OTM calls turning some of the position into the "covered calls" combo. The specific valuation number and amount I use is more seat of the pants than my description would suggest. The amount also depends on whether I need cash to spend : ) Adding those together, my notional Berkshire position is about 58% as big as it was in during the dip in late 2022 (pessimistically assuming the calls I've written are all exercised).
For example, you're right about the P/B ratio being high enough that I would back off the leverage some, but new statements are out soon and we know that book value is about to jump a fair bit and no doubt lots more profits were pocketed by head office since end September, so the valuation level presumably isn't as high as the last known book suggests.
Maddeningly, I just sold a property and my cash allocation is very high right now. I wish the price of BRK were crashing now rather than setting new highs the way my cash allocation percentage is. Even a week long dip would be fine--I'm sure nobody minds!
Jim
