No. of Recommendations: 15
Just a quick update as I haven't posted much here. I made some portfolio moves after a long period of inactivity.
Taking advantage of prices and valuation in Berkshire which frankly I didn't thought I would see anytime this decade, I have reduced the size of my Berkshire holdings significantly since the beginning of the year. I have long expressed some concerns about the level of risk in having such a large portion of one's net worth in a single company and while that made sense when valuations were attractive, I could no longer justify sitting on a clearly richly valued position in such a large weightage in my portfolio. I am fortunate that all my substantial capital gains are inside a tax shelter and entirely free of tax.
I still think I have an impridently large third of my portfolio in Berkshire and if the price continues to zoom higher, I will continue to move capital out of it. This time last year, I had well over half my portfolio in Berkshire.
I have moved capital to some "growthy" names and in particular added to my holding in the Canadian company Constellation Software after it encountered a rare period of mild price weakness.
My quick and dirty conservative math for Berkshire prospective returns went like this :
- Current book value per B share - $301
Assume value creation at the rough conservative ROE for Berkshire of 9% p.a
- BV after 5 years - 466
- Assume market assigns a 1.2 multiplier then giving a share price of $555 per B, less than 5% above today's price.
So there is a scenario where there are no returns for the next 5 years given a historically unusually rich starting valuation.
On the other hand, it is likely that Berkshire will cope well with whatever the macro conditions throw at it so a complete evaporation of capital even from today is unlikely.
TLDR- The market has been offering a generous price for Berkshire and I took advantage of it to diversify the portfolio after a long time and reduce the signle stock risk in my portfolio. If the price continues to rise, I will do more of this.
