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Time to buy back yet??

I believe 1.38 x book is roughly median historical book value. So it's not a screaming bargain, just a fair price in my opinion.

jg

Time to buy back yet??

Well, I bought back...some of the high strike calls I wrote long ago. Took some profits.

Not because things are screamingly cheap, but simply because I don't think prices will ever go in a straight line. I figure I can probably do that trade again some future day when the price is again relatively high. And I think the valuation multiple is low enough that it doesn't really make much sense to be even mildly/notionally short.

Jim

Maybe yesterday I made a mistake. As 2x before last month I followed Jimīs idea to sell cash covered puts (both times shortly after bought back for 30% re 15% gain or so). Each time accepting that if executed Iīd had to buy BRK at effectively around $455-$450, an ok price for me.

But I like sentiment indicators. And this board is one. With all that negative sentiment expressed here since the AM, which is fully in line with the marketīs reaction, I am wondering whether I should not listen more closely to my own "I wouldnīt be surprised if Berkshire falls out of favour", wondering whether we might not see one of those rare times again when Berkshire is a real steal.

Berkshire has been below 1.3x book for 35% of the time over the last twenty years, and below 1.2x book for about 15% of the time. I personally am waiting for less than 1.3x book to make any additional purchases.

Jk

I personally am waiting for less than 1.3x book
Maybe the right time to buy is when Berkshire is discussed on the "Falling Knifes" board 😂

Berkshire has been below 1.3x book for 35% of the time over the last twenty years, and below 1.2x book for about 15% of the time. I personally am waiting for less than 1.3x book to make any additional purchases.

One question here is whether the buyback change in policy changes this math, especially given the growing pile of gold BRK is sitting on. I suspect it does.

Since the change in policy in mid-2018, BRK has been at 1.3 or below only 20% of the time and below 1.2 book less than 10% of the time. This may simply reflect an elevated market. But, and assuming to inflationary and deflationary factors affecting fair price to book ratio continue to roughly offset each other, I'd wager time below 1.3 will continue to be a shorter trip going forward, given BRK's ability and commitment to buying back shares at such prices. Not because BRK's a buyer affecting prices(though the effect of BRK moving to heavy buys on market sentiment shouldn't be discounted), but because it solves their biggest problem -- allocating their idle capital smartly and at scale.

It could just be a small sample and the final stages of a market bull run elevating prices. But I think the market rightly sees BRK as having big opportunities if its stock price swoons.

I did at $464.77

I did at $464.77

I had $466 limit order clear as well. I am now back into BRKB in a meaningful way after selling at $510-$520 last year. Is the difference in price something to be proud of? Not really - more embarrassed that I got out than anything. But I was feeling pretty uneasy with how much cash was sitting on the balance sheet, the high valuation of the market overall and the BRK stock, and with the uncertainty of Greg Abel taking the helm.

Now the stock has come down from its highs to something with a wider margin of safety, and I have loved the moves that Greg Abel has been making since taking the helm. That includes taking more ownership of investments after a period of time when the stock buys and sells BRK has doing seemed short term focused and confused to me. I thought that might accelerate after WB departure, but it feels like its being reigned back in by Greg. His performance at the AM was also exciting. I loved his rational command of the businesses.

So instead of holding a lot of my portfolio in cash in a market that feels very much like its overheating, I have opted to reopen a large position in BRK with that cash. I hope there is a near term opportunity they will have to deploy a lot of $380B held on their balance sheet, and if not, then at least it seems $465 or so is a range that could encourage a lot of buyback activity from corporate. My last time of being a large (for me) BRK owner lasted over 15 years. So if I hold onto this stock for 10-20 years again this time, I am completely confident I will have gotten in at a good price, even if its not a screaming bargain.

I have another order in for $450.00 . The last couple weeks have been some of largest buying since 2020 . Like you, I sold around 516 because of the way Berkshire rocketed last spring.

I believe 1.38 x book is roughly median historical book value. So it's not a screaming bargain, just a fair price in my opinion.


I think there are better opportunities in the market, I haven't been a buyer for a while. There is an active discussion on the Falling Knives board about a few of these (example: ADP, MSFT are better values, however with much different risk profiles than BRK). If BRK were to trade down to under 1.3x book I would have a different view...

tecmo
...

I have this fantasy that BRK buys DIS in an all cash deal. It would be easily doable with the giant mountain of cash sitting on the balance sheet. Its mind boggling that the company keeps enough cash lying around that it could buy DIS two times over.

thesaltyone:
I believe 1.38 x book is roughly median historical book value. So it's not a screaming bargain, just a fair price in my opinion.

Historically over the last 25 years, when BRK has traded at 1.38 x book, it has average ~15% gain over the next year. You can see its average returns over other shorter and longer holding periods, and at other P/B ratios in this blog post: https://kazart.blogspot.com/2024/09/predicting-ber...

R:)

Historically over the last 25 years, when BRK has traded at 1.38 x book, it has average ~15% gain over the next year.

Though technically true, that statement is pretty misleading, as that average return includes all the times that the stock was very much cheaper than 1.38 times book.

The average multiple they mention is valid. Market multiples of book per share used to be high, but that era ended in 2007. The average P/B ratio since January 2008 has been 1.384, using peak-to-date book-per-share for each day.

So, if you have a starting/purchase date at around that average multiple, and you expect the multiple to be at an average level at the end of your holding period, your real return will equal the real rate of growth in book per share during your holding period. That has been inflation + 8.0%/year since the start of 2008, though I would probably pencil in inflation+7%/year as a reasonably sane expectation going forward.

An expectation of around inflation + 7% is a long way from the nominal 15% that the quote suggests one might expect.

As I type, the price is $478.64 per B and P/B is 1.439. If book were to rise inflation + 7% in the next year, and the ending multiple were to end up at the modern average of 1.384, you'd expect a one year return from here of around inflation + 2.91%. Book growth of inflation + 8% and a typical ending multiple gets you one year of inflation + 3.9%.

Maybe book per share will soar this year, maybe multiples will expand. But unless you have information that I don't, it's probably reasonable to expect something in the vicinity of "the usual".

All that being said, it's still a fine investment. The valuation multiple is still pretty close to its modern average if you squint a bit, and the prospect of a pretty long term return of around inflation + 7%/year is not bad at all.

Jim

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