Subject: Re: Charts and predictions
We can also look at the past to see what usually happened next. Historically this distance above the "norm" was followed on average by meaningfully negative real returns in the next year
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May I ask what you will be doing about this? Do you keep a core holding of BRK even believing the stock price is that much too high?

Usually I do, but not this time. I have almost no net position in Berkshire at the moment.

I'm cash heavy because I have some cash from something else from earlier in the year that I haven't deployed yet, which is unrelated. But I have a negligible amount of "net" Berkshire position as I've written high strike calls against essentially all of my remaining long positions, having sold the rest of my long positions. The last big "net long" block was dumped July 18 with B shares at $448.79 (check the chart, I'm quite proud of the luck of that timing!)

Oddly, since most of my current long term long position is held as deep in the money calls, I am now in a "bull call spread": long and short call options on the same thing but at different strike prices. Losing money slowly on time erosion of the low-strike calls, and making money rather more quickly on the time erosion of the high strike calls--if it stays in a range I make a little money every day. But, other than that, it's close to a neutral position, depending on what the stock price does and when: I might have no position at all soon if the stock price goes even higher and the calls I've written are exercised, or I'll keep the portion I haven't sold if the stock price retreats.

I have (just) enough confidence in my valuation methodology to believe that there isn't a decent chance of making a decent return in the next year, so I'll wait for a more attractive valuation before pouncing. Ideally Berkshire, maybe something else. There's always another sale sooner or later. And I don't pay capital gains tax so lightening up or switching positions doesn't have that drag. And, unusually, you can get meaningfully positive real interest rates on cash at the moment. I've done very well in the first half of the year (we've all seen that Berkshire is up 23.3% year to date), so even a little bit of interest income will be more than enough to satisfy me for a while.

Jim

PS
You might wonder why I still have any deep in the money calls rather than plain stock, since calls make most sense only when you want leverage because the near term outlook is particularly good--which is isn't. The reason is that the amount of time value that I could realize on selling them (near the bid price, far from the ask price) is not great, and corresponds to a low interest rate on the "borrow". If I sold them and switched that same size of stock allocation to plain stock I would be saving costs from the eroding time value in the calls, but eating into a cash pile that is currently earning a higher rate sitting in T-bills, so I'd be worse off. If I could trade at the midpoint of bid and ask it would make sense, but I can't.