No. of Recommendations: 2
Of course, the risk is, the stock goes back to 525 before it hits 450.
" Other risks and final thoughts
Since the article centers around the use of a limit order, a few words about its pros and cons are in order. As detailed in an earlier article:
Some investors love it for price precision and consider it a show of discipline, while some sneer at it as a market timing attempt. Personal preferences aside, limit orders do come with a distinct set of hidden risks such as the non-execution risk (the "missed boat" risk) and the opportunity cost of cash. Also, the use of limit order and a market order (at the current price of around $477) make little difference in terms of long-term returns (9.7% vs. 9.3% per annum based on my model above).
But I do need to articulate the difference between annual percentage returns and the amount of dollars earned, which is what ultimately matters. With the same capital available to me today, a $450 order, if triggered, would allow me to accumulate ~6% more BRK shares than a market order at around $477. A 6% difference is quite sizable for me, and it will stay with me as long as I hold the shares, no matter what the percentage returns turn out to be.
Another uncertainty involves the potential buybacks from the BRK. Shortly after the FQ4 ER, disclosures have shown the BRK is resuming its share buybacks, and its CEO, Abel, has also acquired more shares (see more details quoted below):
Seeking Alpha News: Berkshire Hathaway begins share buybacks, CEO Abel acquires shares worth ~$15M. Berkshire Hathaway is repurchasing shares of its class A and class B common stock under the company's long-standing share repurchase policy. Under the policy, the company buys back shares when they believe the repurchase price is below the intrinsic value, conservatively determined.
These repurchases and insider purchases could indicate attractive valuation. Indeed, the current P/B ratio of BRK is quite close to the long-term average already (1.43x vs. 1.41x as shown in the chart below). With the amount of cash on BRK's balance sheet, the company certainly has the bandwidth to repurchase a substantial number of shares, which serves as a long-term stabilizer for the share prices.
However, in my experience, short-term price movements are largely influenced by sentiment and macroeconomics. These factors are causing heightened price volatilities in BRK share prices, and I don't see the volatiles quieting down in the near term. As such, I see large odds for a $450 entry point in the near future (say the next 1 month). This entry price could provide 9%+ annual total return potential. In terms of P/B ratio, this price would correspond to a 1.35x ratio, noticeably below its historical average and offering a sizable margin of safety."
https://seekingalpha.com/article/4886466-berkshire... 