No. of Recommendations: 8
With the share price at $485 today, wouldn't it have been better to lighten shares at $530 three months ago and buy them back today for $485? Yes, of course. That's making $45 per share vs $21.
The problem is the price might have stayed high and you'd still be waiting to buy back, testing your patience, or the price drops like it did, and you wait for it to drop even more, really getting yourself into a mental pickle.
A simpler view is that you shifted the odds between likely return and maximum return. Even if the stock price had stayed precisely flat, you'd still have made the maximum return from the calls, which is pretty good.
I have been on average net short Berkshire year to date, and the stock price is up, but I've made a tidy profit. Not an immense one, but that's entirely fine by me. Valuations were high enough at the start of the year that there was no reason to expect a "price up" year as the most likely outcome.
The same is true now. Might go up, might go down, but "down" remains somewhat more likely than "up". To the extent that the future resembles the past in terms of observable value growth rates and valuation multiples, one might expect a one year real return of -6% from here as a rough guess ($459 per B next June in today's money, plus or minus a really big random number)
Jim
