Investor: I want freedom.
Shrewd investor: I have Shrewd'm!
- Anonymous Shrewd
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 5
Long time ago Jim mentioned:
My best approach (and my main personal investing approach) goes like this:
Check the most recently published quarterly book per share.
When the P/B ratio drops below 1.35 sell some BRK stock and use the proceeds to buy long dated deep in the money BRK call options.
...
Then, next time the stock trades above 1.55 times known book per share, take the profits on the calls and use all the proceeds to buy plain stock again, ditching the leverage.
So, you're invested all the time, but pile on a little leverage when the outlook is particularly good.
It's much like your switch, but instead of switching between BRK and something else, you're switching between BRK and more BRK.
Just now in my skimming is this:
Fri Jan 26 05:13:29 PM CST 2024
From ycharts: P/B 1.599 for Jan. 26, 2024
From alphaquery: P/B 1.55
From macrotrends: P/B 1.57 January 25, 2024
So this would indicate that we should sell any DITM calls, right?
The most recent under 1.35 was:
From ycharts: P/B 1.349 for Oct. 27, 2023
BRK-B opened 10/30/23 at 332.96,
closed 1/26/24 at 385.40.
Up 15.7%
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Maybe in ditching the DITM calls for stock, maybe also sell covered calls?
No. of Recommendations: 0
Maybe in ditching the DITM calls for stock, maybe also sell covered calls?
Yes, my threshold P/B for switching from DITM calls to stock is the same as my threshold for selling covered calls.
No. of Recommendations: 6
Long time ago Jim mentioned:
My best approach (and my main personal investing approach) goes like this:...
Maybe in ditching the DITM calls for stock, maybe also sell covered calls?
Bear in mind that the "mechanical" method I described is just a specific example of the general principle.
When valuations get high, I lighten up...in a variety of ways. In this cycle I have outright sold some of the deep ITM calls I owned, I have sold some DITM calls and used the proceeds to buy plain stock, and I have written some OTM calls turning some of the position into the "covered calls" combo. The specific valuation number and amount I use is more seat of the pants than my description would suggest. The amount also depends on whether I need cash to spend : ) Adding those together, my notional Berkshire position is about 58% as big as it was in during the dip in late 2022 (pessimistically assuming the calls I've written are all exercised).
For example, you're right about the P/B ratio being high enough that I would back off the leverage some, but new statements are out soon and we know that book value is about to jump a fair bit and no doubt lots more profits were pocketed by head office since end September, so the valuation level presumably isn't as high as the last known book suggests.
Maddeningly, I just sold a property and my cash allocation is very high right now. I wish the price of BRK were crashing now rather than setting new highs the way my cash allocation percentage is. Even a week long dip would be fine--I'm sure nobody minds!
Jim
No. of Recommendations: 1
P/B is higher.
Fri Feb 9 04:11:26 PM CST 2024
From ycharts: P/B 1.646 for Feb. 9, 2024
From alphaquery: P/B 1.62
From macrotrends: P/B 1.62 February 08, 2024
BRK.B closed at 398.36
52 Week Range 292.42 - 399.15
