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- Manlobbi
Investment Strategies / Falling Knives
No. of Recommendations: 15
Why not trade the stock? Time is the friend of the owner of an excellent business. We should not forget that Berkshire reinvests all of its earnings and has historically compounded book value per share (and intrinsic value per share) at very attractive rates.
This would indicate a modest overvaluation of 8.7%. You could sell your share today, hoping to buy it back at a lower level in the future. But within a year, it is highly likely that Berkshire’s intrinsic value will have “caught up” to today’s “overvaluation” and you could very well never have an opportunity to buy back your position at a lower price.
Some people have a trading mentality while others do not. Personally, I find trading unappealing even when it works out well, as it did for me last summer. It is too mentally taxing to try to jump in and out of a stock simply because its value seems a bit on the high side. The situation would be different if a stock is trading at a level that could plausibly result in no return for five or ten years, but that has never really been the case for Berkshire Hathaway. As a result, it seems better to just hold the stock unless there is a need to raise cash or some clearly superior opportunity comes along that carries reasonable levels of risk.
https://substack.com/@rationalwalk/p-157992850Rational Walk’s usual excellent commentary on the AR. I wonder if he was reading this board and responded to the long recent discussions on options and lightening up on rallies etc etc etc.
No. of Recommendations: 22
rnam, I posted my long term results from holding Berk (and AJG) to remind people that holding a significant amount of stock (relative to your net worth) for a long time in what is obviously a solid business is a logical path. Time is your friend as they say.
This does not, that's NOT, negate what is obviously also a sound logic when Jim "lightens up" and/or adds back, that if you are using Berk to fund retirement...and his model obviously works. But he is disciplined and logical and if you do that game you must be too. I 100%, maybe even 150%, support the valuation posts that Jim provides here, they are wonderful particularly for those considering buying Berkshire.
The issue is if you sell them not only at what price do you buy back but HOW MUCH do you buy back. Many have trouble once they've sold buying back AS MUCH as they previously had as they are buying at what's most likely a higher price than was in the shares that they previously sold.
I often think, given when I first started posting on Berk forums was getting close to 30 years ago, that my $500,000-$600,000 or so of Berk wasn't back then considered anything special on the forum. But today the 25 shares is heading to $18,500,000. So on the forums from the beginning the theme was buy when it was a bargain and sell some when it was over-valued.
I just wonder, of those participating back then who used the in-and-out, how many have a proportional outperformance vs holding the shares? And again, the sell must be followed by a somewhat close to same proportion buy-back at some point (unless you are funding retirement) to outperform.
I'd say virtually no one has this type of result. But that's long term thinking and forums by their very nature are ALWAYS geared to hyper-focus on shorter term decision making.
No. of Recommendations: 1
" I often think, given when I first started posting on Berk forums was getting close to 30 years ago, that my $500,000-$600,000 or so of Berk wasn't back then considered anything special on the forum. But today the 25 shares is heading to $18,500,000. So on the forums from the beginning the theme was buy when it was a bargain and sell some when it was over-valued."
I was trading brk options before the split so on some days I was the volume, they weren't very liquid, prior to the split lol. Selling puts has been a lay-up, selling calls has been a HUGE mistake. What you did was the correct strategy, period. Well done especially if you are an American. No doubt those who are, factually challenged, will PROUDLY share the brilliance of their brk call sales. If Buffett has NO IDEA what Mr. Market will pay for brkb, and if HE has no idea how to value brk relative to market demand, who here can? Stay healthy and enjoy the score.
Disclosure, we had a seat on the NYSE and the Philly option exchange for decades. When special people here aka, option experts, post on their option strategies, it makes my day!
No. of Recommendations: 14
The issue is if you sell them not only at what price do you buy back but HOW MUCH do you buy back. Many have trouble once they've sold buying back AS MUCH as they previously had as they are buying at what's most likely a higher price than was in the shares that they previously sold.
I know what mostly happens.
You sell XXX at an "overvalued" high.
Sit in cash for a short while.
Oh, look! YYY looks to be a good buy, and I have all that money sitting in cash doing nothing, so let's buy YYY.
... time passes...
Ah-ha, XXX just went down so time to buy it.
Um, using what to pay for it? All my money is tied up in other stocks and I don't really want to sell any of them.
Other times, what happens is:
You sell XXX at an "overvalued" high.
Sit in cash for a short while.
Oh, crap! That XXX I sold at 350 is now 400. Guess it wasn't an overvalued high after all.
No. of Recommendations: 2
Ah-ha, XXX just went down so time to buy it.
Um, using what to pay for it? All my money is tied up in other stocks and I don't really want to sell any of them.
One of the reasons a guy in Monaco (and another in Omaha) says 'Only cash is cash' and have no problem sitting on heaps of it.
No. of Recommendations: 1
You sell XXX at an "overvalued" high.
Sit in cash for a short while.
Oh, look! YYY looks to be a good buy, and I have all that money sitting in cash doing nothing, so let's buy YYY.
... time passes...
Ah-ha, XXX just went down so time to buy it.
Um, using what to pay for it? All my money is tied up in other stocks and I don't really want to sell any of them.
And usually it's even worse than this. Because if it's a long term holding, a very large percentage of it is comprised of capital gains ... and taxes are due. For example, I sold some holdings of a stock in December that was nearly all capital gains. Come April, I will have to pay 23.8% of that sale (okay, maybe 23.3% because there was a small basis in it) in taxes. If I want to buy it back, even at a price that is 10% lower, I can only buy about 80% of what I sold. Obviously if I were planning on buying it back anytime soon, I wouldn't have sold, but with your scenario, the person does plan to buy it back someday soon. In my case, I sold because I have other plans for that money.
