No. of Recommendations: 19
So, you're sitting on some cash, thinking you want to buy back into Berkshire next time it's cheap. You want a seriously good entry, but you don't have any idea if it will go any lower. A price dip is a terrible thing to waste, but you never know when it will end. What's a hominin to do?
Wild suggestion:
Write a cash-backed put option. For a strange example, consider the June 2026 $490 strike, current bid is $41.85, also last trade. The current stock price is about $456.50.
Why the odd choice? Long date, and high strike.
Well, book per share might be around $335-345 at end Q2 next year, a sort of on-trend wild guess. That put would get you a net entry price of 490-41.85= $448.15. So, that might be P/B of about 1.30 to 1.34. If the future is even vaguely like the past, that's very unlikely to end badly. If P/B is a fairly "normal"/average level at the time, say $465-480, the odds of assignment are somewhat better than even, and you get your great entry.
Or, maybe the stock price is above average, and you only get to keep the premium and your current cash. That's a rate of return of 9.34%/year on the capital committed to the deal, which is additive to whatever you're earning in interest. My current weighted average interest rate on cash is 3.568% at my broker. That may change, but the total is 12.9%/year rate for now, not to be sneezed at.
Yeah, sure, it's over-complicated, but both outcomes have their charms. I just thought I'd mess with your heads.
Jim
