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- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 2
Start first buy. Is now a good time?
Thanks in advance.
No. of Recommendations: 0
No, probably not the best time.
No. of Recommendations: 1
Start first buy. Is now a good time?
Thanks in advance.
Usually the cheap-skates on this forum don't like to pay up for valuations like we have today. But if your time horizon is extremely short or extremely long it's probably a fine time to buy. The next week or two look kinda good - we're about to take out everybody's covered call strikes LOL
No. of Recommendations: 1
The next week or two look kinda good - we're about to take out everybody's covered call strikes LOL
Yup. My CC looked good a week ago, but it will get taken out today. I cannot believe the run up of BRK-B in the last several weeks, damn near a melt-up.
I imagine that it cannot hold and we'll be able to buy it back below the strike+Call premium in the near future.
Well, Jim said that he already exited most of his BRK, so I don't feel so bad about losing these shares. He had to have sold lower than what my CC will get.
No. of Recommendations: 7
The other answers are good.
* Today seems to be a below-average moment to enter a position.
* But 20 years from now it will still look like a good entry price.
Here is the reason that I and others note that it's not a great moment to buy: the price seems to be somewhat higher than you'd usually expect given what the company is generally deemed to be worth.
Compared to the average valuation ratios seen in the last 15 years, using the price at the moment of $444.15 per B share:
Based on price-to-book value, you'd expect the price to be 13.7% lower
Based on ratio of price to peak-to-date book-per-share (a slightly better metric), you'd expect the price to be 14.7% lower.
Based on my own metric of fair value per share, you'd expect the price to be 17.5% lower.
In round numbers, at the valuation multiples typical of the recent era, you'd expect the price today to be something more like $368-383.
Maybe the old market values will not be typical of the present and future, but it's not a bad starting guess.
As you might expect, Berkshire's stock price also spends around half its time BELOW the average valuation level. Such a day will probably happen again soon enough. It's pretty much a sure thing that the stock price will one day be lower than today's level. And probably (but at all not certainly) it will get enough lower that it makes a difference you'd notice. What I mean by that: If you managed to buy at (say) $395 instead of $444, you'll be 12% richer even 20 years later. But only if today's purchase represented a lot of your future wealth.
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FWIW, it might be an OK time to start a covered call position in Berkshire.
But that's pretty elaborate way to go about life, for people who think they are smart. (not to be confused with people who are actually smart)
Jim
No. of Recommendations: 6
Compared to the average valuation ratios seen in the last 15 years, using the price at the moment of $444.15 per B share:
Based on price-to-book value, you'd expect the price to be 13.7% lower
Based on ratio of price to peak-to-date book-per-share (a slightly better metric), you'd expect the price to be 14.7% lower.
Based on my own metric of fair value per share, you'd expect the price to be 17.5% lower.
In round numbers, at the valuation multiples typical of the recent era, you'd expect the price today to be something more like $368-383.
Maybe the old market values will not be typical of the present and future, but it's not a bad starting guess...
PS
You can also pencil in a "business as usual" expectation for the next year using those numbers.
Let's imagine US monetary inflation is 3.25% in the next year. (I think it might come in a bit lower, but we'll see). Let's say Berkshire's growth in observable value is a typical year, say roughly inflation plus 7.5%. So, if valuations were typical a year from now, then you'd expect a nominal share price in the vicinity of $407-426 per B share in August 2025. My best guess would be, oh, $413-415. That will of course be wrong, but I think it's a 50/50 shot whether it's too high or too low.
Jim
No. of Recommendations: 5
Mungofitch:
FWIW, it might be an OK time to start a covered call position in Berkshire.
Don't mind if I do! BRKB 440 Call June 20/2025 sold for $38.50
But that's pretty elaborate way to go about life, for people who think they are smart. (not to be confused with people who are actually smart)
Guilty as charged! You may notice that my short call position is sold at a strike that is AT the money, and expires nearly a year from now. How did I pick that?
1) Chose Strike at the money because that maximizes the time-value of the option I am writing. In some real-ish sense, the time value is where the profit in covered calls comes from, so why not pick the highest? (No, really, if I shouldn't have picked the highest I would love it if you would tell me why)
2) Chose long-ish date out because the hypothesis is BRKB will be trading for less than its current price sometime within the next year. If I hold this position until expiry and it expires worthless, I will have made $38.50 on a $401.50 investment in 10 months, or 11.6% APR.
Anyway, we shall see. My break-even is $478.50/shr, that is if the stock is called from me I will have sold it for essentially $478.50, which is a pretty high price.
Crossing my fingers that this will be fun,
R:)
No. of Recommendations: 10
FWIW, it might be an OK time to start a covered call position in Berkshire.
But that's pretty elaborate way to go about life, for people who think they are smart.
The few times I have written a covered call on BRK, the outcome brought a particular quote to mind:
"Man Proposes, God Disposes"
Just because it is arguably over-valued doesn't mean that it will be going down soon.
One of these days it will sink in that I'm not as smart as I thought I was.
No. of Recommendations: 1
"FWIW, it might be an OK time to start a covered call position in Berkshire."
Don't mind if I do! BRKB 440 Call June 20/2025 sold for $38.50
...
My break-even is $478.50/shr, that is if the stock is called from me I will have sold it for essentially $478.50, which is a pretty high price.
Hah! Almost caught me, that looks delicious. But I just got done saying that I keep learning that I'm not as smart as I think I am. ;-)
Get thee behind me, Satan!
No. of Recommendations: 2
FWIW, it might be an OK time to start a covered call position in Berkshire.
But that's pretty elaborate way to go about life, for people who think they are smart. (not to be confused with people who are actually smart)
If I'd happily sell at $485, does it make sense to sell Dec 480s for ~$5? Or is that just picking up pennies in front of a steamroller?
No. of Recommendations: 2
Well, I don't see a lot of danger in that play. You either make $500 when the option expires worthless, or you sell for $485 a share. You could forgo gains if the price goes well above $485 a share, but there isn't a lot actual risk in the play. Are you okay with either outcome?
No. of Recommendations: 6
Based on ratio of price to peak-to-date book-per-share (a slightly better metric), you'd expect the price to be 14.7% lower.I suspect the next 15 years will not look like the last 15 years. I think Berkshire will buy back shares at a higher P/B ratio going forward. Warren is setting an example to allow Greg to buy shares back at higher P/B than Buffett held out for himself for the last 15 years.
I think the golden age (13 of the past 15 years) of accumulating Berkshire shares at a decent discount are over. There will always be a few opportunities here and there when markets tank but I think the trend of buybacks is going to be at a higher P/B going forward.
See this thread:
https://www.shrewdm.com/MB?pid=265853093&wholeThre...Has the trend continued up?
Get in, stay in.
No. of Recommendations: 3
Yup. My CC looked good a week ago, but it will get taken out today. I cannot believe the run up of BRK-B in the last several weeks, damn near a melt-up.
I deal with covered calls differently than most, it seems.
I had 420 calls expiring today (about 20% of my shares) with a break-even of ~430. This morning with the price at 442.xx, I closed the calls for 22.xx and then sold September 425 calls for 22.xx. I think the net was about -0.50.
As long as I think the stock is above its current value, and I can increase my strike price, I like to sell in-the-money calls. This way, when/if? the inevitable drop comes I can realize a profit. Rolling monthly it could take a while to finally break even with the my original covered call sin, which was a June 360.
It just seems very unlikely that the price can continue to run away from me. The other 80% of my shares would welcome that though.
No. of Recommendations: 0
"As long as I think the stock is above its current value, and I can increase my strike price, I like to sell in-the-money calls. "
Are you an American subject to American tax law?
No. of Recommendations: 2
I deal with covered calls differently than most, it seems.
To each their own I say. I sold some Jan25s for ~$480 all in today. I considered rolling some Dec24s to Jan25 for no additional cash committed and a $9 increase to break even but decided to be patient instead.
Cheers to all as we enjoy high valuations for a yet to be determined amount of time.
Jeff
No. of Recommendations: 1
If I'd happily sell at $485, does it make sense to sell Dec 480s for ~$5? Or is that just picking up pennies in front of a steamroller?
Berkshire closed at $444.51 today. You have to tease out whether you really mean you're happy to sell at $485, or if reality is that you're happy to sell at 9% above the current price. Because those shares will only be called away if Berkshire is more than 9% above the current price when your expiration date comes along.
There's a chance Berkshire goes to $500, and stays there as it grows in value to its new high water mark.
I feel like I'm sitting somewhere like that having sold off a lot of stock from options at $400.
No. of Recommendations: 6
Recently Russell 2000 outperformed Rusell 1000 by something like 4% in one day. I did some analysis on this, and it turned out there were only a handful times this happened. 3 in 4 cases the small cap continued outperform large cap for the next four years.
What’s my point? My point is it’s quite possible value stocks like BRK will go higher for an extended period. There’s some regime shift going on. BRK, despite being a large cap company, has similar characteristics as small cap companies due to its large number of retail shareholders .
No. of Recommendations: 0
I will have made $38.50 on a $401.50 investment in 10 months, or 11.6% APR.
Plus the interest for 10 months on the $38.50 which increases the return a bit (just like Berkshire enjoys holding the "float", you would enjoy holding the option premium through expiry and/or exercise).
