No. of Recommendations: 15
When you say "typical" price, are you referring the the mean P/BV, which over the last 20 years has been 1.4, or are you referring to the mean analyst estimate of fair value, which is about 1.6?
The former. I try never to give an opinion on what a share is actually *worth* at any given moment. I tend to look only at what it's likely to trade for, given the usual relationship between a value metric (book or whatever) and market price. Like most observers, I assume that true fair value is higher than the market price most of the time, but I don't try to calculate where.
So we're left with two questions: (1) How far will the price fall? and (2) at what price will Buffett repurchase stock, as his repurchase price will affect the stock price?
Lacking any better information, I assume that the price will fall to a valuation level around 1.4 times book at some point in the not too distant future, something I would probably say no matter what the current level is. It will then go either up or down. At that level, Mr Buffett seems quite happy to be a buyer, with some certainty at any level below about 1.48, so I assume that he will resume buybacks in the not too distant future.
This permabear thinks (or wildly speculates) that the stock will fall lower over the next three months, perhaps by another 12% to 1.35x BV,
That wouldn't surprise me at all. The stock has traded below 1.35 times peak-to-date known book over 40% of the time since January 2008, 17.5 years ago. I just don't find myself with any good reason to have a strong opinion about it happening in any particular time frame. If we see a big bad bear at some point, I expect Berkshire's price will get dragged down with everything else for a while.
Even now, it's not crazy for a person to at least start thinking about bullish positions. For example, January $460 puts would get you about $15.50 today. If exercised, you'd get a net entry price of $444.50, which isn't so bad. If book at year end is (say) $322, you'd be entering at 1.38 times book, a bit below average, which would probably do fine over time. If not, that's a 6.4%/year rate on the cash committed to add to whatever you're already earning on that cash, say 3.5-4%, for a total of ~10%/year rate. Who counts on anything more than that? As the price falls, this type of deal could get more interesting. At some point there's no need to get fancy, the optimal strategy becomes simply "buy the damn stock".
Jim
