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It was just coincidence that my first sell order of BRK in over 28 years ownership happened to occur on Warren’s 94th birthday. I went to all cash in my ROTH account. These were the youngest shares I’ve ever owned, all purchased around the same time in summer of 2018. CAGR is about 16.5% during that short period. I’ve reduced my concentration in BRK from 85% net worth to just under 80%. My 401K at Schwab is next, where I still have a ways to go, where I hope to go all cash and reduce my total BRK concentration to about 60% of net worth, that portion of which will remain in my taxable brokerage account at Fidelity where I do not intend to ever sell. My plan is to keep raising limit orders as well as increasing the magnitude of each order, presupposing of course that this momentum rally continues…a big if……I can be ambivalent and indecisive at times. Who knows?….if it stalls out and swiftly goes back down, I may do nothing.

Any ideas or suggestions on how to proceed at this point? Not trying to find a top of course, as I could either be too early or too late, such are the dilemmas when trying to sell. I find these decisions are the hardest. Thank God, I don’t have to make decisions like this very often but it’s time for me to readjust my asset allocation while valuation is elevated so I can sleep a tad bit better at night as I turn 70 this Nov. I have mixed emotions selling for the first time, and it’s like saying goodbye to an old friend, at least in 2 of my 3 accounts. Warren is on one shoulder whispering, “We are looking for long term partners” and Charlie on the other shoulder yelling, “Don’t sell the damn stock!” 🤦‍♂️😩

Will you leave the proceeds in cash/bonds long term?

If there is a big correction do you think you will buy back in?

Just important to remember for all those that think this is something unusual that Berkshire shares are doing - BRK is just roughly tracking the XLF financial ETF (which along with the S&P 500 products is a big source of fund flows). Progressive is absolutely crushing BRK and Chubb is right there with the same moves.


It may just be that insurance companies are breaking out

Link to chart comparing BRK.B, PGR, CB and XLF
https://api.wsj.net/api/kaavio/charts/big.chart?no...

Will you leave the proceeds in cash/bonds long term?

No, this is admittedly one of the few times in my life where I am both readjusting my asset allocation and making a timing decision at the same time. I might extend the duration on some of those treasury ETFs out a few years to capitalize on appreciation with falling rates. Haven’t decided yet on that. I am anticipating serious macro events unwinding over the next year or so, and want to be ready to jump back in.


If there is a big correction do you think you will buy back in?

Yes, indeed. I won’t stay in a lot of cash or bonds long term. I will probably redeploy this cash into indexes when TSHTF. I'm just de-risking away from BRK a bit, due mainly to succesship concerns and size. Hope to get back to a 90/10 or 80/20 (combo Index & BRK) at some point IAW Buffett’s counsel for his wife and know-nothing investors like me.

My plan is to keep raising limit orders as well as increasing the magnitude of each order, presupposing of course that this momentum rally continues…a big if……I can be ambivalent and indecisive at times. Who knows?….if it stalls out and swiftly goes back down, I may do nothing.

This is why I like selling calls instead of selling outright. I can pick my prices and dates, then if my sell price is reached by the date I chose, the sell will happen (the option will be exercised and I will be assigned). If the stock price goes down, and my price isn't reached by the date I chose, the option expires and I get to keep the premium ("do nothing").

...BRK is just roughly tracking the XLF financial ETF


Thank you for that correlation. I've been very curious over this melt up. Thankfully its a 'rising tide' and not a rogue runaway.

Having said that, tides do go out. Sometimes its a super tide.

m

This is why I like selling calls instead of selling outright. I can pick my prices and dates, then if my sell price is reached by the date I chose, the sell will happen (the option will be exercised and I will be assigned). If the stock price goes down, and my price isn't reached by the date I chose, the option expires and I get to keep the premium ("do nothing").


Yeah, this was my thinking when I sold the Aug 425 call for 7.25
BRK-B now 475.92.

When it gets to 500 next week, I might sell a few shares before I get nosebleed.

A better strategy is to buy puts. It’s like an insurance policy. If stock goes down,you can exercise or sell the put. If stock doesn’t go down, your unrealized capital gain keep compounding. Not tax consequences unless your puts are profitable. If you sell calls, you could face a large tax bill, and it will end up cheaper for you to buy back the call or buy more stocks at the higher price.

Selling calls is ultimately a bet on the gammas/curvature of the Brk price movement. You expect brk would go up slowly, usually after a big jump. But there could be a regime change here. First, small caps value start outperforming large cap growth again— it’s because people are selling large caps growth. Second, Brk is now one of the top 8 companies in US. Its weight in the index will attract more inflows. There’s a lot of foreign money investing in the US stocks. Think about Chinese millionaires who are leaving China, they would buying real estate and safe value stocks.

Selling calls is ultimately a bet on the gammas/curvature of the Brk price movement. You expect brk would go up slowly, usually after a big jump. But there could be a regime change here.

Wha?

I certainly never thought that way about writings calls. I can never even remember what gamma means, and I've written over 100,000 option contracts.

To me, writing a call against your existing stock--turning a long stock position into a covered call--is just a conditional way to sell your stock.

You have a stock worth $100 and you think the valuation is getting pretty full, give or take. You decide you'd be a seller at $110. Maybe the market price will go that high, maybe it won't. Then you discover that somebody is willing to pay you $10 cash today to commit to selling to him at $110 if he should so choose in the next few months...something you would have done anyway.

So you just have to ensure you're equally happy with the two outcomes, as you don't know which one you'll get. You either get $10 cash to keep, or you sell your stock at a net exit of $120, which is above where you would have sold anyway. The key point: Both of those are good outcomes relative to not doing the deal, even if the price hits $130, because you had already decided you'd sell at $110.

For those who wrote calls earlier in the year and are regretting it because the stock has gone even higher, just go back and have a chat with your past self when you decided you'd be completely happy to be a seller at [strike + premium]. And be happy!

Jim

I agree with Jim.

I have sold calls for Jan 2025 at:


430
440
460
470
480
490
500
510
520

Small amounts at the lower prices.

I have been doing covered calls for 5+ years on BRK

Rarely exercised and always able to buy back for less than exercised. I assume the same will be true this time for some if they are exercised.

Only the $500+ are in taxable accounts, which when I began this path I assumed was 10% ish above fair value? Fair value IMO has rarely occurred over 25 year span of my owning BRK.

It may be an exciting next 5 months.

I assume it is OK to sell above my view of fair value, but of course that number grow at 8% ish per year.

Rarely exercised and always able to buy back for less than exercised.

What do you mean by buying back? The stock itself or the call? I'm a neophyte when it comes to options so forgive my ignorance. I understand the basic concept of what you guys are doing in terms of collecting some income with the premiums while waiting for a pullback, but what I’m doing is something entirely different. I'm trying to exit BRK with large sums at good price points, put it all in cash, and wait for a rainy day. Another way of saying that is I'm making a significant wholesale change in my asset allocation from 85% net worth in BRK to 60% net worth in BRK and putting the proceeds in cash for now. I don't understand how writing call options will allow me to do that effectively, safely, and quickly, with my very substantial positions in BRK. I can see playing around at the fringes with selling a few calls, to boost your return a bit, but I’m exiting, not allowing these positions to sit there, to wait in case I have to cover the option, nor have the intent of buying the stock if called, even if I didn't have long positions to surrender in those accounts to begin with.

Just important to remember for all those that think this is something unusual that Berkshire shares are doing - BRK is just roughly tracking the XLF financial ETF (which along with the S&P 500 products is a big source of fund flows). Progressive is absolutely crushing BRK and Chubb is right there with the same moves.
It may just be that insurance companies are breaking out

It may be absolutely correct that this is the reason for what we are seeing.

Nevertheless I feel reminded on stockmarket comments in the news. Whatever the S&P is doing and however small it's move might be, it's always "S&P slightly down on negative news about [xyz]". There always MUST be a specific explanation. It's just too unsatisfactory to say/read "S&P slightly down and nobody knows why".

Ok, bad comparison, as of course there MUST be a specific explanation for this big BRK move. Right? 😉

"Ok, bad comparison, as of course there MUST be a specific explanation for this big BRK move. Right? 😉"

Demand greater than supply. 😉

I'm trying to exit BRK with large sums at good price points, put it all in cash, and wait for a rainy day. Another way of saying that is I'm making a significant wholesale change in my asset allocation from 85% net worth in BRK to 60% net worth in BRK and putting the proceeds in cash for now. I don't understand how writing call options will allow me to do that effectively, safely, and quickly, with my very substantial positions in BRK. I can see playing around at the fringes with selling a few calls, to boost your return a bit, but I’m exiting, not allowing these positions to sit there, to wait in case I have to cover the option, nor have the intent of buying the stock if called, even if I didn't have long positions to surrender in those accounts to begin with.

It can be done in your situation, but you'd have to have some flexibility on the timing. The essence of writing an option is that the OTHER guy has the optionality!

If you write calls that are at or slightly in the money, the chances are good that the stock gets called away. If you use a variety of dates and strikes, some of it will go, and your liquidation will be spread out over time. If the stock price tanks, you'll only have a small bag of cash and you will have missed the opportunity to exit, but that's out on the less probable end of the spectrum. For example, if you write (say) a September $350 call you are pretty darned sure that you're going to be sending those shares away, and you might get (say) 50 cents more per B share than simply putting in a sell order. If you are happy to ride the ups and downs for a few months, one could do a variety of dates and strikes and have a glide path to the sale quantity you wanted...but only a probabilistic one.

If you want the exit to be *today*, you want to simply sell the stock.

Jim

Ok, bad comparison, as of course there MUST be a specific explanation for this big BRK move. Right?

There is always an explanation. And it's always the same explanation. It is this -

The reason any equity moves to the current price is because the weighted average of what all investors in that equity think the sum of all the future discounted cash flows have changed to. It can't be anything else. If you have 10 investors, and the stock is $100, if one of those investors thinks that the sum of the all the discounted future cash flows is $99.90, and puts his shares up for sale at that price, and another of those 10 investors agrees to buy it, and none of the other 8 investors bid above $99.90, then they agree that the current sum of all the future cash flows is now $99.90, and the trade occurs at $99.90. Now, if one of those 8 other investors thinks the sum of all the future cash flows is $99.95, and they bid $99.95 instead, then the seller (could be any one of the other 9 that thought the sum of all discounted future cash flows was $99.90) would indeed sell for $99.95 and that then becomes the consensus (weighted average of all the investors) number for the sum of all the future discounted cash flows. And this number changes throughout the day as new investors enter the bidding/asking, and as old investors drop out of the bidding/asking, and as volumes change the weighted average changes, etc.

😈

The reason any equity moves to the current price is because the weighted average of what all investors in that equity think the sum of all the future discounted cash flows have changed to. It can't be anything else.

I'd add a small refinement:
...the weighted average of what all investors who are watching and willing and able to consider a potential trade that day.

People who "buy and forget" for months or years at a time have no effective influence on market prices. Their votes don't get counted. In effect, it's only the votes among the people with eyeballs on screens that set the price. Arguably they aren't the most rational ones on average, which might explain a lot about price movements.

Jim

"The reason any equity moves to the current price is because the weighted average of what all investors in that equity think the sum of all the future discounted cash flows have changed to. It can't be anything else."

I'm not sure I follow. There must be a significant portion of people buying and selling shares who haven't attempted to value the future discounted cash flows but for example are trading based on trend or charts?

There must be a significant portion of people buying and selling shares who haven't attempted to value the future discounted cash flows but for example are trading based on trend or charts?

Sure. Those people believe that the trend/chart is showing that the average perception of the sum of total future cash flows is going up (if they are buying) or is going down (if they are selling).

The original stock position.


I will add that one of the reasons I sell covered calls is that it keeps me in the stock. Otherwise I may have sold a large portion of BRK bas the run-up was occurring and missed out possibly on some of the gain?

Are you kidding me????
$482!!

Up another 6.

Dow is down -426

Glad I didn't put on another covered call.

Are you kidding me????
$482!!
Up another 6.

Indeed, quite the rally. $1.037 trillion already, the trillion mark is so last week. The difference is $37 billion--that used to be a big number.

Price-to-last-known-book 1.724. That's 23.2% above the 20 year average price-to-peak-book, so somewhat higher than usual: only 12 trading days closed at higher multiples since March 7 2008. At the average multiple since Jan 2008, the price per B share right now would be $102 lower.

A:B ratio is 1499.77, so perhaps a slight hint of a "B heavy" move? In any case, I think the momentum boys have climbed on board for a little while, Berkshire is now rallying even a bit more than other insurers.

Jim

Price-to-last-known-book 1.724.
... In any case, I think the momentum boys have climbed on board for a little while, Berkshire is now rallying even a bit more than other insurers.

Well, crap! BRK is my largest holding, but that P/B is *really* high, historically.
According to https://www.financecharts.com/stocks/BRK.B/value/p... the highest was 1.82 at Dec 2007.
Next highest was 1.64.
Ycharts shows it is currently at the 5 year high. (5 years is the most you can get without subscribing.)

I would be afraid that a covered call would play me for a fool like it did last time. Not a whole lot of money, either. The Oct 500 call is only 4.65 with BRK-B at 478.

At 500 the P/B would be 1.79. Possible.

what to do, what to do, what to do?
Trailing stop? Covered call?
Of course, "nothing" is always an option.



Berkshire is now rallying even a bit more than other insurers.

Dealraker made a post on 9/1/23 where he talked about AJG and BRO and insurance being "an absolutely fantastic business".
On 9/13/23, "I've been hyping the insurance brokers AJG and BRO for 25 plus years."

A post on 12/19/22 quoting Buffett, "We should have gone into the insurance brokerage business instead of underwriting" where he mentioned AJG and ERIE.

Sorry for the rambling. This BRK action has got me at sixes and sevens.

what to do, what to do, what to do?
Trailing stop? Covered call?

Ahem, is it a sin if I mention what I did?
Just very quietly, between the two of us: Buying Puts.

"what to do, what to do, what to do?"

I swapped out a small amount of my Berkshire into DG and DLTR. We'll see what happens from here.

I've been selling into the rally. Sold more today at $479.

I had been a steady buyer up until retirement. The transition from buyer to seller was a mental shift. Selling at these prices is satisfying.

Shaun

[i]I've been selling into the rally. Sold more today at $479.

I had been a steady buyer up until retirement. The transition from buyer to seller was a mental shift. Selling at these prices is satisfying.[/i]

The problem is what to do with the cash produced by the selling, and for how long is any such alternative to be pursued.

unQ

The problem is what to do with the cash produced by the selling, and for how long is any such alternative to be pursued.

Cash for a while isn't so bad.

It's just a different kind of coat tailing:

“I don’t mind at all, given current conditions, building a cash position. When I look at the equity markets and the composition of what’s going on in the world, we find it quite attractive.” --W. Buffett, May 2024

Jim

It's just a different kind of coat tailing

He’s sitting on gobs of cash, not repurchasing- he likes T Bills better than his own stock at these levels.

What I find impressive, is that he doesn’t even throw a token billion per quarter in repurchases, his fat wallet is not influencing a bad decision.

“I had been a steady buyer up until retirement. The transition from buyer to seller was a mental shift. Selling at these prices is satisfying.”

Well played and well timed. Thanks for sharing- did you trim or sell in a big way? I will struggle with this transition as well.

Sitting tight here as I have about 12-18 months of cash in the cash bucket and want to kick the pain of heavy LTCG down the road a while longer. No plans on touching the IRAs for at least 5 years so I am just sitting tight there as well. Wow, P/B>1.7! It certainly feels a bit weird up here with So much Love from Mr. Market & the highest since my ownership. May be a while before we return to those days where so many loaded the 18 wheeler with shares at P/B<1.3. Nice to see us approach I.V. range, but it took the patience of Munger to get there. Fascinating to watch it all play out and great to see how different shrewds are reacting to this run.

I swapped out a small amount of my Berkshire into DG and DLTR. We'll see what happens from here.

Darn, looks like one day too early!

" Darn, looks like one day too early!"

mark, good morning, are you an American? If you listen to the call, are they asked about shrink and employee retention at the store level? I'm sure you know it's not politically correct to mention, shrink, these days. To be honest, it's not just cashiers and stock people, it's managers as well, with respect to morale issues. Good luck.

I sold the last bit of shares that are available for sale. I have a core holding that I have designated never sell. The batch I sold today filled at $482.75. I would need an outrageous bid to sell more. Perhaps 2.5 x book?

WMPXX money market is yielding 5.45%

So it opened at 484.80, a new alltime high.

Only $15 from the magic $500. That will surely make bigtime news and bring in some more innocent buyers.(?)

Price is:
“I cannot boast of much success in acquiring the reality of this virtue [humility], but I had a good deal with regard to the appearance of it”

I wouldn't say it is the weighted average. It is more like the median value of what all the current traders think the value is. It is the value at which the shares for sale equal the shares wanted to buy. It doesn't matter whether the people who are below this valuation and thus are selling are 1% below it or 50% below it. It doesn't matter whether the people who are above this valuation and thus are buying are 1% above this or 100% above it.

It is much more like a median than a weighted average which is like a mean.

R:),
pedant

I'm not sure I follow. There must be a significant portion of people buying and selling shares who haven't attempted to value the future discounted cash flows but for example are trading based on trend or charts?

Its important to distinguish between the future cash flows of the business and the future cashflows of the stock.

For the business, it is quite a calculation to figure business value, involving predicting future sales and future prices of both inputs and outputs to the business and blah blah blah, plus knowing how to do interest rates as exponentials.

But all you NEED to care about for tradking stock is the future cash flows of the stock you are thinking of buying. For this, all you have to estimate is what the minimum price of the stock will be when you plan on selling it.

This can be as simple as: "I think tomorrow its going to sell for more than it is selling today" or "Sometime in the next Three years from now I think it will be trading at 2x its current price, and I'll sell it then."

The cash flows for a share of stock are
The price you sell the share at PLUS the dividends you received while you owned the share
MINUS the price you bought the share for.

And it is not a stretch, I think, to say that everybody buying a share today thinks they will sell it at a higher price sometime in the future. That is, they are all doing the cash flow estimation needed to make the purchase.

R:)

"Its important to distinguish between the future cash flows of the business and the future cashflows of the stock.
"

Thanks Ralph. I had only thought of cash flows of the business and had totally missed the idea of that from the stock when reading the orginal post. That makes a lot of sense.

Best wishes,

Funny enough, I trimmed a bit today ; filled @ $472.66

Its been a while since I sold BRK, hopefully I can buy back at a lower price.

tecmo
...

Funny enough, I trimmed a bit today ; filled @ $472.66

Ha! I hear ya!! I wanted to unload so much more and missed my limit price around 486 or so. Congrats to someone earlier who bailed out completely in his tax deferred accounts @ 484 or so! Well played!! It’s so psychologically difficult selling. And instead, I was thumb sucking again. “Be fearful, when others are greedy,” so, I pushed my luck, and ignored Buffett’s counsel, once again. I have a feeling there will be some momentum now on the downside. I know logic tells me that I can still unload, because today was also another good price. But, as per my usual habit, I’ll simply sit on my -ss, and do nothing for awhile. I tend to make few decisions. It’s that 20 punch thing, I guess…I’m afraid of compounding an error, with another error, so I step back and vacillate.

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