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I just bought a few put options : )

More of an amusement than an investment, but still, never thought I would. There is that saying that the market can remain irrational longer than you can remain solvent, but in this case the price isn't even irrational, merely more exuberant than usual, so it's not exactly a good move.

Jim

I just bought a few put options

2 questions:
Which puts did you buy?
How will you decide when to sell?

I just bought a few put options : )

I was just looking to sell some calls. And I went through all the near months through December. And I can't find one I like. I don't want to sell any at 490 or lower because the stock can pop to there very quickly (as we can all clearly see recently). And I don't really want to sell my shares (all taxable so large capital gains). But I do think there will be a pullback (closer to normal at some point). So I looked out to the 500s, and those only give me 1% or so out in Nov or Dec. I suppose it could be considered a dividend of sorts, but I keep wondering if 1% is worth it or not. But that's the nature of a true zero sum game that options are. The seller wonders if 0.99% is worth it, while the buyer wonders if 1.01% is worth it, until they "break" and accept 0.01% more/less and then the trade happens.

Back in mid-July I trimmed 10% at ~ 445.91 but posted by mistake that I sold at 495.91, maybe that was a prophecy!? A week later I bought most shares back for 435.93 so am sitting a few shares lighter but figure to sit tight this time unless maybe if hits 495 right soon. It is great to be able to turn to this board at these exceptional times and scope out thoughts.

I should add that my BRK shares are in a Roth IRA account so trimming is less consequential.

And I don't really want to sell my shares (all taxable so large capital gains).

Assuming you're in the USA and don't plan to donate your shares to charity...is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future? Do you think LT cap gains rates in the future won't be the same or higher than they are today?

I see this on the board all the time and don't really get it.

Maybe I'm dense.

is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future?

It is mainly just the desire to avoid an immediate pain.
Pain in the nebulous future is emotionally preferable to pain now.

is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future?

“Float”. A long/indefinite term, zero interest* , non-callable loan from the government.



* Offset, of course, by the risk that cap gain rates may be higher (or lower ;) ) at that -as yet undecided- future date.

is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future?
Maybe I'm dense.

Maybe you are just high income. The rate changes with total income, currently for a single person the LTCG rates are 0% for the first 47k, 15% for 47-518k and 20% above. It is good to cash some in on low income years.

2 questions:
Which puts did you buy?
How will you decide when to sell?

The first one I'd rather not answer : ) It's hard to find a "smart" pick.

When buying puts for profit, I normally sell half the position the first time they go into the money (that's when the time value is maximized), and the rest when I think the security has bottomed. Since Berkshire tracks the market so closely over short time frames I imagine I could use one of my "bottom detector" signals if it triggers before the option expires, or gut feel if not.

<later>
They ended the day up 12.3%.
Beer and pizza!

Jim

...is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future?

For long term investors of a certain age, such as myself, there is also the step-up in cost basis when the stock is inherited by others. Unless the law changes on this, the LT gains are avoided. This can be very significant.

It’s very tough to just, in Charlie’s words “hold the damn stock”. Few can do that.

Progress? If the internet, margin, options, and real time stock quotes didn’t exist we’d all have higher returns, fewer fees, and less taxes. With certainty.

Warren Buffett, Charlie Munger, and Rick Guerin were equally brilliant investors. At least that what Warren Buffett said. Warren said the only difference with Guerin is—he was in a hurry. That small difference matters…a lot.

Assuming you're in the USA and don't plan to donate your shares to charity...is there some perceived disadvantage to paying LT cap gains taxes today vs paying LT cap gains taxes at some unknown date in the future? Do you think LT cap gains rates in the future won't be the same or higher than they are today?

This is a very good question. Some people are betting on the fact that basis step-up remains in the law for the indeterminate future. So if you have Berkshire (or other) shares that are almost completely comprised of capital gains, when you die, the basis gets stepped up and the capital gains clock restarts from that point.

The second answer is that if someone has highly appreciated [Berkshire] stock and sells it now, they will only have 76.2% of the money to reinvest elsewhere (because 23.8% has to be paid in income tax). And it'll take quite a bit of time for that 76.2% to "catch up" to where the [Berkshire] stock would have been had they simply held on to it.

I have a different discussion that I want to have about capital gains, but I will save that for later in a dedicated thread.

Here's the thing- the stock is up over 30%. When was the last time Berkshire had a jump like that? I've held it for 23 years and I don't recall a 30% jump in a year off the top of my head. I sold half my wife's non taxable stake at $428 thinking there would be a drop. What I didn't realise is that it would run up to $450. Thankfully, it quickly tanked back to $413 and I promptly plunked down the same amount I sold three weeks prior. I literally felt naked for those three weeks!! Now, I sold half the stake again last night at $466, again, thinking there's got to be a drop below this price at some point. I don't know when, but there has to. At least I think???

stop trading your wife’s brk. If you lose her money she will make you work till 100 years old :)

"stop trading your wife’s brk. If you lose her money she will make you work till 100 years old :)"

Ha, Sweetheart is that you?? Funny you should say that, it's a contentious issue. She is adamant I continue working no matter where we decide to "retire"!

Interesting about “your wife’s IRA”. I put my wife’s IRA literally 99% in BRK. She rolled over $5 or 6K from her dental assistant job when she chose to be a stay-at-home mom when we, then, lived in Omaha— A place we moved to, reluctantly lol, for my employment, which led me to interactions with Buffett in 1987. I told my wife her IRA assuredly would have the best return of all of our accounts because it would be fully invested almost forever and untouched til retirement. Hasn’t put a nickel in it since then—it’s $655k. And my prediction so far is right, comfortably (you can see my personal investing prowess has brilliantly contributed what I forecast: some limited SUBTRACTION from holding Berkshire and napping—in line with what looks like quite similar results from folks here & most other mortals)

Also, this week was an even more significant time…my “100X day”. Bought my first BRK for $6,950 (I really got ripped off: BRK, OTC, had a $200 bid/ask spread $6,750/$6,950 so course you get filled at $6,950 plus $40). 100 X later—$699,000. I’m obviously grateful though not surprised. I estimated in 1992 a share of BRK would hit $1 million by my age 72. I’m 65 1/2. 32 years later my forecast is still the same. It’s said investing is exact opposite of weather forecasting: LONGER you go out in time the more accurate the forecast. Meteorologist Charlie Munger knew this.

Also, re: dramatic moves in Berkshire stock. BRK has a HISTORY of brief radical strong up moves and seemingly years of long stagnation. This was even more pronounced pre 1995 or so..and later, pre Index inclusion. I remember it traded below a $10,000 “wall” it felt like forever. Then out of nowhere it exploded from about $9k to $12k and I had serious selling temptation. Well, the next $685,000 per share of upside mattered lol. Also BRK traded WAY WAY above intrinsic value at $16,000 per share after trading regularly at 20-25% BELOW intrinsic value before..and AFTER!!. That price REALLY felt far more tempting to unload compared to now. It was a lot more expensive. The stock has also had extreme gyrations around big round number prices since then.These were lessons for me. I wanted to share to you more recent stockholders. What DRIVES intrinsic value is the secret sauce for a machine like this. If you already own it, you want to keep it.

As for attractiveness I posted a few weeks ago that Warren was buying the stock all-in after tax for $410/share. As I said then, he only buys at a substantial discount to intrinsic value. In my simple world 10% discount is the cheapest definition of substantial. And don’t be fooled with P/Book comparisons historically with a company that’s morphed into a collection of operating companies which Buffett has said SHOULD trade at higher multiples by definition. Some of you with sophisticated options strategies told me you wanted $390. I wanted that too. And you guys probably could have made some dough buying Puts at $16,000 lol—that’s a tougher game, but it’s a GAME. On the big picture I suggest following BUFFETT on the business and the valuation. I did that 37 years ago. My biggest challenge: avoid temptation.

As Charlie and Howard Marks say “ it’s simple. But it isn’t easy”

Mungofitch bought puts:

Might you please wax eloquently on when you would buy puts vs when you would sell calls ?

Merci,
R😊

LongTermBRK,

That was a beautiful post. Thank you. LTBH isn’t as dead or boring as some have suggested. In fact, it’s damn exciting to read about results like that — a good reminder that if you have the behavioral iron clad discipline and patience to sit on your hands, good things may come in time.

“It’s very tough to just, in Charlie’s words “hold the damn stock”. Few can do that.”

I’m pasting this quote above my desktop 🖥 where I’ll see it every time I logon to my accounts and get itchy fingers on the keyboard.

Hypocrite though I am, I have nevertheless finally set limit orders that may soon get filled for both my ROTH and 401k, after 26 years of sitting on my hands. Its been quite a ride.

This is simply an advantageous time for me to readjust my asset allocation from a 85% heavy concentration in BRK to something around 60% or so. I will still hold the lion’s share in the taxable account, never to be sold, which I intend on giving all away to charity upon my passing.

Contrary to subtle innuendo I read earlier, I’m paying my fair share of taxes along the way, especially through means testing for things like Medicare premiums, SS, etc. I pay a boatload of taxes ever year. I’m also deferring a large portion of them, and not avoiding them. I’m just going about it in a different way, rather than let the government mismanage tax revenues through wasteful spending, which arguably has also contributed to the parabolic explosion of our debt to 35 trillion and counting. The tax code approves of my deferral and allows me to give back to the needs and welfare of others without confiscating that legacy wealth at the end of my life. I’ll be fulfilling the intent of the tax code, except I’ll have the freedom to allocate those revenues to entities of my choice. I like the sound of that…it’s almost like a “freedom tax,” or a “liberty tax.” That’s also why I live in NH. “Live Free or Die.”

It’s very tough to just, in Charlie’s words “hold the damn stock”. Few can do that.”

I’m pasting this quote above my desktop 🖥 where I’ll see it every time I logon to my accounts and get itchy fingers on the keyboard.

That's the beauty of A shares. I've fiddled, gambled, and played games with the B shares, but one can't mess with an "A" without moving real money.

Might you please wax eloquently on when you would buy puts vs when you would sell calls ?

I have already sold calls against all my long positions. If I write more, I might actually end up short the stock, which would be inconvenient. As it is, the calls I've written look unpretty on days the stock is up! (though of course the longs balance that pretty closely).

Buying puts is probably not a great investment idea, but it ties up little cash, and can't suddenly tie up more.

You might wonder about why it makes sense to be long and short at the same time--the reason is that, so long as the stock stays in a reasonably broad range, I make money slowly on the time erosion of the calls I've written. At the moment the stock price is above the broad range mentioned, but not much, and not (I suspect) permanently.

Jim

Jim, I wish you had told us about puts in DG. Are you considering adding to it at this level?

<<“It’s very tough to just, in Charlie’s words “hold the damn stock”. Few can do that.”

I’m pasting this quote above my desktop 🖥 where I’ll see it every time I logon to my accounts and get itchy fingers on the keyboard.

Hypocrite though I am, I have nevertheless finally set limit orders that may soon get filled for both my ROTH and 401k, after 26 years of sitting on my hands. Its been quite a ride.>>>


That’s very kind of you to say. You’re not a hypocrite, I do the very same thing. You sound like a kind and generous soul—you’ll be glad I help your economy…occasionally buying a new car or a TV (pocket the tax savings) or a few bottles of cheap untaxed booze in Nashua. Value investing is a lifestyle lol. Honored you’re saving the quote. Glad I could re-print a timeless Charlie classic,

Amen, brother.
BRK-A is the holy grail, the real "don't touch it", the "forever" stock.

She is adamant I continue working no matter where we decide to "retire"!

Trade in your wife! For one like mine, but she isn't available, sorry.
Mine said, "Tell me when we are safely able to retire."

When I was designing our current (retirement) house, I had a room for my office and an adjoining room for her hobbies. She looked at the plan and said, "Nope." And erased the wall between the rooms. "I want to be in the same room with you."

My situation: I started buying BRK.B shares when I was 23 years old in 2012 at $79 per B share. At the time I had a low-paying job, $80k in student loan debt and a deeply negative net worth. I stumbled upon Mr. Buffett's annual letters and was completely smitten. I was absolutely convinced that at 1.1x BV, Berkshire B shares were a better allocation of capital than paying off said student debt ahead of schedule.

So I plowed everything I could into B shares in a taxable account. I bought as many as I could, and then I bought more. BRK.B was generally around 75% of my little portfolio from 2012-2018. Due to the debt, BRK.B was actually more than 100% of my net worth until around 2017.

I never sold a share from age 23 to age 35 today and that crazy little bet I made is now worth nearly $200,000.

However, I did sell some CCs recently and those shares are almost certainly going bye-bye. This will be my first ever stock sale but I don't mind being forced to part with those 100 shares at favorable prices and using the proceeds to: wipe out ALL my remaining debt, take care of some long neglected home improvements, and buy myself a nice modern road bike.

Yes, I need to pay those pesky 15% LT cap gains taxes but I'm fine with it. I suspect the tax situation when I'm 65 in 2054 will be less favorable than today anyway.

Weighted avg returns on my BRK.B has been approx 16% annualized vs 5% interest on the student loans.

The prospect of lightening up just a little at this valuation feels pretty good actually. Plus I still have a few hundred B shares left so I can continue to lurk on these boards from time to time haha.

I did sell some CCs recently and those shares are almost certainly going bye-bye. ...Yes, I need to pay those pesky 15% LT cap gains taxes but I'm fine with it.

I presume that since your calls are backed up by your stock, it's a true covered call position at the moment. Consequently as the price has risen, the calls have done badly but the stock has done well, so you haven't lost money in aggregate. The calls themselves look bad, but a CC is a lot like a hedge: never look at one side, look at the whole enchilada. I imagine you are pretty flat in the recent rally.

I mention this only because you can simply close your calls early by buying them back and avoid having your stock called away in a taxable event by waiting till the last of the time value in the calls has evaporated. You can then write fresh calls at higher prices and later expiration or not, your choice.

Maybe this is what you want to do, maybe not, but I just wanted to point out that the situation you paint is not the only one.

Jim

"Consequently as the price has risen, the calls have done badly but the stock has done well, so you haven't lost money in aggregate."

Due to them being true CCs though, while I captured the option premium on the day I sold it, I would lose that premium and then some buy buying back near expiry at this new, much higher price, right?

IOW, now that the price has blown past the strike price, even though my actual shares are currently worth the going quotation, I'm not able to sell for 468.65 or whatever. I'm stuck selling for the CC strike.

So I haven't lost money, but I've left a hefty amount on the table by guessing wrong on the CC, right?

So I haven't lost money, but I've left a hefty amount on the table by guessing wrong on the CC, right?

I believe that's correct. But I think what Jim is saying is that if you think the bet is still a good one (i.e. BRK price will eventually drop to closer to the strike price of your call) then you can extend the bet by purchasing back the call you sold and selling another one with a longer time to expiry. You may be able to both increase the strike price and pocket a few bucks in the transaction (if you're lucky) since you're selling some time value. And of course if you are correct, you can avoid paying the taxes when the calls expire worthless :)

John

Due to them being true CCs though, while I captured the option premium on the day I sold it, I would lose that premium and then some buy buying back near expiry at this new, much higher price, right?

Yes. If you sold (to open) an option at $10 and now it is worth $20, and you want to buy (to close) it back, you pay $20 and have a short-term capital loss of $10.

IOW, now that the price has blown past the strike price, even though my actual shares are currently worth the going quotation, I'm not able to sell for 468.65 or whatever. I'm stuck selling for the CC strike.

Not completely true. If the option is exercised, and you are assigned (and this always happens in the money), then you have to deliver shares. But you DON'T HAVE TO deliver old shares held in your account, you can buy new shares and deliver them. Anyone who thinks about the process for a brief period would realize that this MUST be true.

Here's an example:
You hold 500 BRKB in your account, their basis is $50.
You sold 5 strike price 450 calls for $20 each.
The call is exercised and assigned to you. You need to deliver 500 shares, and you will be paid $450 for each of them.
You have two choices:
1. Deliver the long held shares in your account. You will sell them for $450, and I think your long-term capital gain will be $450 + $10 - $50 = $390. It's possible that the $10 option premium is a short-term gain, not sure. Someone please comment.
OR
2. Buy 500 new shares for $471 each and deliver THOSE shares. You will incur a short-term capital loss of $450 + $10 - $471, or a $11 loss.

But you DON'T HAVE TO deliver old shares held in your account, you can buy new shares and deliver them.

I recently got assigned on a covered call that expired 8/16/24. Options expire at market close, 3PM Central.

At market open on Monday 8/19 there were two entries in my transactions,
sold XXX shares, and Option Assignment.
On the sale, trade date and settlement date were both 8/19/24.
The money appeared in Balances as "settled cash".

I found this comment on a Fidelity board: "Friday options assignments settle on Monday. Reassignment of lots must be made by 9pm (ET) on the settlement date."

Looks to me like you would have to buy the NEW shares in time for them to be settled at market open on Monday, so with T+1 you would need to buy them on Thursday and they'd settle at market close Friday.

Can you buy the NEW shares on Monday and reassign to that lot, which is not settled? Seems unlikely, I think the only way to be sure would be for somebody to try it.

Can you buy the NEW shares on Monday and reassign to that lot, which is not settled? Seems unlikely, I think the only way to be sure would be for somebody to try it.

If you think about it, it MUST BE POSSIBLE! What if you sold those call options without owning any shares at all? When you get assigned over the weekend, you can only buy those shares on Monday when trading resumes, and then deliver them.

What if you sold those call options without owning any shares at all? When you get assigned over the weekend, you can only buy those shares on Monday when trading resumes, and then deliver them.

This is not a covered call, this is being short a naked call.

Well, sure. But this whole idea is to keep your old shares that have a low basis, so you don't get hit with capital gain tax. If you don't own any shares then you don't have any low basic shares to protect.

Google answer is that you would be short the delivered shares. AFAIK everything happens the instant the market opens. The broker doesn't have to buy 100 shares and then sell them again to deliver them. They just sell 100 shares and leave you with a short position.

This question came up in a IBKR forum:
"If your short call gets assigned and you don't own shares, you automatically enter a short position. There is no need to buy shares to deliver them. However, the question is what happens when the underlying shares are unavailable to short, as designated by the broker due to limited borrow. I confirmed with IBKR that they are likely to immediately close the short position in this scenario."

One comment summed it up: "Why would you ever allow yourself to be in this position?"

The original question was "What happens when you get assigned on short calls while the underlying is not available to short?"

Interesting topic to think about. There are a lot of non-obvious nuances.

https://www.interactivebrokers.com/en/trading/earl...

The problem ends up being settlement time and that is why Interactive Brokers (and I assume the higher end prime brokerage relationships) offer solutions to this issue where they will sell you new T+0 (immediate settlement) shares out of their own market maker inventory in order to offer this service to customers. If you enable it ahead of time. And there isn't a dividend or other corporate action within 5 days on either side.


Alternatively - a good prime broker will let you just be short the stock from an exercised call despite also being separately long. You can cover that short whenever, with the customary tax treatment for covering the short with a loss or gain.

FWIW, Fidelity will also let you be short a stock and long a stock at the same time. They have their buy to open, sell to open, buy to close, sell to close buttons. I have accidentally created an offsetting but separate long position in an index ETF when I was trying to close a short position. They cleared it up after a phone call but it proves they allow offsetting positions.

If you think about it, it MUST BE POSSIBLE! What if you sold those call options without owning any shares at all? When you get assigned over the weekend, you can only buy those shares on Monday when trading resumes, and then deliver them.

If you don't have the shares, many a broker will simply open a short position for you. They may not let you have the short call position unless you have the account capacity to handle this.

I was pretty startled to hear that some people have managed to buy shares AFTER getting an assignment notice. They may be doing it as a sort of courtesy to their clients, as I would have thought the settlement timing wouldn't work out.

Jim

AFAIK everything happens the instant the market opens. The broker doesn't have to buy 100 shares and then sell them again to deliver them. They just sell 100 shares and leave you with a short position.

Of course. So, Monday morning, after the market is open for trading, the broker buys 100 shares and delivers them, and marks your account as short 100 shares. This is correct. Then you log in to your brokerage account and purchase 100 shares. That negates the short position. BOTH THOSE TRADES settle on the same day, because BOTH THOSE TRADES were made on the same day.

One comment summed it up: "Why would you ever allow yourself to be in this position?"

Most of the time, you avoid being in that position if possible. Not so much because it is "bad" per se, but because it removes some of your choice. And you can't always prevent being in that position because with USA-style options, the holder can exercise them at any time (European-style options can only be exercised at expiration). So, you can wake up one morning and see an email from your broker that you were assigned. This happened to me a few weeks ago with some short Disney puts, for some odd reason, someone exercised puts (against me) that still had some time value in them. In other words, it would have been [a little] more profitable for them to sell the put than to exercise the put. But nevertheless they chose to exercise.

In fact, it has happened to me a number of times over the years. For example (I've mentioned this example before), over the years, I have held BCS (Bull Call Spreads) on Apple during many periods. Spreads allow you choose any level of risk, and any commensurate level of potential return, you choose (they are really nice in that regard). However, one issue with BCS is that the upper part of the spread is a short call, and sometimes the stock moves fast which puts that call "into the money". And sometimes on dividend day, it is profitable for the holder of that call (that you sold) to exercise it. That's called capturing the dividend by owning the stock on ex-div day. So, one time, on 8/6/2014, someone exercised the top of my BCS (a Jan '15 400/500 BCS, which turned into a Jan '15 57.14/71.43 BCS post-split). Anyway they exercised it, and they paid me $71.43 for each share. Instead of relinquishing any of my long-term held shares, and having to pay a hefty long-term capital gains tax bill, I opted to buy the shares, at $95.08 each, on 8/7/2014. That means, that in order to keep those shares, I contributed an additional $23.65 per share ($95.08 that I pad minus $71.43 that I received). I also had to pay $0.47 in lieu of dividend to the new holder (basically because I was short those shares on ex-div day). And after that date, I was left with my original long-term shares, and only the lower part of a BCS, basically I was long Jan '15 57.14 calls. With the stock near $100, and later over $100, those calls were worth quite a lot. Anyway, on the next dividend date, 11/5/14, I decided to exercise those calls. I received the shares for $57.14 each, and my basis was adjusted up to account for the premium I paid for those calls when entering the BCS trade (way back in Jan of 2013). And, on 11/13/14, whomever was short those shares (briefly) on ex-div day send me a dividend (in lieu) of $0.47. And interesting tidbit is that dividends in lieu are not qualified dividends and are always taxed as ordinary income. Today I still own almost all those shares that I acquired accidentally because someone exercised the upper part of my BCS to swipe the dividend (and then I disposed of the lower part of the BCS by exercising instead of selling). Had that person not exercised, I would have simply disposed of the BCS by selling it (by selling the lower part of the spread, and buying [back] the upper part of the spread in one trade) once it reached the profit I wanted as I usually do for BCS. Keeping [most of] those shares all this time has turned out to be my most profitable trade ever, if not %-wise, definitely and by far $-wise.

I just bought a few put options : )
More of an amusement than an investment, but still, never thought I would.

I assume it was not only amusing but also worked out very well, as in the following 2 weeks BRK fell 5%. And now, with BRK again at the same price as when you bought your puts? Are you in for some more amusement? 😉

I just bought a few put options : )
More of an amusement than an investment, but still, never thought I would.
...
I assume it was not only amusing but also worked out very well, as in the following 2 weeks BRK fell 5%. And now, with BRK again at the same price as when you bought your puts? Are you in for some more amusement? 😉

As you might imagine it worked quite well...for a while. But I didn't close the positions, so they are now in a mark-to-market loss.

Not a problem. It's a small position, I have Berkshire longs too, and this is sort of a "disaster put" scenario...if the market crashes, these will produce a lot of money right at a fantastic moment to go shopping for deals.

Jim

You originally wrote "more of an amusement". Since then 2x BRK sharply dropped below $450 => 2 good opportunities to sell those puts with very nice profits.

You did not. Missed or by purpose? Or missed and now subconsciously changing the original thesis "amusement" for oneself into "disaster put scenario"?

No offense meant, Jim. I am always fascinated how the human mind works underneath the surface we are aware of, and therefore wondering whether "disaster put scenario" could be "rewriting history" to avoid cognitive dissonance.

Jim, always being to fast I forgot to ask: What "disaster scenario"? The market in general oder (Hi, newfydog :) Berkshire?

I am curious as
- you always preach that market tops are rounded, with a lot of time to get out
- and seem to have most of your non-cash portfolio in Berkshire, so probably assuming it's the very last company where a sudden disaster could happen (especially as you seem to not have taken out insurance against such before by buying puts).

Jim, always being to fast I forgot to ask: What "disaster scenario"? The market in general oder (Hi, newfydog :) Berkshire?

I am curious as
- you always preach that market tops are rounded, with a lot of time to get out
- and seem to have most of your non-cash portfolio in Berkshire, so probably assuming it's the very last company where a sudden disaster could happen (especially as you seem to not have taken out insurance against such before by buying puts).

No real change in intent--it remains mostly for entertainment (given the scale of the position), but I haven't yet been sufficiently entertained!

There seemed to be a decent chance we would see lower prices than when I opened the position, considerably lower than we have seen so far. Some might call that a disaster (really it would be pretty normal). The current price is 17% above what it would be at the average P/PeakBook of the last 20 years, so "normal" might be around $407.25/B. And we're 24.7% above the 25th percentile of that ratio.

The "disaster puts" comment is really just an observation about owning any puts: they really soar in value in a big price disaster, percentage-wise...if nothing else, it's nice to have something to feel good about at such times, and as mentioned, fresh funds to go shopping.

Of course the US market is for the moment more exuberant than I might have anticipated, so my original guess may not happen any time soon.

Jim

Tops are such an interesting topic. Abbey Joseph Cohen successfully promoted the big caps including many non-techs like AIG and GE from the period 1996 all the way up until 2001. And Abbey didn't lose her incredible reputation until 2008 yet...

...almost 100% of the stocks she was famously promoting were over-valued way back in 1996. Even given the earnings just before the financial crisis more than ten years later the bulk of her promotions were over-valued...again in 1996.

So years and years of CNBC presentations proved off-base...unless of course you sold into the price gains.

What's the value of the go-go crowd stocks and other unique trophy assets that are popular today? The truth is we don't have a clue, it takes time.

It is pretty stimulating to think though that in the 2006-2008 period, before the max of bad stuff has hit, that you (Abbey) are on CNBC retaining your reputation. And the bulk of what you promoted in 1996, ten years previous, has yet to recover its market price of when you began your best-selling parade.

Cathy has a long-long way to go.

"normal" might be around $407.25/B. And we're 24.7% above the 25th percentile of that ratio.
...
Of course the US market is for the moment more exuberant than I might have anticipated, so my original guess may not happen any time soon.


Tell me about it!

I sold my DITM LEAPS somewhere around 410 when the P/B got above 1.55.

However, I take solace in a quote "A decision is right if it was made according to the available facts at the time, even if the outcome turned out bad."

More than likely when it hits 500 I will do the Covered Call Crash Dance again and watch it soar way past the strike.

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