No. of Recommendations: 3
I have a smallish but not negligible short BRK position via puts. Not typically my thing. Thinking it effectively as insurance against things really hitting the fan -- out of the money, lots of leverage, so no payout if BRK keeps trucking. Not exactly long SPY though, the rest is a mix of equities and a significant sized cash position. I usually don't hold cash at all.
Rational Walk recently wrote up WEB's 2014 comment that "approaching double book value" was an unusually high price:
“This cheery prediction comes, however, with an important caution: If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this truth.”
RW focuses on double book value as the marker, but I think the language suggests the unusually high price is in the mere "approach" to double book -- otherwise he would have just said double book. 1.8? 1.9? I'm not sure, but 1.741 strikes me as at least approaching the approach, as reflected by the stock history since 2014.
There are other ways to get there, but WEB's own estimates of an "unusually high" price strike me as a useful heuristic (notwithstanding his recent distancing from price to book). And unusual things usually go back to usual.
In any event, my thought is that since (1) BRK is approaching an "unusually high" price,(2) BRK is heavily exposed to the U.S. market, and (3) the U.S. has a very good chance of having at least a short term wallop from recent events -- a lot is happening that is putting significant stress on a complex system -- it wouldn't hurt to buy some insurance in the event things go bad.
