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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 0
I've seen a few posts here talking about BRK's stock price getting a bit lofty and I think that definitely extends to the market overall. A large 20%+ rise last year and with the world events and this years elections in the US, it seems ripe to be rocky.
Not quite sure what I will do - sell some stocks, buy some put options, sit still. After seeing new high in my account, I'd rather not see it drop 20% since I'm not in retirement.
Any good suggestions?
No. of Recommendations: 10
I'm retired. Basically all equity, no bonds and a cash level that feels right for me.
I just keep a cash level that feels comfortable. There really is no single metric that applies to any one individual. I think the "personal" in personal finance is often overlooked.
No. of Recommendations: 3
Any good suggestions?Look at Growth Trend Timing.
https://allocatesmartly.com/philosophical-economic...Key point is " the strength of GTT hasn’t been in generating outsized returns; it has been in maintaining returns while managing losses."
Most people poo-poo timing because it doesn't give better gains than buy-and-hold. Losing sight of that timing's purpose is to save your butt in bear markets.
FWIW, the current state is that FRED indicators are down but SMA says to stay in the market.
Also FWIW, no timing backtest I have run on BRK has been better than buy-and-hold. Maybe just use Jim's P/B values to decide when to put on & off a bit of leverage.
{This topic is better suited to the Mechanical Investing board.}
No. of Recommendations: 22
I've seen a few posts here talking about BRK's stock price getting a bit lofty...
Any good suggestions?
The valuation level is a bit higher than usual in the last 15 years, enough that the most likely outcome for the price change in the next year isn't great.
But that doesn't mean it's a bad thing to have in your portfolio. A person can live through a flat spot. And if you're OK with that, there's nothing to do. Laziness is fine.
I don't have anything else that I find has more attractive returns in the short to medium term that I would put nearly as much money into, so the main obvious alternative is cash.
One year T-bills are yielding 4.87%, six month is at 5.25%, my broker is paying me 4.83% on my cash balance. All of those are above what I expect for monetary inflation in the next year, so they mean a positive real return.
My sundry pretentious Berkshire price forecasting models are predicting slightly negative real returns in the next year on average, median model inflation-2.0%. So sure, it might be possible to make a case for selling some stock and moving to cash. (no, not doing that).
I'm doing a little fancy option stuff too, but that's mainly just to keep my fingers busy, the ultimate financial outcome won't have a meaningful impact either way.
Here's some back of the envelope.
Mr Buffett was buying Berkshire B shares at an average price of $357.22 in September.
With an inflation adjustment, that's like $357.71 in today's money.
The value of a share goes up at a rate of inflation + 7%/year, so if the intervening time has been typical, the value is up another 2.7% or so since September, so maybe he might be a buyer at $367.60 today?
The price right now is $392.70 per B, only 6.8% above our notional buyback threshold. Looked at that way, we certainly aren't looking at overvaluation sufficient that action is really required. Sometimes a stock price moves that much in a day.
Jim
No. of Recommendations: 13
Here's some back of the envelope.
Mr Buffett was buying Berkshire B shares at an average price of $357.22 in September.
With an inflation adjustment, that's like $357.71 in today's money.
The value of a share goes up at a rate of inflation + 7%/year, so if the intervening time has been typical, the value is up another 2.7% or so since September, so maybe he might be a buyer at $367.60 today?
A further thought just to mess with people who like to overcomplicate things.
Say a person is somewhat cash heavy today. My situation, as it happens. I'd like to deploy that cash into Berkshire, but the stock is just expensive enough that I don't want to do it today. A screaming deal is pretty rare, but I at least want to buy at a below-average level, not an above average one. So let's say that entry prices lower than that number above would be OK, but not current prices.
The obvious option: I can sit on cash until Berkshire is below a threshold like that, earning interest, then buy the stock. My cash pile is currently earning 4.83% at my broker. That's the obvious and relatively sensible strategy.
But as I already know at what price I'd be a buyer, there are people willing to pay me to commit in advance to that plan of action. For example, June $370 put options are bid $4.55 right now. If a cash-heavy person were to write those options, there are two possible outcomes:
(1) The stock is assigned. BRK shares are bought at a net entry price of $365.45, somewhat below the notional target mentioned above. Compared to a good-till-cancelled buy order, you're better off. And of course much cheaper than buying the stock today. You also made interest on the cash until the day of assignment.
(2) The option expires worthless. You have been making interest on the cash pile, plus a 3.34%/year rate on the erosion of the time value in the option, total 8.17%/year rate. That's a pretty good rate to earn while waiting to get your stock. A somewhat lower target price gives a lower rate of return while you wait, but a better entry price on the Berkshire--they can be balanced to get numbers you like.
Note, writing puts is a bullish move. As with all new bullish moves, this would be a good position to enter on a price dip rather than with the stock at an all time high (as I type), so it should be possible to do quite a bit better selling that same option with just a little patience. Prices tend to fluctuate.
Jim
No. of Recommendations: 14
Warren or Charlie made some remark about "don't keep playing once you've won the game". In the past I have interpreted that to mean keep the money in BRK rather than Saul's board or something with a higher risk/reward. I'm at a point where I an old enough and secure enough that I can comfortably cruise on in a fairly conservative position. My taxable assets remain mostly BRK. My IRA's which are up eight fold since the big meltdown of 2008 are migrating into some high yield bond and preferred stock funds.
There was a great REIT board on the old site, with people who were authorities in the field offering deep analysis. The preferred stocks of REITs are a pretty safe investment as long as the unlaying company is sound. REITS are required to pay out 90% in dividends and the preferred is paid before the common stock. The pfd's I held gave steady returns for years and offered amazing bargains during the financial crisis. Then we went into a long period of low interest rates and the pfd's were redeemed and the replacements were at too low of a return to be worthwhile. The same applied to bonds and money markets, so I dumped even more into BRK.
Last year it looked like a window was open where once again there was a decent return from REIT pfd's and some upside capital gain potential. An example might be UMH-PD, a mobile home REIT with a long history of stable dividends. It was available much of the year at 21.50 with a dividend of 7.5%. It is now trending $23.00 so last year it netted in the 14% range. The window is closing, but the delay in interest rate cuts has kept it cracked and I expect a 2024 return of 6.9% dividend and 3-6% capital gain is not unlikely. PFFR is an ETF of REIT prd's with an attractive rate and reasonable expense ratio. It holds a lot of mortgage REITs which I have never understood well enough to buy, though in a diversified fund I am willing to hold them.
I'm also back in some high yield bonds. I netted 10% on JNK last year and will hold it another year I suppose. I'm not under the illusion these are better than BRK in a downturn, but it isn't unreasonable to think they are no worse than BRK starting at a this lofty price, and they are at least different. The specter of a major stock market pull-back coinciding with the passing of our uncle is a reason to diversify and get a bit defensive.
No. of Recommendations: 0
FWIW, the current state is that FRED indicators are down but SMA says to stay in the market.
Oops, sorry. The FRED signals changed to positive on Jan 17. So ignore any SMA sell signal.
No. of Recommendations: 6
Not quite sure what I will do - sell some stocks, buy some put options
Re put option the last years I several times thought similar: "Unsustainable", "Too expensive", "Exuberance". I acted on that --- and lost each time, with single stocks (TSLA) and the index. I had to realize that when I, with my sceptic mentality think "This can't go on", it probably will go on --- for far longer than I think possible.
So personally I am little tempted to even do the opposite and for once opportunistically and contrary to my conviction re valuations "run with the herd" (with a tiny little play money only, just for entertainment purposes).
So although I very much feel reminded on the year 2000 with respect to the market in general: From my modest experience with them I'd recommend to stay away from buying puts if the market goes up and one thinks "too expensive... has to come down... unavoidable". That one thinks that and that it's reasonable thinking is not a good enough reason for such a move --- at least not for the market in general.
I am not sure whether it makes sense but after having repeatedly been burned with puts, while I have no problems to buy calls when things are supposedly cheap, I see buying puts when they are supposedly expensive very different now.
And regarding Berkshire: Why not instead of thinking about such a risky move selling covered calls instead, the much more conservative option?
No. of Recommendations: 2
No. of Recommendations: 1
Is most everyone hanging out in cash, waiting for a reset in equity prices? Or are some of you shifting to bonds..maybe not for long duration, but shorter, to try and capitalize on interest rate reductions sometime this year and squeak out a bit more in total return? Or do you feel a roller coaster ride is more likely, a whipsaw effect; that is, Fed QE to ease accelerating deflationary concerns, followed by QT to resume the battle against sticky inflation. Seems like bonds may be caught between a rock and a hard place, unless you plan on riding through the cycles to maturity. Bond index funds may be more liquid? Our massive debt worries me, and we’re quickly arriving at a point where the interest on that debt has surpassed 1 trillion, double what it was a couple years ago. In 2019 or so, wasn’t that debt clock registering about 20 trillion or so…and now, 5 years later, it’s approaching 34 trillion? Scary numbers…I hope Warren will address this subject at the upcoming meeting.
No. of Recommendations: 1
Does that include the Net Expense Ratio † 0.190%?
No. of Recommendations: 2
No. of Recommendations: 0
SPAXX in fidelity,just under 5%% , paid monthly in 401k. whilst I exchange slowly for good divvu stocks against the day the Fed. actually does lower rates. see my earlier posts on divvy's. so far Dow, PFE, XOM, Cop,BAC...may look into NYB...played their last meltdown years ago...also BA, but may be a bit late already, see if another shoe drops. GLTA
