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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 2
Engr's and Mark's reply to my post about "Calls... rarely executed" reminded me that while I had quite positive results with BRK and NVDA puts this year (up to now!) I am an amateur in investing, with those positive results quite likely are just luck. Therefore I would like to ask those and other knowledgeable people a question: If you'd
a) think your net assets cover your lifestyle for your remaining life time
b) find that the last 10 years those assets increased as steep as never before (doubled; thanks to Berkshire) and think the current height of the stock market is unsustainable, see an ever increasing likelihood of a really big crash (not just 20%, but 30%, 40% ... - and because of that already have a higher % cash than ever before)
c) remember that you once before (2006) thought "I have enough", but that then exactly that did happen to your assets: Not only went it downhill and in 2008 your assets were halved, but you had to wait a full 10 years for them to recover:
https://drive.google.com/file/d/1GIsik32pjxLZFCzLS...What would you do if you don't want to see that repeated (but also don't want to say goodbye to Berkshire and the stock market)?
(Currently I have A LOT of BRK/B puts. Not intended to be insurance (rather in hope to opportunistically profit from the currently high Price/BV ratio), but having so much IS insurance against a big crash of the market and Berkshire. But next year that insurance will be gone. So while this year with all those puts plus the cash actually nothing better than a crash could happen to me, next year I will be "naked" = no more insurance, who knows market maybe even higher, with - subjectively seen - the risk of a really big fall too.)
No. of Recommendations: 6
"What would you do if you don't want to see that repeated (but also don't want to say goodbye to Berkshire and the stock market)?"
One thing I did with the run up in both Berkshire and Apple was to move my entire IRA to cash equivalents earning 5% for now.
Taxable accounts I have left untouched.
I also have a decent amount of cash and real estate.
No. of Recommendations: 16
Random comments
I think that it's not unreasonable to believe that US stock valuations are such that the most likely outcome of broad US market isn't a good return in the next several years. Down for a while seems plausible, or (equivalently) net flat for quite a long while. Always with the caveat that prices can do anything for a while--the market can remain irrational longer than you can remain solvent, as the saying goes.
However I would not feel that owning (long) puts on Berkshire is worthwhile. In your shoes I'd sell 'em, but that's just me. Berkshire isn't in a price bubble. There is no material chance of a permanent loss of capital over the next couple of years that I can see, merely perhaps a transient price dip. Bear markets do end. The key is to own things that aren't particularly overvalued, so when the bear market ends the price comes all the way back (and even more), which Berkshire should be good at. Sure, Berkshire's price is likely to slide along with the broad market for a while, with high short term correlation. But over a couple of years the correlation disappears, and value matters more.
A big problem with protective puts, by the way, is having a really good strategy for when to close them, which is hard to do. Decide in advance what your strategy will be, and stick to it.
Or maybe you decide you want to own some puts because you think they might be a profitable trade, but really, there must be better underlying tickers to choose if that is your thinking. If you're just trying for a profitable trade there is no big reason to have the puts against the same ticker as your long position.
If you have things other than Berkshire in your portfolio that concern you more on the bubbly-prices front, then perhaps lightening up on those might make sense. Or even buying protective puts, though it would not be my first choice.
Cash is nice. It can be used in so many different ways, on short notice.
I have a quant screen that picks firms big enough to have options trading, reasonably likely to be losers, against which to buy puts. Around 40% of the stock prices go up (often a whole lot), so lots of the options are entirely worthless. But of the ones that go down, the average drop in 3 months is about -37%. I might buy a few of those puts for fun. I don't need my portfolio hedged, and protective puts generally lose money on average over time, but the one nice thing about them is that when they do occasionally pay off, they do so at a moment that it's usually great to have spare cash to go shopping for good deals. My most profitable month ever, in percentage terms, was September 2008.
Jim
No. of Recommendations: 0
If you're just trying for a profitable trade there is no big reason to have the puts against the same ticker as your long position.
My reason for that is simple: You!
Your discovery of the quite reliable relatively narrow Price/Peak BV band in which Berkshire trades.
During the last years that led me to do several big option trades on Berkshire which all worked out, contrary to the rest of my option trading which was all over the place, in summary just a little positive, after taxes not really worth the while.
Bear markets do end. The key is to own things that aren't particularly overvalued, so when the bear market ends the price comes all the way back (and even more), which Berkshire should be good at.
Apart from Berkshire I have no other stocks any more.
No. of Recommendations: 7
If you're just trying for a profitable trade there is no big reason to have the puts against the same ticker as your long position.
...
My reason for that is simple: You!
Your discovery of the quite reliable relatively narrow Price/Peak BV band in which Berkshire trades.
Fair enough. But if you merely want to make a buck from puts when things go south, you probably want an asset whose price does NOT tend to stay in such a narrow band!
Ideally it would be something that is wildly overpriced now on as many metrics as you can think of, and preferably has good odds of being underpriced in a panic--its holders are the types that would bail in panic. Some of those will usually be found among as-yet-profitless high growth companies, especially smaller ones that are not #1 or #2 in their fields. Sometimes they don't hold up well when the growth metrics stumble.
Good rules of thumb for any short-like position: never more than notional 15% of your portfolio, and heavily diversified. The Karenina effect: good companies are all good in the same way, but every company with problems is problematic in its own way. They are inherently a very much less predictable group than good companies.
And most market tops aren't sudden. There is no hurry to enter your shorts. You can probably wait till serious cracks have appeared--months since the last market high--and still make lots of money as things fall in price.
Jim
No. of Recommendations: 1
if you merely want to make a buck from puts when things go south
A misunderstanding. Please let me try to clarify: I don't want to bet on the market crashing. Far too risky. While I see a crash quite likely history taught me that my psychology is not suitable for forecasting, that I have a very negative and sceptical bias and therefore will be mostly wrong in forecasting the mostly upwards direction of the market (Think: Jeremy Grantham).
Ideally it would be something that is wildly overpriced now
I tried that the last years several times with Tesla and SaaS stocks (not with a market crash in the back of my mind, just with seen those stocks, in isolation) --- and especially with Tesla I paid heavily! So much that I learned my lesson which is: I am no good on forecasting. But there is one exception:
you probably want an asset whose price does NOT tend to stay in such a narrow band!
That's actually exactly the beauty of Berkshire and the reason why all my Berkshire option trades did work perfectly. BECAUSE of that band being so reliable. All those trades I did without thinking about "The Market". It was only about Berkshire (And should the market crash indeed: As I am currently betting against Berkshire it would work to my advantage).
And regarding "narrow band": It's wide enough for me. Today I sold BRKB 12/20/2024 410 Puts for $12.20 which I bought on 16.July for $6.05. 102% is enough for me, I don't complain.
No. of Recommendations: 8
And regarding "narrow band": It's wide enough for me. Today I sold BRKB 12/20/2024 410 Puts for $12.20 which I bought on 16.July for $6.05. 102% is enough for me, I don't complain.
I guess the problem is, why would one buy those? It's a pretty substantial loss per share if you don't manage to close them for a profit. It's really hard to close puts for a profit: the stock has to drop, it has to drop during the time that you own it, and you have to make a good decision about when to close it. It is shockingly easy to manage the first two but bungle the third, watching them gain in value then give it all back again. Ask me how I know : )
Personally I would consider WRITING those puts December $410, on the other side of your trade. (I did in fact write some December $400 puts a while back). Writing yours would get me a net entry price on some shares under $398 in December if assigned, which might be about 1.35 times December book, not so bad. Looks nice compared to the roughly $405 that Mr Buffett was paying in March*, especially considering that fair value rises maybe $3 a month in normal times. If I'm wrong and the stock doesn't drop, I get to keep your money.
Jim
* Why I say $405: He paid $623206 per A in March, and 623206/1500= $415.47 for the economic interest, but he has been paying a fairly high premium for A shares in months that he bought both, so I used a more conservative 1540:1 ratio for my estimate of the price at which he would have paid for B shares that month.
No. of Recommendations: 0
I would not feel that owning (long) puts on Berkshire is worthwhile. In your shoes I'd sell 'em, but that's just me.
Luckily I am not you - and sold only today a good part of them --- as today's market delivered a clear answer to your
It's really hard to close puts for a profit: the stock has to drop, it has to drop during the time that you own it, and you have to make a good decision about when to close it.
