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Logged in 935pm EST just to get a sense of what the wise folks over here thought. Maybe today will be an intermediate term top. We shall see.

Did something today… a little “irrational exuberance” in the opening hr…. then continued on from Fri in a ho-hum way digesting the previous months euphoria.

Check out the price action plot in todays Rational Walk letter.

https://newsletter.rationalwalk.com/p/too-clever-b...

ciao

"Did something today… a little “irrational exuberance” in the opening hr…. then continued on from Fri in a ho-hum way digesting the previous months euphoria.

Check out the price action plot in todays Rational Walk letter.

https://newsletter.rationalwalk.com/p/too-clever-b...".

Thanks for posting. That's a great reminder of not trying to out think yourself. I think as long term shareholders of Berkshire it's not normal to deal with large sudden upswings in stock price. Our brains are conditioned for slow and steady so when something comes across quick and sudden it's almost like we don't know how to react:-)

This is the best line from Rational Walk.....

"If you intend to be a long-term shareholder in a business, trying to profit from this type of move is a very bad idea. It could work well for a specific trade, like today. But like any gamble that pays off, the dopamine effect is so powerful that success will inevitably induce further gambling in the future."

It's so true! Just stay the course and so long as there is nothing materially wrong with the company don't worry about when to sell. One thing I do is try not to base net worth off of what my actual net worth is. I will take it and shave off 30%, using that as my range for net worth. This helps in conditioning the brain when you're at a high that a sell off is always possible and you are better equipped a drop.

Check out the price action plot in todays Rational Walk letter.
https://newsletter.rationalwalk.com/p/too-clever-b...

On the one hand, I feel a little chastised for being one of those silly folks who try to trade in and out. Like most folks I don't think I'm dumber than average, but surely about half the population thinking that has to be wrong, and I may well be one of them.

On the other hand, the price I got in pre market was well off the top of that chart, so I may be dumb, but I'm happy : )


Valuation sure do change. Since I bought that share last Oct 27, known book per share is up 4.4% and price/book ratio is up 25.9% from 1.334 to 1.680.

Consequently I doubt we have seen the end of price fluctuations. I imagine the stock will be cheaper than this again some day and I'll increase my position once again. It's a calculated gamble that the stock price return from now till then will be either negative or low enough that I won't miss it.

Jim

"On the other hand, the price I got in pre market"

how did you buy in pre-market??

congrats

"On the one hand, I feel a little chastised for being one of those silly folks who try to trade in and out. Like most folks I don't think I'm dumber than average, but surely about half the population thinking that has to be wrong, and I may well be one of them.

On the other hand, the price I got in pre market was well off the top of that chart, so I may be dumb, but I'm happy : )


Valuation sure do change. Since I bought that share last Oct 27, known book per share is up 4.4% and price/book ratio is up 25.9% from 1.334 to 1.680.

Consequently I doubt we have seen the end of price fluctuations. I imagine the stock will be cheaper than this again some day and I'll increase my position once again. It's a calculated gamble that the stock price return from now till then will be either negative or low enough that I won't miss it."

Well here's the thing, you seem pretty good at it so why stop? I know many private investors that are really good traders that have a feel for these kind of things and can do it effectively. I'm just not one of them. I'm the kind that needs a daily reminder not to do something stupid:-). And it's wife that usually serves up that reminder......

how did you buy in pre-market??

I use Interactive Brokers.
On their trading program TWS, there is a pull-down for the time-in-force column for the order. It defaults to "day order", but you can also click the "Fill outside RTH" box (regular trading hours).
The separate order type defaults to limit order, which I *always* use, and as others noted I think a limit is mandatory for pre-market orders.

I'm sure some other brokers offer a similar feature.

The bid/ask is quite wide outside regular trading hours, but also sometimes has interesting wild swings.
I was surprised that this order was filled largely as a collection of 22 odd lots, most of which were fewer than 10 shares. I guess it's what Wall St would call an early start on amateur hour.

Jim

Well here's the thing, you seem pretty good at it so why stop? I know many private investors that are really good traders that have a feel for these kind of things and can do it effectively. I'm just not one of them. I'm the kind that needs a daily reminder not to do something stupid:-). And it's wife that usually serves up that reminder......

Oh, I'm not going to stop : )

I have tried a whole lot of investment strategies over the years. I lost a lot of money on many of them. Most of them. My big epiphany was to stop doing the ones that don't work. (I'm pretty slow). Buying lots and lots of Berkshire stock on dips is one that has worked well for me. In order to have the power to do that, you have to raise some serious money (more than I need for spending) at other times. So selling at least some positions when valuations are rich is part of what I need to do.

On the one hand, my approach is not very Buffett-and-Mungerish, in that I'm not just sitting on my hands and just sharing in the prosperity of the underlying business.

But my underlying reasoning is not so wildly different in another way: price matters. As the price of something rises, the risk rises and the upside shrinks. The margin of safety erodes. Something with low risk and a big upside probably deserves a bigger portfolio allocation, and vice versa. I think that the bulk of their fondness for not trading is very well founded in behavioural observations and the rarity of good investment picks, but I also think that some part of it is tax concerns which don't apply to my portfolio. I imagine that if there were no corporate capital gains tax due on the Coke position in 1999 it would almost certainly have been sold down.

The strange thing is that one thing I haven't done is sell my in-the-money calls and buy plain stock, something I would normally have on my "to do" list when valuations get higher. I have ample cash to do so at the moment. The reason I haven't is that the amount of time value I could realize by doing so (given the usual bad bid/ask spread) is not actually higher than what I'm earning from my broker in interest at the moment (4.83%, more on T-bills) so I wouldn't be better off. The improvement in the effective cost basis of my shares would be offset by the foregone interest. I expect this to change; I don't think short term real rates will stay this positive for long.

Jim

The reason I did nothing yesterday and will likely do nothing going forward, except for the day each year when I sell some, is because my oldest lot is from 12/31/2012 and Berkshire has annualized 14.17% since that date, with no tax consequences. No work, sat on my ass. The SPX total return index since that date has returned 14.17% with the obvious dividend income. For most of the time I have held this, Berkshire was lagging the index and still may revert to that posture soon, who knows really. 75% of my position was accumulated from 12/18/2020- 3/15/2023, these last positions were all bought less than the previous reported repurchase prices and have substantially beaten the market, albeit not a long time frame.

I sell around 3-4% of my shares each year at end of year.

“The reason I did nothing yesterday and will likely do nothing going forward, except for the day each year when I sell some, is because my oldest lot is from 12/31/2012 and Berkshire has annualized 14.17% since that date, with no tax consequences. No work, sat on my ass.”

Same philosophy here in general. My Cash/MM funds are fine at present and I’d have to ask “and then what” to do with the new funds. I’d trim other positions like big tech or VOO rather than BRK at present prices if/when the cash bucket needed refilling. Its like dental pain paying Fed/state taxes and interrupting the compounding even at 22/24% tax bracket unless necessary. BRK has been a great compounding “savings” account over the years And no loss of sleep nor concern over management. WEB is outstanding at limiting our tax bill as well.

Btw, I really don’t see WEB instituting a dividend despite the much more challenging role of allocation at our enormous size. As others have said. I too have a strong preference for smart buybacks (and even borderline buybacks) rather than start the quarterly dividend train.

Jim,

Did you sell simply so you can buy back later at a cheaper price, or do you think there has been some real damage to the Berkshire “brand” due to the weakness at BNSF and especially at BHE? Are you forecasting a weaker operating earnings trend far into the future?

Did you sell simply so you can buy back later at a cheaper price, or do you think there has been some real damage to the Berkshire “brand” due to the weakness at BNSF and especially at BHE? Are you forecasting a weaker operating earnings trend far into the future?

Purely valuation based. The price seemed high enough that odds favoured raising cash for a while. If you make a lot of assumptions (value grows at around the same rate as in recent years, valuation multiples stay around the last 10-15 average, etc), then the forward returns in the next year are more likely to be negative than positive. Same old, same old.

But sure, new information will roll in over time. Some of that information may affect my estimate of value, which in turn affects my estimate of the price-to-value ratio, which in turn would affect how much and at what price I buy back in.

As for this report--I have been talking about the disappointing operating earnings for several quarters now, and now we have comments suggesting that it might be a lasting issue rather than a purely temporary blip. On the other hand, I have always assumed that Berkshire's value generation rate would slow over time, so maybe this is it. In fact I think it already has slowed somewhat in a broad sense, but it was "hidden" by the unrepeatable good result from the Apple position.

My long term forecast for value goes something like this:
Assume Berkshire is capable of generating value at a rate of X%/year faster than the broad US market, in year 1. I'm speaking of value, not price.
I assume that each year, the magic sauce "X" will drop by 6% from the previous year's figure. e.g., if they could beat the market's value generation rate by 5% one typical year, then I'd expect them to beat it by only 4.70% the second year, 4.42% the third year, 4.42% the fourth year. Asymptotically approaching a rate of value generation no better than the average company. I came up with this formula in 2006, and I keep not seeing the slowdown yet. But it will come.

FWIW, based on the current price of $402.86 per B, my sundry models for one year forward returns have a median value of inflation - 7.3%. The range is inflation-13.3% to inflation + 1.1%. The models are based on various value metrics, and varying amounts of historical data.

Jim

Good info. Thanks!

price matters. As the price of something rises, the risk rises and the upside shrinks. The margin of safety erodes.

I am conflicted over which wise uncle to heed. WEB somewhere pointed out that if you have won the game you shouldn't keep playing. Charlie told me if I'm not ready to ride out a 50% decline I should rot in hell (actually he just said expect mediocre returns).

I've reached a point where I can cruise on in with fixed income investments and be fine. Maybe I should stop playing the riskier game. I've done that with the tax free IRA money. The capital gains tax keeps me from getting out of most of my BRK, even though a 50% cut would hurt. The interesting thing is that the more the price runs up, the less ominous is the 50% cut. As Jim points out, it is more likely starting from a high price, but the half number is not so bad now and I worry less about a meltdown.

I feel the magnificent seven may not quite "have no clothes" but they may be lightly dressed if a blizzard arrives. Hopefully BRK is more robust, but of course it would drop with the broader market. A big drop from current numbers would be a bummer, but I'll survive. Guess I'll do nothing for now.

Purely valuation based. The price seemed high enough that odds favoured raising cash for a while.

I did nothing today as well [relative to the market], other than to keep an eye on the radically moving BRK price and the absence of related commentary on this board since the price began its dramatic rebound about noon. I did glance at recent BRK price movement, noticing that by market close today it had only gained a paltry 3.6% over the past 9 days ... down a full 2.0% from its remarkable closing high two days ago.

While all this local commotion is disturbingly fascinating, these BRK price changes over varying time-frames are at least somewhat comforting:

1-mo + 6.7%
3-mo +13.2%
6-mo +15.0%
12-mo +34.5%
2-yr +15% cagr
4-yr +17% cagr
8-yr +15% cagr
15-yr +15% cagr

It's noticeable that the past year has been extraordinary, perhaps justifying the cautionary actions taken by some. But the longer term performance of both the business and its price is reassuring to me, as I prepare myself for enduring what's hopefully a relatively near-term correction.

Admittedly, I'm not up for all the sophisticated investment activity enjoyed by many here. But as long as most knowledgeable investors on this board and elsewhere remain positive on BRK for the long-haul, I'm into remaining steadfast.

Thanks to all for your ongoing assistance.

Tom

“I am conflicted over which wise uncle to heed. WEB somewhere pointed out that if you have won the game you shouldn't keep playing.”

Bill Bernstein has said this many times. I’m surprised WEB has. He didn’t stop playing, after all.

Personally, I go with: if you have won the game and enjoy it, why not keep playing?

We’re talking prudent investing, I assume. No leverage, no market timing.

"I am conflicted over which wise uncle to heed. WEB somewhere pointed out that if you have won the game you shouldn't keep playing.”

Well here's the thing- even if you stop playing the game inside of Berkshire are you really stopping playing? Highly likely the answer is no. You will merely transfer into another "game" and that will bring about a different set of challenges within that game. It would seem the only way to literally stop playing would be to sit on cash which of course has it's own host of issues. So I'm with Charlie on this one because as long as you have some form of money you will have to think about how to preserve and expand that nest egg.

“Personally, I go with: if you have won the game and enjoy it, why not keep playing?

We’re talking prudent investing, I assume. No leverage, no market timing.”

Agree. Aside from try to add a few bucks, it’s just fun, mentally stimulating, adds a little dopamine at times, chews up some free time, and I’m always learning here around this “water cooler” of folks with similar interests who have truly helped me manage my own assets and my own head! I couldn’t imagine buying a bunch of munis and trying to ignore BRK, markets, economy, etc. Also want to try to pass along not only a few bucks to loved ones & philanthropy but also some Buffett & Munger-like wisdom to the kids as they navigate their future. Right now, they much prefer Xbox group play & sports.

Yeah, it is good to point out that there is no way to truly get out of the game. I myself recently told that to a young friend seeking advice. I told him i’m not real good at figuring out how to get rich, but I know a fair bit about how to not get poor, and doing next to nothing can be a good way to end up poor. For the moment we have a somewhat rare period with some safe options which yield more than inflation.

I was not thrilled with Buffett’s BHE comments or the rail progress. I sold a bit at the higher prices to give me 2 more years of living expenses than I usually hold, in case the stock goes sideways for 2-5 years.

But I’m not bailing out of Berkshire. I do not know what else to buy, and I still have 25 years or so to live hopefully, so I’m going to hang in there and se how things evolve. This will be an interesting test to see if Able can fix the issues over these next few years. If he can’t, I might have to rethink my options.

"I was not thrilled with Buffett’s BHE comments or the rail progress."

Yeah look, it's certainly not good news but a couple of things......

1. I have found over the years Warren will clearly state problems and sometimes over emphasizes them. I site General Re with bad derivatives on the book, Net Jets tanking at one point in time, Sokol plunking down for shares in Lubrizol and Heinz Kraft & Wells Fargo investments going sideways. All these issues were things needing highlights in the annual letter and he went out of his way to explain the issues. I'm not minimizing BHE or BNSF because the issues are very real and more capital intensive than the other issues I mentioned but at least he's upfront about and clearly working on the issue. And who better to work on it?

2. Regarding regulatory issues- I think he's telegraphing his line in the sand by talking about it in the letter. It's no different than US chip manufacturers releasing statements saying there will be delays in the building of their fabs. They were sending a message to the US government telling them too much red tape and holding up the money is going to stop them from building in its tracks. And wahlah, suddenly the money starts coming out! I'm not saying that's what's going to happen here but regulators for rails or power won't like reading him talking about possible bankruptcy or getting out altogether in key areas.

3. Warren has said many times that Greg's a better day to day manager than he is. Well, here's a time to let the young man shine! Hopefully he can help minimize things and manage us out of the situation.

4. It's time to build another grove! If the problems are so deep that it appears returns will permanently be diminishing then it's time to get aggressive with the cash pile and perhaps overpay a little for another grove. I'm kind of surprised he keeps saying he won't buy Occidental. If Oxy's future is so secure with all that's in the Permian Basin and he's so bullish on it then why taking purchasing it outright out of the equation?

Again, the problems at both units are definitely a very real but I think we are looking at worse case scenarios all around because Warren conditioned us to in the AR. Wiley old bugger!!

"I was not thrilled with Buffett’s BHE comments or the rail progress."
——————|——————
I tried to find a current Pie Chart summary of sector after tax earnings for Berkshire to better visualize the magnitude of potential shortfalls for BNR & BHE.
The current TTM chart by “The Rational Walk” does this nicely in column form and puts the BNR & BHE contributions in perspective.

https://newsletter.rationalwalk.com/p/berkshire-ha...

ciao

I manage my parents’ money and their IRA’s are 70% Berkshire, today I sold enough for their RMD’s, they’re in their early 80’s. Other than that, I kept to my posture for my own money, did nothing, my next sale will be at end of year.

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