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Berkshire Hathaway Inc. Message Board

  • balak_joshi balak_joshi Mar 18, 2012 12:03 AM Flag

    Downside risk to BRKA : 109000?

    I wonder what is the downside risk to BRK-A. Is that about 10%. Though Warren said in a weak market they won't buyback and won't make a big. So who knows worst case could drop below 109,000 i guess. Thoughts?

    The overall market is ripe for a correction

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    • It wouldn't surprise me if Brk ends up buying back many billions worth of stock over the next few years. I would call that a very good thing, but I think you may file that experience under "downside risk".
      Tho I don't see any 'downside' to that at all.

      • 1 Reply to davidyab
      • Balak, you can learn a lot from Dave's response here. I would encourage you to give it good thought.

        There are two things here:

        1) there is never any downside protection (ie....stock can only fall to $X amount). Any stock can fall as far as it wants to in the short-term and you can expect any stock to fall by 50% at any time. That's normal. So you have to get real comfortable with that fact.

        2) to Dave's point....and this requires second level thinking....if you don't need your investing money any time soon then what's in your best interest, to see BRK trade above 1.1x book or for BRK to trade below book for a good several years while Buffett buys back billions in stock? What is best for your portfolio & EPS if you fast-forward 10 years out? If Buffett buys back billions of dollars worth of stock, your EPS of the company goes up, intrinsic value goes up and the stock will go up even higher later. So in that context, do you wish for the stock to go up or down? What are you protecting from? How do you define "downside"?

        Some of the best investors I've read about want a lower market and lower prices because they know that they're the beneficiaries of such a climate.


    • By next earnings report, early May, BV will be $105,000.

      $105,000 X 110% = $115,500 = buyback level (May)

      $115,000 floor value vs. current stock price $122,190 = -5.8% downside risk

      $115,000 X 120% (with 1.2 times book upside) = $138,600 = 13.4% upside

      1.2 times BV would be near historic low valuations, and still give 13.4% upside in two months.

      No genius needed here to draw the obvious conclusions.

      • 7 Replies to ndavenport_mba
      • Makes sense. Thanks. But I think the Buffett/Munger premium era is over. So there is high chance of it trading closer to 1.1x book going forward. Don't you think. I think I will buy if/when it dips to $115K or to about 77 on the B shares. If the overall market corrects then book value could come down in Q2 back to the $100K level also. In 2 to 5 years from now I think BRK book value got to be higher than today. But near term it has gone up nicely from 100K/share level to 122K.

215,600.00-1,375.00(-0.63%)Oct 21 4:00 PMEDT