« Could you expand on this? »
I'll be happy to.
The "Buffett Put" at 120% of Book Value per share also puts a ceiling on the price per share that a rational investor might pay today for this stock.
IF I can hold this stock for ten years AND I want a real (net of inflation) return of 5.5% on my investment, AND I am convinced that BRK will continue to grow book value per share by a real 7% per year, AND that Buffett or his successor will bail me out at 120% of book value per share ten years from now when I go to sell, THEN I can pay up to, but not more than, 138% of book value per share today and still make my goal, 120%*(1.070/1.055)^10.
hc, I have never put anyone on ignore. With only one exception, "NJ Flo" (see below), almost everyone brings something of value to a discussion. The particular trade that seems to fascinate (to no end) several folks on this board, doesn't bother me in the least. My hypothetical loss on that trade is simply the difference between what I would have made on BRK-B and what I actually made on VPU. Nothing to loss any sleep over. The trade that really haunts me is my 1982 purchase of Apple. On the 5Apr1982, I bought 100 shares at $18.50 per share, and then sold them, less than a year later after a fantastic run up, on the 30Nov1982, at $28.375 per share, to lock-in a 53% profit. Those prices, by the way, include the market maker's (Dean Witter Reynolds) commission. But, if I had simply held onto them, those shares would have grown, after four splits (2x2x2x7), to 5,600 shares, now worth more than half a million dollars. In my defense, you need to remember that IBM introduced their PC in August of 1981, and it was clear to me by late 1982 that it was taking sales away from Apple. My "market research" consisted of monthly visits to the local ComputerLand store during that period of time.
"Flo" is short for Florentine, and I'm sure you know what ingredient that generally refers to in Italian cuisine.
I gave your post a positive recommendation for both creative writing and sense of humor, even if I'm the butt of the joke.
« Buffett: Charlie and I could get within 5% of each other estimating Berkshire's intrinsic value, but we probably wouldn't be within 1% of each other -- intrinsic value is inherently uncertain. »
I'm having a great deal of trouble believing that they're doing their calculations independently of each other.
As an aside, it is my belief that if you put twenty koolaiders in a room with nothing more than a pencil, paper, and the "P4-2C" data, they would all get the same wrong answer to six significant figures. Precision is not a guarantee of accuracy.
IF SPY pays a dividend equal to 2% of its price at the start of each year AND grows both the dividend and the price by 5% per year (for a total annual return of 7% per year) THEN a 1 M$ initial investment would have returned (a decade later) a total of ~1.880 M$; ~0.252 M$ in dividends with a final portfolio price of ~1.629 M$ (IRR, 7.00%).
IF BRK grows 7% per year AND at the start of each year, 2% of the stock is sold to fund a distribution THEN a 1 M$ initial investment would have returned (a decade later) a total of ~1.857 M$; ~0.250 M$ in distributions with a final portfolio price of ~1.607 M$ (IRR, 6.86%).
Note: IMO, both syzygyzys & sean_erickson2000 are very good with the numbers, if either of them find fault with the above, you may disregard this post.
GMO's 2Qtr2014 letter was released today.
Ben Inker's paper: "Free Lunches and the Food Truck Revolution", discusses selling puts.
« Some investors and strategists have suggested that put selling is a free lunch, and on the face of it, they
seem to have a point ... »
One of Jeremy's papers: "Bubbles Again ...", puts a number on it.
« Accordingly, my recent forecast of a fully-fledged bubble, our definition of which requires at least 2250 on the S&P, remains in effect. »
That's a Price to Revenue ratio of about 2.00 (T4Q Revenue per share as of 3/31/2014 was $1126.00).
hc, worth the read, IMO, post # 211669 on the other board.
I share SteveStox's view that WEB has changed. IMO, the old WEB was a friend of the small investor, someone who could be trusted to call it like he saw it, letting the chips fall where they may, someone in the same league as Bogel, Grantham, and Hussman. The new WEB isn't anything like the old WEB.
« By ANY calculation you sold at a DEEP discount to IV. »
You folks have no idea of how to even calculate IV, let alone KNOW what it might be.
What a bunch of pathetic posers.
Yeah, yeah, yeah, I love ancient history too.
If you had bought JSDA (Jones Soda) on 4/16/2002 at $0.48 and sold it five years later on 4/16/2007 at $31.54, you would have pulled an annualized total return of 130%.
Here's another one that is nearer and dearer to my heart (I have pretensions of being an amateur automobile historian). Ettore Bugatti died in 1947 leaving the company he founded in 1909 in the hands of his 25 year old son (from his first marriage) and his second (27 year old) wife. By 1963 the company was gone.
« Insurance companies are bond surrogates, in effect they are compounding book value at a rate that you can compare to a zero coupon bond (assuming they don't pay a dividend). Berkshire also is a bond surrogate although I've rarely heard it described that way. »
Makes sense to me.
« He's bought every time it touched 1.2 times book, which was just briefly. He bought each time it hit 1.1 times book before that as promised which was also briefly. »
Can you document that (date, #shares, price per share), or are you just making that up as you go?
Do bears poop in the woods?
Is the Pope Catholic?
Thanks, hc, that was a good article.
No doubt about it, dividend investing is tricky.
Companies sporting high yields may be cheap for a very good reason. They may have little or no growth left (mature, old elephants) or are assumed to be approaching death (tobacco).
Even companies that have consistently increased their dividend, year over year, may ultimately resort to the same financial engineering tricks (buy backs, cutting expenses via staff reductions, deploying tax gimmicks, etc.) favored by lesser companies (e.g., "HAL") to remain members of their club.
Personally I'm hoping that the equity bulls (Sean? Beach?) pump the market (and my holdings) out to the point where a decade's worth of good news is already priced in. At that point I'll just liquidate my equities, go to cash, and never look back. Even though I don't own the "500", I still follow it, and my guess is it has now priced in about 8 years --- that is, over the next 8 years, the return on the index, pre-tax, is likely to be no better than just holding cash.
Yes. I'm familiar with iluvbabyb, and yes, she was always fair minded. Her favorite phrase, "it is a market of stocks, not just a stock market" is more true today (for me) than ever. I'll have to look for her meeting notes later. BTW, I can't access the CA web site anymore. I voluntarily resigned years ago. But I know where to look for her notes, I once subscribed to her newsletter. Thanks for the heads up, hc.
« what changed ? »
Press Statement dated 12/12/2012:
"Berkshire Hathaway has purchased 9,200 of its Class A shares at $131,000 per share from the estate of a long-time shareholder. The Board of Directors authorized this purchase coincident with raising the price limit for repurchases to 120% of book value. Berkshire may purchase additional shares in the market or through direct offerings at no more than 120% of book value."
FYI, at the time, most recently (9/30/2012) reported book value per A share was $111,718.
hc, I target buys at ~30 times the current annualized dividend or less. Here's: what I currently own: VPU, T, CVX, KO, INTC, MCD, and VZ. T and VZ are special cases, their real growth rates are close to zero, so they naturally, and justifiably, trade around 20X. I'm looking to make one last new buy and an addition to bring my cash position down to 30% (to fund six year's worth of distributions, I don't want to sell equities at a loss). For obvious reasons, I'm not considering BRK at any price. I feel safer with companies that trade at reasonable multiples of something that is real (the dividend) and have paid & raised it annually for many, many years.
Once upon a time, I very much admired Bill Hewlett (the engineer's engineer), his business partner David Packard, and the company they built, but it pretty much lost its way shortly after they were gone. I thought John Young was good, Lew Platt seemed like a nice guy and tried hard, but everyone after that pretty much just drove hp into further into the ground, in my opinion. I have no interest in the company or its products today. I expect BRK to follow a similar pattern after WEB leaves.
Spirach2, I've told you innumerable times WHY I did what I did, but being the "One Trick Pony" that you are, you tell the SAME joke, time after time after time. It's obvious to me, who the REAL idiot is!
I'll reiterate, briefly, my side of the story for the benefit of the other readers.
I simply do NOT want to be caught holding this stock the day WEB dies, so for me, it will never be more than a rather dangerous, short term trade. I was convinced at that time that WEB's manipulation of the price to book ratio via the buy back offer had destroyed the probability of successfully pulling off a shorten version of a Ben Graham style trade (see below) and therefore closed out my bet and moved on. To this day, I do not regret selling it for 1% more than I bought it, my mistake was in buying it in the first place, making the risky bet. For me, stocks that pay a dividend are investments and stocks that don't are nothing more than speculative bets. I was very angry with what WEB had done and in bitterness, wrote some things I probably should have left go. I simply can't trust people who say one thing and do another or who, conveniently move the goal posts when they lose a bet. I'm done with BRK.
« Ben Graham recommended a three-year holding period or 50 percent profit, whichever came first, before liquidation, as his rule of thumb. He believed that opportunity costs ate away one's return beyond a three-year holding period. »
By the way, even a three year period is too long for me, particularly for something like this, whose price is, IMO, tied precariously to the health of one old man. My wife and I, suddenly and unexpectedly, lost a close friend a couple of weeks ago, she was only 55. I'm 65 and my doctor has told me that if I don't get my stuff together rather quickly (exercise, eat right, and loss some weight), I won't be around much longer either (you can stop cheering now).
No one lives forever.
I get $138,426. per "A" as of March 31, 2014.
Using the 1Qtr2014 Form 10-Q:
From Page 2:
Berkshire Hathaway shareholders’ equity as of March 31, 2014 ... 227,612 M$.
From Page 20:
On an equivalent Class A common stock basis, there were 1,644,289 shares outstanding as of March 31, 2014.
BV per "A" share = 227,612 M$ / 1.644289 million shares as of March 31,2014.
Thanks for the heads up, hc. I did get a chuckle out of Charlie's "beer" remark. That's a new one for me. A number of folks immediately came to mind when I read that.
Not sure that it is doable here in the US, but the Canadian tax reform of 1971 allowed firms up there to issue dual-class shares. The two classes are identical except for how they pay the dividend. One class pays a taxable CASH dividend, the other, a tax deferred STOCK dividend. All WEB would have to do is split the old A shares 1/1500 and then have the new A shares pay a stock dividend (that should please the folks who want to continue putting off paying their taxes) and have the B shares pay a cash dividend (which should please the folks who want their share of the profits now). See, you CAN have your cake and eat it too!