Munger_Disciple

They corrected it:

FT had a funny screenshot of Ajit Jain:

Ajit's sale is not related to charitable giving (he could have gifted shares to avoid capital gains taxes), but it is highly unlikely that it is related to estate planning. My own guess is that Ajit (the best odds maker in the world) sees future capital gains taxes (especially under a democratic administration) going up significantly so he is taking some chips off the table at a high end of Berkshire's intrinsic value if not higher. This thinking is in line with Warren's own stated thinking on higher future corporate tax rates which is one of the reasons he sold Apple stock.

Why would estate planning involve selling stock? That makes no sense.

Perhaps Ajit is planning to move insurance HQ to FL ? He sure would save a few million in taxes every year!

Based on my math, Ajit sold 200 A shares out of his total holdings of 449 equivalent A shares prior to the sale. So the press is wrong. Ajit sold 44.5% of his Berkshire stock and retains 55.5%. Still a significant sale though. Even after this sale, Ajit owns more Berkshire stock (249 A share equivalents) than Greg (229 A share equivalents).

Wow! Didn't see that coming.

I think Bloomstran is saying that FFH has a lot more insurance leverage (so higher risk, possibly higher return potential but more subject to negative surprises) and generally is not as a high quality insurer as BRK which is true. He is also saying that BRK has a lot more flexibility in investing insurance capital (so can have a much higher allocation to higher yielding assets like stocks and entire businesses) because it is so over capitalized. But what he is missing is that it is already more than priced in the relative valuations of the two companies.

Thanks. These results make sense and agree with my intuition. I agree with your conclusion that 4% WR is too high if one retires close to the peak of an overvalued market.

Good work! I especially like the 2nd scenario as the first one is mostly hypothetical since no one knows when or how long a bear market will last beforehand. For the comparisons to be more fair, I would suggest your simulations of various scenarios with the same amount of total capital of $1mm. So you would start with $130K in cash + $870K in S&P 500index in both scenarios you outlined and run the simulations again. This gives a more accurate comparison to the baseline case of starting with $1mm in S&P 500 index with periodic withdrawals.

Well, the sequence of return risk is independent of whether one receives dividends or not. It's just that large, consistent dividend payers tend to be in the defensive sectors like consumer staples and healthcare which outperform in bear markets and that explains the graph more so than they pay dividends.

Very few people are aware of sequence of returns risk with periodic withdrawals, let alone understand it. Great post & I wish I could give it more than 100% emoji.

My guess is 5-7% range (and may beat the market). Intrinsic value may grow at 10% on the high side, and P/B (even though it is less relevant now, but it's a quick & dirty valuation tool, and not a bad one) let's say shrinks from 1.75 to 1.5 over the next 5 years, so that shaves away 3% per annum from returns, so you will get 7%. If IV only grows at 9%, then you will get a lower 6% annual return. All these numbers are over the next 5 years. Charlie (Munger) said secret to happiness in life is having low expectations; so it is better to lower our expectations after the tremendous run-up in 2024. I think a lot would depend on the interest rate environment in the next 5-10 years and sadly that's almost impossible to predict.

That's interesting. At least avoids capital gains taxes.

I agree that writing covered calls makes more sense in a tax deferred account. In a taxable account, it's better not to be too cute. Just a simple buy and hold coupled with small sales to satisfy cash needs is the better approach.

The Berkshire shareholders who are selling covered calls against stock really want to have their cake and eat it too. IMO it doesn't make much sense. They should simply sell a tiny bit of their holding if they need the cash or want to reallocate it elsewhere.

Seems like a lot of agony for little upside. If you think BRK is trading somewhat above its intrinsic value, why not just lighten up a bit instead of all these mental gymnastics?

You misunderstand the point I was trying to make. If you are already a US citizen, it doesn't make much sense to renounce your citizenship unless you have very little net worth because there is an exit tax which is levied on all the assets you own (so it is more like a wealth tax on all you wealth including unrealized capital gains) when you renounce your US citizenship. So you are better off biting the bullet, keep your US citizenship and pay taxes on worldwide income even if you work and live abroad.

That's an excellent idea!

I trust Buffett to manage Berkshire in the best interest of shareholders as he had done for 60 years now. I am also 100% certain that Buffett thought through how Greg would potentially manage Berkshire after he takes over. If you don't believe that, you should sell your stock & move on instead of back seat driving.

Yes, I would rather Greg have T-Bills than Apple stock at 33X.

There is zero chance of that happening while Buffett is in charge. Afterwards, I hope the board considers a small variable annual dividend as opposed to a large special one as the last resort if stock buybacks are not value additive after all the internal capital needs and potential acquisitions are funded.

Just be aware that Berkshire fully participated in the market downdraft in 2008-09, so it's not quite an insurance policy against corrections (pun intended ).