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BRK.B entry point?


mikazo
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Hello everyone,

 

Despite following Buffet's practices for a few years now, I've never bought any shares in Berkshire because I was just playing around with small sums of money. I recently had a pension cashed out to a discount brokerage account, so I have more significant sums to invest, a portion of which I'd like to put into BRK.B.

 

I'm aware of the many difficulties in valuing a company like Berkshire and the vast amount of discussion on that topic, so I'm not really asking for valuation opinions. What I'm wondering is, what approach to people use to initiate a position in BRK.B and add to it over time? Do you try to value the company yourself? Do you take Buffet's word on whether it's under/overvalued and watch his share repurchases (if any)? Do you take others' word on valuation (for example, this message board)? Do you worry about exchange rate? (I have to deal with USD/CAD conversion) Do you just add to your position blindly because it won't matter much over the span of decades?

 

I'd really appreciate any advice on the topic. I'm saving a Cherry Coke to drink in celebration of my first shares of BRK.B!

 

Thanks,

-Mike

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I'm not sure how to answer your question but I would suggest 1.3x book value isn't an expensive entry point and you could add to your position on any declines from there.  Don't hold your breath for another trip below 130/share unless there is a huge drop in the market.  If it ever gets to within a buck or less of the 1.2x buyback number, it makes sense to buy aggressively if you don't have your full position yet.  It's not terribly difficult to value the company yourself, so you might as well make a habit of relying on your own analysis.  Book value can be shown empirically to be understated by at least a small amount (KraftHeinz isn't marked to market for instance) so a small premium to book is a pretty safe entry point.  With the company retaining all earnings and a shrinking portion of book marked to market your cost basis will end up below book value soon enough.

 

What I see a lot of people doing wrong with BRK is trying to be too precise and not just buying the stock when it's close enough to a great deal.  You can miss out on a multi-decade position if you fuss over the last quarter.  You don't need a scale to tell if somebody is fat

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I'm not sure how to answer your question but I would suggest 1.3x book value isn't an expensive entry point and you could add to your position on any declines from there.  Don't hold your breath for another trip below 130/share unless there is a huge drop in the market.  If it ever gets to within a buck or less of the 1.2x buyback number, it makes sense to buy aggressively if you don't have your full position yet.  It's not terribly difficult to value the company yourself, so you might as well make a habit of relying on your own analysis.  Book value can be shown empirically to be understated by at least a small amount (KraftHeinz isn't marked to market for instance) so a small premium to book is a pretty safe entry point.  With the company retaining all earnings and a shrinking portion of book marked to market your cost basis will end up below book value soon enough.

 

What I see a lot of people doing wrong with BRK is trying to be too precise and not just buying the stock when it's close enough to a great deal.  You can miss out on a multi-decade position if you fuss over the last quarter.  You don't need a scale to tell if somebody is fat

 

+1 - Very well phrased, globalfinancepartners. I concur fully to that.

 

mikazo,

 

The more long term your investment horizon is, the less your entry point is important for your investment outcome. It's math. Racemize has posted a very good paper about it on this board. If I remember correctly, Racemize had MKL in mind writing it.

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I'm not sure how to answer your question but I would suggest 1.3x book value isn't an expensive entry point and you could add to your position on any declines from there.  Don't hold your breath for another trip below 130/share unless there is a huge drop in the market.  If it ever gets to within a buck or less of the 1.2x buyback number, it makes sense to buy aggressively if you don't have your full position yet.  It's not terribly difficult to value the company yourself, so you might as well make a habit of relying on your own analysis.  Book value can be shown empirically to be understated by at least a small amount (KraftHeinz isn't marked to market for instance) so a small premium to book is a pretty safe entry point.  With the company retaining all earnings and a shrinking portion of book marked to market your cost basis will end up below book value soon enough.

 

What I see a lot of people doing wrong with BRK is trying to be too precise and not just buying the stock when it's close enough to a great deal.  You can miss out on a multi-decade position if you fuss over the last quarter.  You don't need a scale to tell if somebody is fat

 

+1 - Very well phrased, globalfinancepartners. I concur fully to that.

 

mikazo,

 

The more long term your investment horizon is, the less your entry point is important for your investment outcome. It's math. Racemize has posted a very good paper about it on this board. If I remember correctly, Racemize had MKL in mind writing it.

 

John,

 

I'll +1 your +1. Good advice, as always, from GFP.

 

Mikazo,

 

I am doing something similar. Whenever BRKB dips, and there are decent premiums, I write out-of-the money puts at strike prices at, or below, P/BV of 1.3, which I guesstimate at $137. So today I wrote some puts and had some order in at higher premiums that did not execute.

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I'm not sure how to answer your question but I would suggest 1.3x book value isn't an expensive entry point and you could add to your position on any declines from there.  Don't hold your breath for another trip below 130/share unless there is a huge drop in the market.  If it ever gets to within a buck or less of the 1.2x buyback number, it makes sense to buy aggressively if you don't have your full position yet.  It's not terribly difficult to value the company yourself, so you might as well make a habit of relying on your own analysis.  Book value can be shown empirically to be understated by at least a small amount (KraftHeinz isn't marked to market for instance) so a small premium to book is a pretty safe entry point.  With the company retaining all earnings and a shrinking portion of book marked to market your cost basis will end up below book value soon enough.

 

What I see a lot of people doing wrong with BRK is trying to be too precise and not just buying the stock when it's close enough to a great deal.  You can miss out on a multi-decade position if you fuss over the last quarter.  You don't need a scale to tell if somebody is fat

 

+1.

Mirrors what Buffett suggested as well in his 50 year commentary last year. "close to what the company is willing to buy back" as a good entry point and close to, "say", 2.0xBV will take many years to get a decent return. Don't think of <5 years in any case for the holding period and ....please don't borrow money to buy BRK

 

My guess is that if someone holds for 5 year from now, they will hold for a longer time. They'd have learned how much simpler it is relative to other things they'd have owned in the same period.

 

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I'm not sure how to answer your question but I would suggest 1.3x book value isn't an expensive entry point and you could add to your position on any declines from there.  Don't hold your breath for another trip below 130/share unless there is a huge drop in the market.  If it ever gets to within a buck or less of the 1.2x buyback number, it makes sense to buy aggressively if you don't have your full position yet.  It's not terribly difficult to value the company yourself, so you might as well make a habit of relying on your own analysis.  Book value can be shown empirically to be understated by at least a small amount (KraftHeinz isn't marked to market for instance) so a small premium to book is a pretty safe entry point.  With the company retaining all earnings and a shrinking portion of book marked to market your cost basis will end up below book value soon enough.

 

What I see a lot of people doing wrong with BRK is trying to be too precise and not just buying the stock when it's close enough to a great deal.  You can miss out on a multi-decade position if you fuss over the last quarter.  You don't need a scale to tell if somebody is fat

 

 

I think you can do a lot of analysis and not do much better than  - buy at 1.3x or lower and you'll probably do alright.  You can pick a higher or lower number depending on how picky you want to be, how long you want to hold, and how much you want to make sure that you get the shares.  It's not like buying at 1.35 or 1.4 book is going to kill you, especially over a longer time frame.  Trading at about 1.35x book value now.

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Buy Exor instead and watch the money compound. I would buy both and see which one performs well in the next 3-5 years.

 

I am not familiar with Exor.  Care to point me to any particular background or write-up?  It doesn't look like there is a thread.

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