2024 Q4 and Annual Report

[boilermaker75]

@John Hjorth John, I actually responded to this thread just before you asked me.

 

I agree about taking this off track and I don't think I have anything more to add.

[RichardGibbons]

2 hours ago, 73 Reds said:

@RichardGibbons respectfully I think you missed my point.  It has nothing to do with economic outcomes.  Rather it is the work involved  when you already hold the index as opposed to the work involved to best the index while also having to generate sufficient net premiums to cover the dividends you forego by not holding the index.    

 

Respectfully, your point is nonsensical, because math matters. A covered call is equivalent to a naked put barring unexpected things like interest rate or dividend changes (which could benefit the covered call side or the naked put side.) If you sell the naked put, you effectively get the dividend, not forgo it.

 

It's about 10 seconds more difficult to convert a long stock position to a naked put than converting it to a covered call. (Or zero effort, if you have a computer do it automatically, which you do, if there were actually money to be made doing it.)

 

That said, at this point, pretty well everyone understands their own thoughts. So I'll just say that I'm delighted you've found a simple innovative strategy that generates above market returns for you!  I don't think it's something I'll copy, but I'm glad that you're able to do it successfully.

[Munger_Disciple]

2 hours ago, boilermaker75 said:

 

I don't keep track and that would be a lot of work for me to come up with.

 

I understand. But w/o supporting data any sort of assertions/conclusions on the topic at hand are almost meaningless. 

Edited yesterday at 03:36 AM by Munger_Disciple

[Munger_Disciple]

52 minutes ago, RichardGibbons said:

 

Respectfully, your point is nonsensical, because math matters. A covered call is equivalent to a naked put barring unexpected things like interest rate or dividend changes (which could benefit the covered call side or the naked put side.) If you sell the naked put, you effectively get the dividend, not forgo it.

 

  It's commonly known as put-call parity. 

[gfp]

https://www.gurufocus.com/news/39652/warren-buffett-again-sells-puts-on-burlington-northern-santa-fe-berkshire-hathaway-filing-reveals

[villainx]

6 hours ago, gfp said:

This article has some nice tables and graphics detailing the results from GEICO over the last few years - worth a read for Berkshire fans

https://rationalwalk.com/berkshire-hathaways-2024-annual-report/

 

Thank you!   Didn't even realized Rational Walk got dropped from my usual blog rotation.  

 

That Geico lizard sure is expensive! 

[Munger_Disciple]

1 hour ago, gfp said:

https://www.gurufocus.com/news/39652/warren-buffett-again-sells-puts-on-burlington-northern-santa-fe-berkshire-hathaway-filing-reveals

 

Yes, similar to KO puts. He was just trying to acquire the stock at a slightly lower price. Similar to writing cash secured puts. As I am sure you know, it is quite different from trying to outperform the underlying. 

Edited yesterday at 05:25 AM by Munger_Disciple

[boilermaker75]

Thanks @gfp

[boilermaker75]

6 hours ago, Munger_Disciple said:

 

Yes, similar to KO puts. He was just trying to acquire the stock at a slightly lower price. Similar to writing cash secured puts. As I am sure you know, it is quite different from trying to outperform the underlying. 

 

Getting a lower price isn't outperforming?

[boilermaker75]

8 hours ago, Munger_Disciple said:

 

I understand. But w/o supporting data any sort of assertions/conclusions on the topic at hand are almost meaningless. 

 

I am not going to go through all the work of coming up with numbers as then you will want an independent party confirmation.

 

I already had some BRK, but I wrote my first put option to acquire more January 1, 2010. 

 

Since then, I have used writing puts to increase my core position and I occasionally sold covered calls. I have never been called out on any of my core position. My outperformance is greater than zero, but I can’t tell you if is it 0.5% or 2%. 

 

If you want to continue to be aggressive and use terms like my post is meaningless than I am done. I am just trying to share information.

[73 Reds]

12 hours ago, backtothebeach said:

@73 Reds so how long have you done this with real money and by how much have you bested the index in % p.a. by selling calls?

 

I think you would have to agree that the people/market makers selling these calls to you are not in the business of giving money away. You don't have a statistical advantage.

 

But maybe you are better at predicting short/medium term market swings, "picking your spots". Or maybe you just think that, because only once in 10 years the market goes crazy right after you picked your spot, and it has not happened yet.

I answered your question much further back in the thread.  All the detractors seem to miss the main point and they evidently believe that EMT (the Efficient Market Theory) applies to options.  I don't.  

[73 Reds]

10 hours ago, RichardGibbons said:

 

Respectfully, your point is nonsensical, because math matters. A covered call is equivalent to a naked put barring unexpected things like interest rate or dividend changes (which could benefit the covered call side or the naked put side.) If you sell the naked put, you effectively get the dividend, not forgo it.

 

It's about 10 seconds more difficult to convert a long stock position to a naked put than converting it to a covered call. (Or zero effort, if you have a computer do it automatically, which you do, if there were actually money to be made doing it.)

 

That said, at this point, pretty well everyone understands their own thoughts. So I'll just say that I'm delighted you've found a simple innovative strategy that generates above market returns for you!  I don't think it's something I'll copy, but I'm glad that you're able to do it successfully.

Again, the issue is not about economic equivalents.  It's about the work involved to achieve an objective.  When you hold the index any net premium you receive wins the day.  When you don't hold the index you need to overcome the dividends you forego.  Not sure why this is controversial and you're right, its simple math.

[DooDiligence]

10 hours ago, gfp said:

https://www.gurufocus.com/news/39652/warren-buffett-again-sells-puts-on-burlington-northern-santa-fe-berkshire-hathaway-filing-reveals

 

Holy crap, at first I thought this was a recent action (didn't know how it could've been but...) and I started to panic a little, and think about going through the recent rails threads again. 

[DooDiligence]

8 hours ago, Munger_Disciple said:

 

Yes, similar to KO puts. He was just trying to acquire the stock at a slightly lower price. Similar to writing cash secured puts. As I am sure you know, it is quite different from trying to outperform the underlying. 

 

I've done this before too. Backing into a position was the only intent. Turns out I was just picking up nickels and rarely wound up with the position size I wanted, so I quit doing it.

[Blugolds]

1 hour ago, boilermaker75 said:

 

I am not going to go through all the work of coming up with numbers as then you will want an independent party confirmation.

 

I already had some BRK, but I wrote my first put option to acquire more January 1, 2010. 

 

Since then, I have used writing puts to increase my core position and I occasionally sold covered calls. I have never been called out on any of my core position. My outperformance is greater than zero, but I can’t tell you if is it 0.5% or 2%. 

 

If you want to continue to be aggressive and use terms like my post is meaningless than I am done. I am just trying to share information.

 

I noticed in the past (its been some time now) in the "what are you buying thread) there were times when @boilermaker75 and I were both writing BRK puts. I remember thinking, AHH a likeminded fellow!  This is also something that I have done for years (slowed down recently) I thought it made sense if you could write puts at or close to BV (back when P/BV was a more accurate measure). Some years it added up to a nice bonus, nothing that would make me rich, but it was enough for a little vacation. In hindsight I would have been better off if they were assigned, and some were, but I was fine with it. I viewed it as heads I win, tails I dont lose. 

 

As mentioned, writing puts on something that I want to own at a lower price is a good way to get paid to wait until assigned at a price you want to own it. Same with Covered calls, Let it go and be fine with it or get paid to wait. I dont consider myself an options trader, just the basics for me and more as just something to do I never consider it an actual difference making strategy. When guys start talking about straddles, strangles, collars, butterflies I know enough to know that Im not experienced, or probably smart enough to use them to any advantage, I dont have the computing power physically or mentally to give myself an advantage against the pros. That was something that surprised me with Robin Hood and meme stock hysteria, suddenly everyone thought they were options experts!

 

I always think of that saying, you should hope that someone's first endeavor is a loser, because if they have success, it can create a false sense of security, and they think they are smarter than they are. Better to be humbled right out of the gate than get more and more brazen and then blow-up bigger sums. My guess is that was the case with a lot of those Robin Hood wallstreetbets option "experts". 

[gfp]

Sometimes I enter a 'good til cancelled' limit order in the market and I hear a voice in my head that is a mashup of boilermaker and rod blagojevich telling me I'm stupid for giving it away for free

[Munger_Disciple]

10 hours ago, boilermaker75 said:

 

Getting a lower price isn't outperforming?

 

You may or may not get it at a lower price. In other words, there is an opportunity cost for the (put) writer's funds being reserved for potential exercise by the counter-party.

Edited 18 hours ago by Munger_Disciple

[Munger_Disciple]

2 hours ago, boilermaker75 said:

 

I am not going to go through all the work of coming up with numbers as then you will want an independent party confirmation.

 

I already had some BRK, but I wrote my first put option to acquire more January 1, 2010. 

 

Since then, I have used writing puts to increase my core position and I occasionally sold covered calls. I have never been called out on any of my core position. My outperformance is greater than zero, but I can’t tell you if is it 0.5% or 2%. 

 

If you want to continue to be aggressive and use terms like my post is meaningless than I am done. I am just trying to share information.

 

Glad it worked out for you. Not trying to offend you or anything but when someone makes a comment that they "out-performed" something, it is only fair to ask for evidence. But have it your way. 

[Munger_Disciple]

1 hour ago, DooDiligence said:

 

I've done this before too. Backing into a position was the only intent. Turns out I was just picking up nickels and rarely wound up with the position size I wanted, so I quit doing it.

 

Excellent point. As I was mentioning in my previous post, some people miss that there is an opportunity cost and think that the option (writing) is "free". In general, I found that short term options (a few months or less) are mostly efficiently priced. I am sure there are a few exceptions but I think that's generally the case. 

[gfp]

I think what you guys are missing in Boilermaker's case is that he's fully invested with the core position and the option premium strategy is incremental to his being fully invested - it utilizes margin and results in more than 100% long exposure.  So you pocket put premiums in months you don't get assigned and then when you do get assigned, you are long the stock on margin, you immediately start selling covered calls against that new lot of shares, pocketing premium, eventually being called away and you are back to fully invested.  Repeat, over and over again.  It is important to do this type of thing only in a security you know very well so you can form useful opinions about the valuation you would be willing to go over 100% long.

 

You could say, "but MIKE you didn't outperform just being 115% long Berkshire the whole time" but I don't think he wants to be 115% long Berkshire all the time.  100% long plus this premium income dance is enough.

Edited yesterday at 03:18 PM by gfp

[boilermaker75]

1 hour ago, gfp said:

Sometimes I enter a 'good til cancelled' limit order in the market and I hear a voice in my head that is a mashup of boilermaker and rod blagojevich telling me I'm stupid for giving it away for free

 

Your Honor, I never tried to sell a senate seat!

[gfp]

2 minutes ago, boilermaker75 said:

 

Your Honor, I never tried to sell a senate seat!

 

But if you had one you wouldn't give it away FOR F'ING FREE!

[Munger_Disciple]

14 minutes ago, gfp said:

I think what you guys are missing in Boilermaker's case is that he's fully invested with the core position and the option premium strategy is incremental to his being fully invested - it utilizes margin and results in more than 100% long exposure.  So you pocket put premiums in months you don't get assigned and then when you do get assigned, you are long the stock on margin, you immediately start selling covered calls against that new lot of shares, pocketing premium, eventually being called away and you are back to fully invested.  Repeat, over and over again.  It is important to do this type of thing only in a security you know very well so you can form useful opinions about the valuation you would be willing to go over 100% long.

 

You could say, "but MIKE you didn't outperform just being 115% long Berkshire the whole time" but I don't think he wants to be 115% long Berkshire all the time.  100% long plus this premium income dance is enough.

Thanks for the explanation. Clearly it's a levered bet on Berkshire, so your later comment in quotes is quite relevant. He is only generating income because of margin leverage so the fair comparison in this case has to be to a levered version (time weighted perhaps to account for the duration of the leverage) of the underlying. My 2c

Edited yesterday at 03:32 PM by Munger_Disciple

[boilermaker75]

10 minutes ago, gfp said:

I think what you guys are missing in Boilermaker's case is that he's fully invested with the core position and the option premium strategy is incremental to his being fully invested - it utilizes margin and results in more than 100% long exposure.  So you pocket put premiums in months you don't get assigned and then when you do get assigned, you are long the stock on margin, you immediately start selling covered calls against that new lot of shares, pocketing premium, eventually being called away and you are back to fully invested.  Repeat, over and over again.  It is important to do this type of thing only in a security you know very well so you can form useful opinions about the valuation you would be willing to go over 100% long.

 

You could say, "but MIKE you didn't outperform just being 115% long Berkshire the whole time" but I don't think he wants to be 115% long Berkshire all the time.  100% long plus this premium income dance is enough.

 

Thanks for helping clarify GFP. 

 

I am a child of depression era parents. It is in my DNA to not be mortgaged, margined, etc., You can say, "but you are effectively margining." But somehow it is psychologically different for me.

[gfp]

1 minute ago, Munger_Disciple said:

Thanks for the explanation. Clearly it's a levered bet on Berkshire, so your later comment in quotes is quite relevant. He is only generating income because of margin leverage so the fair comparison in this case has be to a levered version (time weighted perhaps to account for the duration of the leverage) of the underlying. My 2c

 

1 minute ago, boilermaker75 said:

 

Thanks for helping clarify GFP. 

 

I am a child of depression era parents. It is in my DNA to not be mortgaged, margined, etc., You can say, "but you are effectively margining." But somehow it is psychologically different for me.

 

 

I don't believe in being so rigorous and serious about our methods.  The most important thing is to find a style / strategy that works for you personally.  "I don't wanna" is a perfectly good reason not to do it another way that may be comparable in risk and the appropriate benchmark.

 

If you find a style that works for you over time you will have plenty of resources to pay your bills and enjoy the process.