What are you buying today?

[Dynamic]

Sold our entire <1% position in IBM in my wife's capital gains tax exempt UK ISA.

We bought it cheap but don't see it compounding per share IV as fast or as certainly as BRK.B.

Registered a total return of about 19.2% in GBP currency after costs and 30% withholding tax on dividends. Dividends contributed about 4% since 24 Feb 2016 but underperformed the FTSE100TRI (must be a little over 24.4%) and the S&P500TR.

 

Cash in account had been about 80% of what the IBM position raised, so again just under 1%

 

Bought more BRK.B using cash and proceeds of IBM sale. Purchase price would have been about $198 USD, but only £142.01 GBP after costs which is 3.5% less in GBP than the £147.19 GBP ($196 USD) purchase we made in Dec 2017.

 

Portfolio now:

0% cash

67.7% BRK.B

25.9% AAPL

4.0% WFC

0.6% HPE

0.5% HPQ

1.3% Spouse's employee ShareSave option plan

[Spekulatius]

Bought the FANG stocks GOOG and FB today. I think they are cheap with a Y2018 PE in the low twenties.

[Spekulatius]

BRK.B, today [A lot, a lot just below 196, more just below 197, and some at 199] At around 35 percent position now.

 

I think my buy target for BRK.B would be ~$165 or about 1.2x book. I don’t consider it in value territory yet, just fairly valued.

[rb]

BRK.B, today [A lot, a lot just below 196, more just below 197, and some at 199] At around 35 percent position now.

 

I think my buy target for BRK.B would be ~$165 or about 1.2x book. I don’t consider it in value territory yet, just fairly valued.

I agree with Spekulatius though I'm not as greedy as him. I'd pick BRK at 1.3. P/B now it's 1.53. Although in reality it's probably about 1.6 if you mark it.

 

At the 1.5-1.6 book level BRK is somewhere in the neighborhood of fairly valued. That means that long term you'll average around 8-9%. Now here's the thing: There's nothing wrong with a 8-9% return. Especially if you get it without headaches and BRK won't give you headaches. So as long as you're aware of these facts and you're comfortable with them there's nothing wrong with buying BRK here.

[John Hjorth]

I have a raw estimate of Berkshire equity YE2017 of USD 357 B ex. minority interests. With end 2017Q3 A share equivalents at 1,644,656, that gives me a BV per B share of 145, exactly as longinvestor has posted in a topic in the Berkshire forum a few days ago as a reply to wescobrk [longinvestor posted 143]. So to me, buying the B at 196 is equal to buying it at 1.35 x BV. We could go to that particular topic for further discussion, if needed.

[Dynamic]

I generally agree that 1.2x BVPS is a steal for BRK and I'm normally prepared to project forward to the yet-to-be-reported BVPS, which might mean adding 2.5% to the previous quarter's BVPS much of the time. However, this quarter is different!

 

I'd agree with John Hjorth that BVPS as reported on 23rd Feb when the Berkshire Hathaway Annual Report is published is very likely to be around $143-$145 range after accounting for the US Tax Cuts, which have a disproportionately large effect on BRK's deferred tax liabilities and profits made in the USA. For me, $172 would be a screaming buy at about 1.2x estimate 2017Q4 BVPS.

 

I would say that at close price of $191.42, the market-value of the operating part of BRK.B is about $119 and that $72½ would be about the look-through market value of the portfolio of stocks including Kraft Heinz, BYD and Sanofi stocks that aren't included in 13-F reports.

 

Mark-to-market losses on the portfolio of stocks since 31st Dec 2017 would perhaps knock off 3-4% from their contribution to current running book value. Maybe there is as much as a 1.5% reduction in running BVPS would knock about $2 per share off the BVPS that will be reported for 31st December 2017, so I'd reduce that $143-$145 to around $141-$143 for BVPS, setting a 1.2x BVPS "soft floor" of around $169-$172, although the authorized buyback threshold would be any price up to 1.2x the actual last reported BVPS, not the running BVPS.

 

I personally think the US Tax Cuts have boosted Intrinsic Value of BRK.B by a little less than they've boosted Book Value, but I'm content with what I suspect will be reliable compounding at a rate that significantly exceeds our goals, hence our large exposure to BRK.B, especially in the absence of other high conviction ideas and my additions in Dec and Feb around $196 (GBP £141 - £147 depending on exchange rate) even when it appears on the surface to be priced at 1.5-1.6x BVPS.

 

Last night we checked our household budget and brought forward and increased our usual cash subscription to add another 1.5% to our portfolio, which should be available to invest today or possibly as late as Monday. I'm also considering switching our 4% position in Wells Fargo to BRK.B, so might well do both on the same day and add about 5.5% to our BRK.B weighting soon somewhere in the $191 region (GBP £137).

[Nell-e]

I also bought some BRK.B recently although my logic might make some cringe.  I'm a big believer in the "cover your ass" incentive.  Barclays and UBS put price targets on the B shares for ~$240.  I'm betting that money managers will herd into Berkshire by  year end in a volatile market because it's easy to justify to unsophisticated retail customers.

 

Any thoughts on my reasoning?

[John Hjorth]

Let's continue this Berkshire discussion here, so that we don't annoy other fellow board members with lengthy Berkshire talk in this topic.

[rolling]

Bought the FANG stocks GOOG and FB today. I think they are cheap with a Y2018 PE in the low twenties.

Also bought GOOG this week... I'm still doing my research and Alphabet topic on COBF seems to be dead...my only reasoning was that it is growing a lot, has 100B net cash and taxes in the US went down, meaning that their net income should increase only through taxes. To be sure I still don't have a meager idea of the roof for their growth... Do you know any good report I could read on their business? Thank you

 

Ps: I wanted to buy BRK instead but I sold at a loss at 210.8 last week and didn't want to lose the tax credit (truthfully I'm not sure I sold at a loss due to the favourable euro-dollar cambial evolution through deal closure on wednesday).

[Cigarbutt]

Dynamic,

I always read your posts with interest. Impressed by the level of internal consistency and transparency.

 

Question:

"Last night we checked our household budget and brought forward and increased our usual cash subscription to add another 1.5% to our portfolio, which should be available to invest today or possibly as late as Monday. I'm also considering switching our 4% position in Wells Fargo to BRK.B, so might well do both on the same day and add about 5.5% to our BRK.B weighting soon somewhere in the $191 region (GBP £137)."

 

Is this simply a one time adjustment in the saving/investing dynamic or is it some kind of periodic and opportunistic dollar cost averaging?

 

 

[gary17]

what are people modelling for google and facebook’s 2018 tax rate?

[Dynamic]

Dynamic,

I always read your posts with interest. Impressed by the level of internal consistency and transparency.

Thank you.

 

Question:

"Last night we checked our household budget and brought forward and increased our usual cash subscription to add another ..."

 

Is this simply a one time adjustment in the saving/investing dynamic or is it some kind of periodic and opportunistic dollar cost averaging?

 

We live frugal but fun lives below our means and we have no dependents. Since we both started full time work we decided to continue living on about the same budget we'd set (which did include some investment savings) essentially living on one income and investing the other income after taxes. We still get to go to shows and restaurants, take trips abroad, and generally really enjoy living.

 

We saw that prices such as BRK.B were looking to be in our buying range, so rather than keep a few thousand pounds hanging around in our various accounts as a buffer and add funds to our investment accounts later in the month, we decided to look at our outgoings (a few direct debits and two credit cards to be paid in full at the end of Feb) and run our buffer much lower this month, shuffling a few sums around while my paycheck for January clears, allowing any potential emergency spending to be funded by our ample credit limits on various cards. That probably means we've added about 2 months worth of our stretch savings goal immediately, plus a third-of-a-month's worth will be automatically taken from my wife's salary at the end of this month as it is every month for her ShareSave option plan (which has a market price 35% above the option strike price at present but can only be exercised in late 2022, though it could be redeemed for the saved cash prior to that time if we withdraw from the 5-year scheme).

 

As it happens we've booked flights to South America and paid for a clutch replacement on our very economical car just after the cut date for our credit cards, but we'll have those covered easily with our salaries at the end of this month/beginning of next without paying a penny in interest.

[Sharad]

I bought UVXY because I want to see what Cramer says tonight.  8)

 

In all seriousness, I'm buying some BTI.

[Dynamic]

Sold out of Wells Fargo WFC at about $55.51 USD (£40.22 GBP) after commission. About a 4% position closed. Not convinced it will compound as reliably or as fast as Berkshire.

 

Bought more Berkshire Hathaway BRK.B at about $192.87 USD (£139.68 GBP) after commission using proceeds plus extra cash that we added to the investment account ahead of schedule to take advantage of favourable prices (1.5% cash -> 0% cash).

 

BRK.B is now a 72.3% position.

AAPL is now 25.3% position.

HPE 0.6%

HPQ 0.5%

Spouse's employee ShareSave scheme is 1.3%

 

Made a profit on WFC of about 24.8% in GBP including dividends (with 30% withholding tax deducted) since buy on 17 May 2016, beating the FTSE100-TRI (up 22.4%). Probably about 16% capital gain in USD plus about 3.5% in dividends after withholding. Clearly underperformed the S&P500 (up around 29%) on this stock by about 9-10%. Also lagged performance of AAPL which I bought at $95 on 20 May 2016, and I should in hindsight have sold my fairly new IBM and very new WFC positions to fund more of my 25% stake in AAPL at $95, and thereby sold fewer BRK.B shares at $142 to swap into AAPL.

 

Still, 2016 was an amazing year for me and IBM and WFC only minor positions, so I can't complain. 2017 was much more normal, hardly trading and lucky to beat the indexes I follow by 3%, 2% and 5% (S&P500TR, FTSE100-TR, FTAS-TRI respectively).

[frommi]

Sold some puts on HCSG,IT and WAB to rebalance the delta adjusted position size in the short portfolio back to equal weight and at the same time adjust my net long exposure back up to 25%. (107% long, 82% short) Because of the falling market my short exposure with options gets bigger with each fall, so i have to adjust that. Bought more MPW, STOR and SRG with the money.

 

I am just 4 months into the "quant" short journey but i am more and more under the impression that it is much easier to create alpha on the short side, at least at the moment. I begin to understand why Chanos is just long indices and short single stocks, with higher AUM i am inclined to follow that path. (or maybe it just depends on the market valuation level, don`t know.)

[Spekulatius]

Sold some puts on HCSG,IT and WAB to rebalance the delta adjusted position size in the short portfolio back to equal weight and at the same time adjust my net long exposure back up to 25%. (107% long, 82% short) Because of the falling market my short exposure with options gets bigger with each fall, so i have to adjust that. Bought more MPW, STOR and SRG with the money.

 

I am just 4 months into the "quant" short journey but i am more and more under the impression that it is much easier to create alpha on the short side, at least at the moment. I begin to understand why Chanos is just long indices and short single stocks, with higher AUM i am inclined to follow that path. (or maybe it just depends on the market valuation level, don`t know.)

 

Check how well Chanos funds have done. Well he has done OK for himself, but his customers sure don’t buy yachts from investing in his funds.

[frommi]

 

Check how well Chanos funds have done. Well he has done OK for himself, but his customers sure don’t buy yachts from investing in his funds.

 

Do you have a link with his returns? I have just found this one: http://www.valuewalk.com/2015/11/jim-chanos-return-model/

Of course you can`t view the funds returns in isolation since it is short only. You can only value it as a market hedge, so a 0% return would be pretty good as that because it means you will extract a positive return with rebalancing and lower drawdowns. Especially when you withdraw money for retirement spending this is very important. At the moment i think i have a huge advantage over chanos because i can use options whereas i don`t think you can do that with 3-6 billion $ in AUM. So i can concentrate on the best shorts and have a limited downside. If i had for example 10 million $ i might be too big for netnets already but i still think i can buy and sell options on my shorts.

[Graham Osborn]

I also bought some BRK.B recently although my logic might make some cringe.  I'm a big believer in the "cover your ass" incentive.  Barclays and UBS put price targets on the B shares for ~$240.  I'm betting that money managers will herd into Berkshire by  year end in a volatile market because it's easy to justify to unsophisticated retail customers.

 

Any thoughts on my reasoning?

 

Only that that's about the dumbest reason for buying Berkshire that I've ever heard.

[DanielGMask]

I also bought some BRK.B recently although my logic might make some cringe.  I'm a big believer in the "cover your ass" incentive.  Barclays and UBS put price targets on the B shares for ~$240.  I'm betting that money managers will herd into Berkshire by  year end in a volatile market because it's easy to justify to unsophisticated retail customers.

 

Any thoughts on my reasoning?

 

Only that that's about the dumbest reason for buying Berkshire that I've ever heard.

 

I’ll add. You are speculating and not investing! You are betting on some behavior and not investing because of the merits of the company nor its price. You may end up being right or not, I have no idea and would never spend my time thinking that way, but if you end up being right don’t confuse luck or even intelligent speculation with investing!

[StubbleJumper]

I also bought some BRK.B recently although my logic might make some cringe.  I'm a big believer in the "cover your ass" incentive.  Barclays and UBS put price targets on the B shares for ~$240.  I'm betting that money managers will herd into Berkshire by  year end in a volatile market because it's easy to justify to unsophisticated retail customers.

 

Any thoughts on my reasoning?

 

Only that that's about the dumbest reason for buying Berkshire that I've ever heard.

 

 

Ouch.  That's a pretty direct response for a new board member.

[thepupil]

 

Check how well Chanos funds have done. Well he has done OK for himself, but his customers sure don’t buy yachts from investing in his funds.

 

Do you have a link with his returns? I have just found this one: http://www.valuewalk.com/2015/11/jim-chanos-return-model/

Of course you can`t view the funds returns in isolation since it is short only. You can only value it as a market hedge, so a 0% return would be pretty good as that because it means you will extract a positive return with rebalancing and lower drawdowns. Especially when you withdraw money for retirement spending this is very important. At the moment i think i have a huge advantage over chanos because i can use options whereas i don`t think you can do that with 3-6 billion $ in AUM. So i can concentrate on the best shorts and have a limited downside. If i had for example 10 million $ i might be too big for netnets already but i still think i can buy and sell options on my shorts.

 

I'm famous! I'm sure valuewalk posts like 1000 articles a day, but I never knew that my rant was picked up by them. I don't even know if that thing I put together was correct lol. Here's a more "theoretical" exercise done by the FT and an interview with the man himself.

 

https://ftalphaville.ft.com/2016/05/10/2160162/how-short-selling-can-theoretically-improve-your-portfolio/

[frommi]

I'm famous! I'm sure valuewalk posts like 1000 articles a day, but I never knew that my rant was picked up by them. I don't even know if that thing I put together was correct lol. Here's a more "theoretical" exercise done by the FT and an interview with the man himself.

 

https://ftalphaville.ft.com/2016/05/10/2160162/how-short-selling-can-theoretically-improve-your-portfolio/

 

Thanks! Btw. this is the original thread if someone is interested in this: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chanos-nice-interview/

[John Hjorth]

Ouch. That's a pretty direct response for a new board member.

 

I have to agree with StubbleJumper. Not your usual posting style, Graham. I have always appreciated your posts here on CoBF, except this one. I just hope that you remember this topic from about two years ago. The point here being, that I learned something from the discussion in that particular topic about Berkshire leverage and Berkshire cost of capital.

[Spekulatius]

)

BRK.B is now a 72.3% position.

AAPL is now 25.3% position.

HPE 0.6%

HPQ 0.5%

Spouse's employee ShareSave scheme is 1.3%

 

 

Having 75.6% of your investment in just two stocks seems like one hell of a concentration . I get nervous, once I exceed 10% in a single stock.

[Paarslaars]

Guess you mean 95.6% :)

 

I am comfortable with a 20-30% position in BRK.B but that's by far my biggest position.