A heretic question...

… regarding all those bargains (I do not mark it OT as it concerns Berkshire too) constantly mentioned here and on the “Falling knifes” board: Berkshire, Google, Alibaba, Meta, Amazon, eBay, Paypal, Carmax, LYLT etc.

Why catching a falling knife instead of waiting for the loud “Boom” that says it reached the bottom?

A) Yes, I know the obvious answer: “What if there is no loud ‘Boom’, no crash, but it simply quietly and without warning starts it’s rise from the ashes?”

B) And yes, I also know the other obvious answer: “It definitely IS cheap now and I have a longterm view, so I don’t care whether it might get even cheaper. With a 5+ year time horizon it will be a good enough deal right now.”

Yada, Yada, Yada (That’s what native English speakers say to make clear all of this is already said hundreds of times, correct? :slight_smile:

But isn’t that a bit too simple, to repeat those two sentences like Mantras? Isn’t that like narrowing ones view, looking only straight ahead and refusing to look to the sides, to see what’s going on around one? For example signs like those:

https://edition.cnn.com/markets/fear-and-greed#fng-faq

Or to look at an S&P chart and to form an opinion about the likelihood for this (Origin: Jim):

https://en.m.wikipedia.org/wiki/Jean-Paul_Rodrigue#/media/Fi…

Just wondering as especially B) is THE Mantra here since months now regarding not only Berkshire - while all those stocks are getting cheaper and cheaper. To nevertheless simply constantly repeat this mantra makes the impression to me as if people who might have bought stock X “cheap” and a bit later even “cheaper” and now “super-cheap” are forming kind of a “support group”, telling each other what a great deal they made, no matter how deep they might be in the red currently with their bargains?

Heresy? Or maybe a tiny grain of truth?

6 Likes

Just wondering as especially B) is THE Mantra here since months now regarding not only Berkshire - while all those stocks are getting cheaper and cheaper. To nevertheless simply constantly repeat this mantra makes the impression to me as if people who might have bought stock X “cheap” and a bit later even “cheaper” and now “super-cheap” are forming kind of a “support group”, telling each other what a great deal they made, no matter how deep they might be in the red currently with their bargains?

Heresy? Or maybe a tiny grain of truth?

I vote heresy.

If you buy Berkshire at a good price, you have an excellent chance of doing well, whether it is going up or down. If you look at which of these two scenarios (going up or going down) is better, they are about the same. Sometimes you buy and the up move happens in the next few weeks and months, sometimes it doesn’t. When it does, that’s great. But when it doesn’t, we shouldn’t say “but this time it is different (yada yada)”. What it makes sense to say is this: “In retrospect, I wish I had waited, but I still made the correct decision, based on the information I had. And in fact, if the company’s situation has not changed since then, it makes even more sense to buy it at the new, lower price.”

So I don’t see any grain of truth in the idea that we are just trying to defend our bad choices. I would say we are just trying to defend our good choices, even though they don’t look good yet.

dtb

27 Likes

LSHOULD Grantham this time be vindicated and with everything else Berkshire become 1/4 or more cheaper then it will be interesting to see whether this

I wish I had waited, but I still made the correct decision, based on the information I had.

might be replaced by

I should have known. The writing/information was on the wall.

1 Like

“I should have known. The writing/information was on the wall.”

My 2 cents- As WEB has said, there are always dozens of reasons to potentially have concerns wrt the economy, debt, inflation, the Fed, rates, energy, geopolitical and their impact on markets. I’ve never felt disappointed about adding more ownership of BRK businesses if it was a thoughtful decision and seemed like reasonable value, even if it further dropped in price. My regrets are thumb sucking and Not loading up on more shares during times similar to these when it just felt like a real opportunity presented itself as a long-term investor. Fortunately most of us can look beyond (and take advantage of) the turbulence.

12 Likes

Heresy? Or maybe a tiny grain of truth?

May be bit early? There is some truth to it? Speaking for myself, I am patiently watching and not buying KMX, waiting for the bottom of the used car pricing. Likewise, with Berkshire, I have bought back at $300, what I sold around $350+, and then added around $270, but turned around sold it $290. Paypal, I closed it at $100, of course there is a some I bought at $180 is still there. Same with BABA.

One can say this is trading, not investing, yada, yada, yada. It allowed me to break-even, actually 1.6% positive return and carry significant cash, and stay calm about these declines.

I have learned my lesson cheap stocks can get cheaper, and expensive stocks can get more expensive. So allocation discipline and when the overall market trend is not bullish, stay nimble and take quick profits.

5 Likes

I’m just concentrating on buying businesses I like (moaty) with long term earnings growth potential at reasonable valuations.

If they drop subsequently it doesn’t bother me. I’m in accumulation mode so I’m buying in as and when.

I’ve diversified away from a 90% BRK holding to it being c35% now and buying companies such as Alibaba, Tencent, Google, Meta.

These are long terms holds I’m happy with for a decade or more and will not sell. Coffee can approach.

That’s it.

1 Like

“It definitely IS cheap now and I have a longterm view, so I don’t care whether it might get even cheaper. With a 5+ year time horizon it will be a good enough deal right now.”

While I think this is true, it seems to me Berkshire isn’t very cheap, just mildly so. And we’ve seen this before. Berkshire can remain mildly cheap for years.

I know, price to peak book is about 1.2x.
Price to last known book is about 1.3x, and who thinks book value will be up very much in Q3?
Add in the other well-known negatives…

If I had no Berkshire I’d probably buy some. Since I already have too much, a lot bought in 2020, I’ll wait to add.

2 Likes

I ran a model on book value growth of 9% over 10 years with a terminal multiple of 1.4 x book and a 10% discount rate which suggests an entry price of c265 dollars. So not far off that at the moment and on trend with long term averages.

When I purchased berkshire in 2012 and got a 14% average over a decade it was 1.1 x current book not historic.

1 Like

SHOULD Grantham this time be vindicated and with everything else Berkshire become 1/4 or more cheaper then it will be interesting to see whether this

– I wish I had waited, but I still made the correct decision, based on the information I had.

might be replaced by

– I should have known. The writing/information was on the wall.

It is quite possible that we will eventually say, “I should have known”, if Grantham is right and there is a big drop in stock market valuations. And if there isn’t, we will perhaps say “I was right to ignore Grantham”. But neither of these conclusions would be logical. If we are honest, if stock valuations do end up plunging, we should keep saying “There was no way of knowing whether Grantham would be right or wrong. It turns out he was right, but if I couldn’t know that in advance, then my decision was still correct.”

dtb

5 Likes

Coincidentally just today I was pointed towards a book that might be relevant in this respect (I haven’t read it yet but I will):

Carmen M. Reinhart and Kenneth S. Rogoff, “This Time Is Different: Eight Centuries of Financial Folly”

Throughout history, rich and poor countries alike have been lending, borrowing, crashing—and recovering—their way through an extraordinary range of financial crises. Each time, the experts have chimed, “this time is different”—claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong.

Isn’t Grantham essentially just saying that, that this time it’s also not different and that therefore he unavoidably will be proved right sooner or later, with valuations coming down to historical levels — what implies a huge drop from where we are now?

As I see it it’s not about “neither of these conclusions would be logical” but all about probabilities. Yes, there is no way to “know” for sure, but the information about that history as well as about the current valuations is available and therefore should be included in decision processes.

2 Likes

When I purchased berkshire in 2012 and got a 14% average over a decade it was 1.1 x current book not historic.

And that was back when the buyback level was 1.1x book. Went to 1.2x in December 2012.
I bought quite a lot then, too.

So why’d you reduce your Berkshire so much (90% to 35%)?

Because I started listening to Ray Dalio, Charlie Munger and MP and sold off before the “US meltdown” and buying Chinese Tech at “attractive valuations” which turned out to be complete BS :person_shrugging:??? you live and learn and now I have to hold what I have for the longterm.

I’d have been better off holding Berkshire…(well into 6 figures better off :person_shrugging:???:slightly_smiling_face:) perhaps I’m early?. I did sell BRK at higher levels than today but BABA and Tencent have been horrendous investments so far and META similarly so. I really like the companies but the price action has gone off a cliff on all three despite being attractively valued on entry. What looks good at a PE of 18-20 can easily go to 12. Lesson learnt.

8 Likes

I’d have been better off holding BRK as it has held its ground in price / valuation and also the dollar has strengthened significantly against the £ (so abother 10%) I was interested in Tencent BABA and META producing potential returns of 15-20% per annum (perhaps double BRK) but instead they’re between 15 and 30% off now.

1 Like

Are you guys “playing” with BRK ?

I started buying BRK in 2002 … When I have cash in my account, I buy more BRK … I’ve never sold a share. I use BRK as a safe/reliable “savings account”. It’s paid off handsomely.

I’ve never had employment that pays a retirement. When (if) that day ever comes, I’ll use BRK for that … I’m only 76yrs now.

That’s just the way I do it … It’s not for everyone.
Rich (haywool)

1 Like

When I have cash in my account, I buy more BRK … I’ve never sold a share…I’ve never had employment that pays a retirement

Being in the same situation re retirement pay I am wondering where that cash comes from. I have quite a decent percentage of cash, but if I would buy BRK with it, without ever selling a share, then because of nearly completely lacking other (sellable or dividend paying) investments I simply would never have cash again?

1 Like

“I started buying BRK in 2002 … When I have cash in my account, I buy more BRK … I’ve never sold a share. I use BRK as a safe/reliable “savings account”. It’s paid off handsomely.

I’ve never had employment that pays a retirement. When (if) that day ever comes, I’ll use BRK for that … I’m only 76yrs now.”

Haywool,

Congratulations and btw your situation and planning parallels my own in many ways except I am in my mid 50s and have just entered retirement phase. I have recently added some long dated call options (with Jim and others sound explanations) and they make sense to me, provide some leverage and it’s fun. These options are trivial compared to my long position. Like you, I have never sold a share and BRK has become 2/3 of my investable assets. Peace of mind of BRK ownership trumps the speculative thrill nowadays.

said2 !
Greetings … …I am wondering where that cash comes from.

Other stocks - dividends or sales.

… then because of nearly completely lacking other (sellable or dividend paying) investments I simply would never have cash again?
That’s when you start selling BRK - for retirement.

Rich (haywool)

1 Like

I’m happy continuing to hold a 30-40% concentration in BRK.

I’m concerned about post Buffet risk / performance, size of the company and future returns, Greg Abel hasn’t impressed me from what I’ve seen and I want to diversify.

I’ll continue to hold what I have but expect it’ll take at least 5 years to play out now.

That’s BRK, BABA (also HK) Tencent (HK) Prosus (AMX), Meta, Google & Intel. Buying Goog atm.

30 year runway of work and growth ahead before any drawdown. Coffee can approach where nothing is sold unless ridiculously valued. I’m seeking companies that can grow 15-20% pa rather than 9-10%

1 Like

I’m happy continuing to hold a 30-40% concentration in BRK.

I’m concerned about post Buffet risk / performance, size of the company and future returns, Greg Abel hasn’t impressed me from what I’ve seen and I want to diversify.

Same. I bought a lot in 2020 and am now feeling a bit stuffed. Maybe I just need to take some tums.