Borrowing to Buy Berkshire

I know, I know…never borrow to invest.

BUT…that’s how we took our first position way back when. Didn’t have cash lying around, borrowed heavily from life insurance in the 1998-2000 time frame and, needless to say, worked out really well.

Portfolio much larger these days…and, once again, still not a lot of cash lying around. But have lots of access to cheap money…4% or so.

Haven’t done anything yet. But if the B’s drop to 250 or…I just don’t see the downside of repeating our “mistake” of 22 years ago.

Pull-up the BRKB chart. Stunning for a stable Co

This is ETF puking of the XLF and maybe SP 500

Insane price action

Other than how compelling the valuation level is, whether borrowing to buy is a prudent choice depends mainly on HOW you borrow the money.

Just don’t use a broker margin loan, or any kind of loan that can be called.
(mortgage, line of credit, leverage built into call options, bank of mom and dad…)
If you follow that rule, it can work out well.
Start a company and issue long term bonds!
For most people the ideal would be a bigger and longer dated fixed-rate mortgage.

Incidentally, if you read the fine print, most HELOCs (or is the plural HELsOC?) I’ve seen can be shrunk or called at any time for no reason.
Banks usually don’t exercise that right, but that’s not really the level of confidence you want.

I paid an implied rate over 6% for the leverage built into some call options.
That’s a terrible rate to pay, but the absolute price seemed good.

Jim

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most HELOCs (or is the plural HELsOC?) I’ve seen can be shrunk or called at any time for no reason.
Banks usually don’t exercise that right,

They do, though. Saw that in the dot-com crash, 2000/2001. Talked with the branch manager of my bank a few days after a major employer in our area did a massive layoff. He told me that they IMMEDIATELY froze all their HELOCs. All of them, no matter who you worked for,
Only unfroze ones for people who worked at other companies that didn’t depend on that one.

HELOCs also generally have a “right to offset”. Which means that if you have a savings/checking account or CD with them, they can seize it and apply it to your HELOC.

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I paid an implied rate over 6% for the leverage built into some call options.

When I checked yesterday, the best implied rate on a BRK.B DITM call was 6.32%. In March the best rate was 3.43%, and the rate for the -25% ITM was 5.25%. Yesterday that one was 8.28%.

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