Today’s high price (also the all time high to date) is $532,365.00
That’s 1.566 times last known book per share.
Do you think that, one day, the price will be $100k lower?
That would be $432,365.00, 1.272 times current known book, and drop of -18.8% from here.
Of course, if it takes a long time, value per share will be higher and it will be a correspondingly more extreme low valuation level.
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0 voters
I voted pretty sure it will.
Back of the envelope, I have BRK trading at that ratio or cheaper a hair more than a quarter of the time (in what I view as the “modern” BRK era). It’ll likely be a spell until book (or real) value is significantly more than its current book (or real) value. So I think there’s a decent amount of track where you’d reasonably expect the price to be at, below, or at least close to your figure.
Add on a couple other important points: (1) a possible big swing downwards even after significant value appreciation (e.g., see March 2020); and (2) variance, such that a reasonable expectation that it spends ~25% of its time at, below, or around the figure means it is quite a bit more likely it will at least touch the upper bound of the figure at some point.
Add those together and I think that gets you safely over 50%+1(“more likely than not”), and probably closer to a pretty sure bet.
Yes, 100 points below for some period of time within the next 7 years.
Won’t the share repurchases keep a floor under Berkshire’s price? This time is different? Mr Buffet has been repurchasing shares at over 1.3x book. How will it fall below that?
(Asking for a friend)
Mungofitch putting out a poll? Times sure are different. A drop of 18% doesn’t sound unlikely given the general overvaluation in other stocks, as well as past valuation of Berkshire. However, 1.2x book value also provided the kick in the pants required to start all these buybacks. I imagine as we get below 1.3 time last published book value, buybacks will get increasingly more aggressive.
I think I’m talking myself out of lightening up, but I believe we’ll also see continued gains in book value that will make trips below $432,365.00 much less likely. So I voted “seems unlikely”
I don’t have any idea where the price is going, but when I saw the $530,000 mark, I though, “this may well be as good as it will ever get”. Not in value or price, this investment will be a good one for years to come, but just in things going well and feeling good about BRK… We’ve been vindicated in our long term faith, WEB still shows some flair, our balances look very good.
The future? Very probably slower price appreciation, perhaps a somewhat significant drop, Charlie and Warren passing in the not too distant future. We all know that things will always change, but for now, recognize the good ol’ days while they are here.
Question: When according to the poll
a) the clear majority (60%) thinks it’s pretty sure or very likely such a drop will happen and
b) at the same according to my poll also the clear majority won’t sell a single or max. a few shares
why then is seemingly nobody interested to profit from what he expects with such high probability with Puts?
Two possible reasons are already known to me but I am not convinced about them:
Several here are writing covered calls - but this I see more as “additional dividend” then as really profiting from an outcome one is pretty sure about or sees as very likely.
Jim wrote “one day” which theoretically leaves all open and speaks against puts. But in practice we are talking about the CURRENT situation/valuation/environment and Jan’24 as possible expiry date is still nearly 2 years away (Btw: when will Jun/Jul’24 ones be available for Berkshire?).
I am a bit baffled as the other way around, when last year and especially the year before Berkshire was clearly undervalued, the talk here was all about Call options, whether to buy deep ITM ones, how to roll them up/out etc.
Mungofitch putting out a poll? Times sure are different
It’s not a good way to find the answer to a question, but it’s a good way to find out what people think the answer might be : )
And of course it’s always good to stretch the range of outcomes that one considers to be within the range of possibility.
Could it trade below book again? Could it trade at twice book? Yes to both, presumably.
Jim
I guess I’m in the minority. No surprise there. I both sold some share recently and don’t think BRK-A will revisit $432K.
I voted seems unlikely to Jim’s poll question. The poll question relates to a specified price ($432,365.00), not a specified P/B. As alluded to in the poll, as time passes it becomes less likely that the $432K number is breached. If BRK-A is going to hit $432K, most likely it will do so within the next 1-2 years. Perhaps within 3 years. After that, I think it becomes increasingly unlikely (I’m not considering exceedingly long time periods of 50, 100, 200+ years for purposes of this thread).
My best guess is that BRK has entered a period of slightly higher valuation.
Interesting discussion… any catalysts for a berkshire rerating?
Greater appreciation of the Apple holding?
Been around these waters for a long time. My two sentences below will seem incongruent, they aren’t.
I too think Berkshire has entered a period of higher valuation.
I also think that there is a very good possibility Berkshire will fall $100,000 in price per A at some point. If and when stocks fall 20% or more Berkshire will initiall hold up far better…but then not hold up. At least history suggests such.
I just hold the stock and watch as you guys know. Make my opinions and such.
In agreement odds favor lower BRK stock price over next cupla…
However,WEB not being a trader,
it seems counterintuitive that WEB is furthering his OXY long.
GLTA,
paul
Question: When according to the poll
a) the clear majority (60%) thinks it’s pretty sure or very likely such a drop will happen and
b) at the same according to my poll also the clear majority won’t sell a single or max. a few shares
why then is seemingly nobody interested to profit from what he expects with such high probability with Puts?
Well, ‘seems more likely than not’ isn’t quite the same as ‘pretty sure’, for one thing.
I answered ‘seems more likely than not’, and I don’t intend to sell any, but I am keeping the option in mind if the BRK bull run continues. I’m not planning to sell at today’s price because of my uncertainty about whether BRK will drop that much, uncertainty on the timing of the drop, and uncertainty about whether I will successfully execute a plan to profit from such a drop if I did sell and the drop did occur.
Case in point, in late February 2020, as I took a deep dive into what was happening with the spread of Covid, and I came to the conclusion that a global pandemic and financial crash was virtually certain, I sold out of stocks, and I patted myself on the back as stocks proceeded to crash. However, I was pretty sure the bear market would carry on to even greater depths in March, April, etc … as the pandemic impacted the world more and more, so I stayed on the sidelines for months and missed the massive rebound and carry through, and ended up leaving significant gains on the table.
I took away some lessons from that, one being to stick to my allocation unless I have a great reason to change, two being that if I do have a great reason to change (like last February), have a better plan to get back to normal more quickly.
Well… we had a discussion c3 months ago and I looked at market drops of 40 to 50% through history. Berkshire dropped the same. Dating back to 99-2000
While it is true that Berkshire dropped by 40-50% in 1999-2000, the bottom was just before the tech bubble peaked and a few months before the S&P 500 peaked. At the time, some people dismissed Warren Buffett as out of touch with the tech boom and, it seems, discarded Berkshire in favor of chasing the high returns in tech during the bull market of the late 90s. Then, as the tech bubble burst and the S&P 500 fell from its peak by 40% or more in 2000-2002, Berkshire rose. In other words, there was very little, if any, overlap between the timing of Berkshire’s drop and the drop in the overall market.
I would say the last few years have some similarities. While shares in money-losing tech companies were flying high, the share price of Berkshire lagged enough that Buffett spent more than $50B in just the last two years repurchasing shares. If history continues to rhyme, the S&P 500 could continue dropping from here while Berkshire could hold up or even rise. We’ve already seen that dynamic play out over the first quarter of this year.
Of course, anything is possible in the markets so yes of course a drop of that magnitude is certainly a possibility. We have seen this play out in 2020 so it is certainly not far-fetched.
The more interesting thing is whether it is likely that the markets and Berkshire will enter a period of protracted lower valuation from this point. My own view is that is more likely if we move to significantly higher interest rate environment from the one we currently expect in the near future. For a protracted downdraft, we would need to see a significant shift away from equities to other liquid alternatives. With the current 10- year rates where they are ( negative real yields), it seems unlikely that we will see a move away from equities for a long time - the math of a 2.5% 10 year bond vs equities and in particular Berkshire ( which still has a lookthrough PE ratio around 16 ) works against a long term shift. Of course if these rates rise up beyond the 5% range, things start getting a bit more interesting across the spectrum.
So TLDR, I don’t have any conviction in a particular outcome but with inflation heating up, “safe” options on negative real rates, the last place I want to be is overweight cash unless I have an edge in predicting the short term which history informs me that I don’t !
Put me in the “pretty sure it won’t” camp.
Reasons:
Rob
History won’t tell us what’s going to happen in future.
But it can remind us of the range of things that’s possible. Anything that has already happened is definitely something that’s possible.
As an example, around the third week of February 2017, the valuation multiples were pretty similar to yesterday’s.
Adjusted for inflation, the lowest price ever seen after that was only 10.2% lower.
Anyone waiting for a bigger price drop would still be waiting, and mightily disappointed.
But that’s a bit exceptional.
On average in the “modern valuation multiple era” since 2008, starting at about this valuation level,
there was eventually a re-entry price (not valuation multiple) that was 21% lower in real terms.
That’s not really that much, given the difficulty of picking your re-entry price.
Jim
I voted “Seems unlikely”
Imagine there may be a lot of Institutional and sovereign wealth demand in this uncertain and strange environment with flight to safety. We know WEB will accelerate the buybacks with sizable drops.
Totally agree with ppant and maintain over 90% equities:
“With the current 10- year rates where they are ( negative real yields), it seems unlikely that we will see a move away from equities for a long time - the math of a 2.5% 10 year bond vs equities and in particular Berkshire ( which still has a lookthrough PE ratio around 16 ) works against a long term shift.”
* Berkshire popular as a safety stock in these uncertain times
* Likely to retain said popularity to some degree even if some uncertainties are resolved
* 1.272x book isn’t all that common to begin with
* Book is steadily rising, so the $432,365.00 bogey will be a lower and lower book multiple over time
* In not that many years $432,365.00 will be as unlikely as $300,000 would be today (under .9x book)
All good reasons.
I think the main case for the “pretty likely” camp is that we might see a market panic.
During which, as usual, Berkshire would sell off as much as any other large cap–for a while.
No rational reason makes much of a difference during those moments.
Panics are rare, but they can happen at any time, and it seems that the odds might be a little higher this coming year than is usual.
I don’t want to jinx it by citing any reasons for that impression …
Jim