What are you buying today?

[boilermaker75]

But it really does beg the question - how much do you think this bag of cash is going to fall [in market price] if Warren dies tomorrow? 

 

I think you guys are overconfident. BRK has fallen 50% top to bottom 2 or 3 times in its history. It can happen again. And if Warren was dead, there's no guarantee it would recover from 50% drop. ::)

 

I'd be more concerned if Ajit died.

[bizaro86]

And if it trades there chances of getting a second mortgage are probably zero.

That's why I keep a spare Heloc or two around...

 

 

[DooDiligence]

And if it trades there chances of getting a second mortgage are probably zero.

That's why I keep a spare Heloc or two around...

 

Good idea, I should secure one of those.

What do they usually charge if you don't use it?

[rb]

Nothing in Canada

[Spekulatius]

And if it trades there chances of getting a second mortgage are probably zero.

That's why I keep a spare Heloc or two around...

 

Good idea, I should secure one of those.

What do they usually charge if you don't use it?

 

I used to have one, that was unused. The bank gave me a hard time during the GFC and when I wanted to refinance my first mortgage , even with enough equity and not taking any equity out, I had to cancel the Heloc otherwise they would not release the title.

[doc75]

Nothing in Canada

 

I bought a little more FGE.TO.  Thinking ops are slowly improving and any weakness in the CAD is a tailwind.  But perhaps I should be thinking more about general market risk here and a broadening trade war. 

[rb]

Nothing in Canada

 

I bought a little more FGE.TO.  Thinking ops are slowly improving and any weakness in the CAD is a tailwind.  But perhaps I should be thinking more about general market risk here and a broadening trade war.

If you like FGE, I wouldn't be too concerned about trade war. Where are Americans gonna get wood to build their houses from?

[John Hjorth]

But it really does beg the question - how much do you think this bag of cash is going to fall [in market price] if Warren dies tomorrow? 

 

I think you guys are overconfident. BRK has fallen 50% top to bottom 2 or 3 times in its history. It can happen again. And if Warren was dead, there's no guarantee it would recover from 50% drop. ::)

 

I'd be more concerned if Ajit died.

 

We could try to tinker, calculate & speculate away in the Berkshire forum about what would happen to Berkshire book value if the market in general tanked 50 percent from here.

[Spekulatius]

But it really does beg the question - how much do you think this bag of cash is going to fall [in market price] if Warren dies tomorrow? 

 

I think you guys are overconfident. BRK has fallen 50% top to bottom 2 or 3 times in its history. It can happen again. And if Warren was dead, there's no guarantee it would recover from 50% drop. ::)

 

I'd be more concerned if Ajit died.

 

We could try to tinker, calculate & speculate away in the Berkshire forum about what would happen to Berkshire book value if the market in general tanked 50 percent from here.

 

My rough guess is that BRK equity portfolio of $180B would take a $90B hit in a 50% correction. That’s a hit of about  20% of the market cap or roughly 25% of it’s book value.  I expect BRK book value to drop half (or a bit less, due to retained earnings) of the market move.

 

Of course he is going to make it all back and then some.

[maxthetrade]

But it really does beg the question - how much do you think this bag of cash is going to fall [in market price] if Warren dies tomorrow? 

 

I think you guys are overconfident. BRK has fallen 50% top to bottom 2 or 3 times in its history. It can happen again. And if Warren was dead, there's no guarantee it would recover from 50% drop. ::)

 

I'd be more concerned if Ajit died.

 

We could try to tinker, calculate & speculate away in the Berkshire forum about what would happen to Berkshire book value if the market in general tanked 50 percent from here.

 

My rough guess is that BRK equity portfolio of $180B would take a $90 hit in a 50% correction. That’s a hit of about  20% of the market cap or roughly 25% of it’s book value.  I expect BRK book value to drop half (or a bit less, due to retained earnings) of the market move.

 

Of course he is going to make it all back and then some.

 

Book value would drop only about 80% of that because it's after tax, say $72B. Add in $20B retained earnings and even in such a nightmare scenario book value shouldn't drop by more than ~15% year over year.

[Guest longinvestor]

Fwiw, I think that Berkshire selling for 70 cents (or lower)on the dollar for a decade is a bigger bonanza than a one time 50% drop because of some singular event like death or something similar. I relish the prospect of that 50% drop lasting for a long time as well.

[Spekulatius]

I would argue that if the market drops 50%, most likely buying BRK.B won’t be the best choice. I expect the market offering some crazy bargains , if you know where to look, while BRK.B most likely won’t drop that much, since it will be regarded as a safe heaven stock.

[flesh]

I would argue that if the market drops 50%, most likely buying BRK.B won’t be the best choice. I expect the market offering some crazy bargains , if you know where to look, while BRK.B most likely won’t drop that much, since it will be regarded as a safe heaven stock.

 

This.

 

Unfortunately I wasn't investing during the last 50% drop but I have gone back and looked through financials on 100's of co's through that period. You could have simply run a screen near the bottom and found stuff down 80% at 10x multiples growing 20%/year despite the head winds. Or stuff selling at 3x multiples.

 

Large disconnects are the time to dig into the disproportionately punished co's.

[bizaro86]

And if it trades there chances of getting a second mortgage are probably zero.

That's why I keep a spare Heloc or two around...

 

Good idea, I should secure one of those.

What do they usually charge if you don't use it?

 

Nothing. That's in Canada though, may be different in the US.

 

Prime plus 0.5% is the rate, interest only payments.

[DooDiligence]

And if it trades there chances of getting a second mortgage are probably zero.

That's why I keep a spare Heloc or two around...

 

Good idea, I should secure one of those.

What do they usually charge if you don't use it?

 

Nothing. That's in Canada though, may be different in the US.

 

Prime plus 0.5% is the rate, interest only payments.

 

5% hurdle, 7% +/- with inflation (possibly significantly more?)

 

I remember back in the late 70's, how my Grandfather loved his low interest mortgage.

 

---

 

"In 1970, inflation was 5.5 percent. By 1974, it was 12.2 percent, and then it peaked at a crippling 13.3 percent in 1979 [source: Jubak]. The stock market ground to a halt. From 1970 to 1979, the S&P 500 returned an average of 5.9 percent annually. But when you subtract for inflation (average 7.4 percent annually), the market lost value every year. The annual return on bonds was 2.6 percentage points lower than inflation [source: Jubak]."

 

https://money.howstuffworks.com/stagflation1.htm

 

---

 

Probably better off staying unencumbered, especially since I'm a dubious stock picker at best (but it is Berkshire, right?)

[bizaro86]

This doesn't seem like the right point in the market to be betting your house on a leveraged bet on equities, even Berkshire.

 

I'm wrong often enough that I could be wrong about that, but I like to leave high levels of leverage for when I'm really, really sure.

[cameronfen]

This doesn't seem like the right point in the market to be betting your house on a leveraged bet on equities, even Berkshire.

 

I'm wrong often enough that I could be wrong about that, but I like to leave high levels of leverage for when I'm really, really sure.

 

I think even more conservatively, I only buy options to get more leverage and never write uncovered calls.  I can never have negative equity and that is why its easier to sleep at night.  I may try a little levereging on merger arbitrage plays like buffett but I would not be willing to take a morgage on an asset highly correlated to stocks to buy more stocks. 

[Spekulatius]

This doesn't seem like the right point in the market to be betting your house on a leveraged bet on equities, even Berkshire.

 

I'm wrong often enough that I could be wrong about that, but I like to leave high levels of leverage for when I'm really, really sure.

 

I agree. I am no t even sure it is a great idea to leverage, when the market is falling. I believe the sweet spot would be when the economy is already recovering (GDP growing again) and even though the market had bounced back 30-50%, the market looks cheap, because the fundamentals are looking better. In terms of the financial crisis, that would be around 2010. By that time, you could also get really cheap mortgages, assuming you had sufficient equity in your home.

[bizaro86]

This doesn't seem like the right point in the market to be betting your house on a leveraged bet on equities, even Berkshire.

 

I'm wrong often enough that I could be wrong about that, but I like to leave high levels of leverage for when I'm really, really sure.

 

I agree. I am no t even sure it is a great idea to leverage, when the market is falling. I believe the sweet spot would be when the economy is already recovering (GDP growing again) and even though the market had bounced back 30-50%, the market looks cheap, because the fundamentals are looking better. In terms of the financial crisis, that would be around 2010. By that time, you could also get really cheap mortgages, assuming you had sufficient equity in your home.

 

I added some levered money in late 2008. It worked out well in the end, but spring 2009 was mentally very tough, and it wasn't that much money involved.

 

I wouldnt use margin debt in a similar situation again, just funds from a Heloc or refinance.

[Dynamic]

HELOC (or an offset mortgage in the UK, which is much harder to get these days) where you have the flexibility to draw on it at will is the sort of non callable long duration leverage that can let you ride out even a pretty drawn out bear market.

 

I think that suits the temperament of value investors who know something is deeply undervalued with high certainty but little clue about the timing or prices during the intervening period.

 

If I have the mental fortitude to ride out falling prices I don't want to go close to any margin threshold where my lender can force me to sell my positions.

[Cigarbutt]

If I have the mental fortitude to ride out falling prices I don't want to go close to any margin threshold where my lender can force me to sell my positions.

 

The following has been my experience with a bank line of credit. Renewable each year (pretty much automatic) and prime rate, no maintenance fees.

 

Have used it twice.

Once in 1996, for a few months, in order to fund the purchase of a house and avoid mortgage insurance. The line of credit was for work and held in a separate institution and this allowed to avoid the spread associated with mandatory mortgage insurance.

 

Then maximized it and made it a joint line of credit in 2003 when there was absolutely no need to do so.

 

The second time in 2008-9, for a few weeks, drew 30% of the line to fund my wife's margin investment account which was highly leveraged.

Note: the draw was not to invest more, it was due to falling values.

 

I guess it helps to know that you have a parachute if you are walking on a cliff.

Hope this helps.

[LC]

Question Cigar. What was the feeling like when pulling the LOC to fund the margin account? I would've been scared shitless, I guess depending on how large of a chunk of net worth. Never had the experience myself, wondering what you thought about it.

[sleepydragon]

At my age, my hair is precious. My wife says she will divorce me if I lose all my hair and my teeth. So I would rather not to buy stocks on margin at anytime :)

[Cigarbutt]

Would tend to agree with sleepydragon unless one has very specific goals.

To use leverage and how to deal with it is a personal decision.

 

I would say that a way to mitigate wrong decisions, shortened time horizons and discomfort due to margin pressures is to have a plan ahead of time with entry points and stress tests, such as what is discussed above about BRK.

 

 

[petec]

SSW. Wanted it in March at lower prices but couldn't buy. Still think it's cheap but obviously less than it was. Will add if it drops lots.