I've been putting a lot of thought into this over the last couple months.
Short answer: bullish. It's like 2001 all over again. Maybe even better.
Long answer:
Just to set the record straight, we started loading the truck on BRK in early 2001. We got as high as 36% BRK in our ER portfolio and our daughter's college portfolio was over 50% BRK. Around Feb 2008 I got a pretty strong nudge from one of this board's long-time members that it made sense to do a little diversification. Our daughter was 15 years old by then and a high-school sophomore, so spouse and I stopped talking about it and finally hauled our assets out of the recliner to take action. BRK "B" shares had just hit an all-time high of $100/share (split adjusted) so we started selling.
We sold our ER portfolio's shares down to 23%, and since then we've maintained an asset-allocation band of 18%-28%. (We put the entire college fund into CDs.) Our split-adjusted sales price for all those transactions was $94/share, which turned out to be world-class timing. It almost makes up for my years of "other" dirty market timing.
We've kept those remaining shares since 2008, and today they're just under 24% of our ER portfolio. (Our daughter's college fund has been steadily shrinking-- she's now a college sophomore-- and it's still in CDs.) We feel pretty good about how this AA has worked out over the last few years (see my profile for the details), and we even rode it all the way through the Great Recession. So we're not exactly eager to overweight BRK.
However, when Berkshire "B" shares split and joined the S&P500, their options market really ramped up its volume. Lots of options traders in that stock seem to be doing it for portfolio/volatility insurance rather than out of any real understanding of the company or its stock-price seasonality. After reading McMillan's options textbook and a few other guides, and clarifying my muddy thinking with Brewer, about 18 months ago we started selling call options on a fraction of our BRK shares as a way of forcing ourselves to make rebalancing decisions. That's worked out pretty well-- usually at premiums of $2-$3/share. The shares have occasionally reached our strike prices but dropped before expiry, so we've never been exercised.
Selling call options was easy when the share price was up in the $80s, but it's a little riskier now to predict where the price will be in 6-9 months. I haven't sold any calls for a few months and our remaining ones expire in Jan 2012 at strikes of $90-$95/share. I'd love to have those exercised but I'm just as happy to keep the premium $$.
OTOH Buffett's share-buyback announcement has effectively put a floor on the stock's share price. As long as he's alive, anyway.
What's even more significant than Berkshire's first share buybacks in over four decades is Buffett's hiring announcement of Ted Weschler. (If you haven't researched Weschler, he's worth a look. One of this board's members knows of him, and Weschler may be even better than Lou Simpson.) That alone would be reason for optimism, yet Buffett went even further in
the press release by making several references to his "retirement" and "no longer being CEO". This is the first time he's ever been so explicit on transition, and Buffett chooses his words very carefully. This is unprecedented signaling of his intentions.
I feel that Buffett is going to become even more explicit about his transition in the next year or two, and Charlie Munger may retire within that time. Much speculation has been made of Munger's selling Wesco's remaining shares to Berkshire (so that Munger no longer runs Wesco annual meetings) and of Munger's dozing off during the fourth or fifth hour of the last Berkshire annual meeting's Q&A. (Some cynics think that Munger died long ago but has refused to face the facts and has been granted a confidentiality waiver on the disclosure while he's still stubbornly arguing with the IRS and the SEC.) This transition progress will inspire a lot of institutional investors to leap into the stock. When Buffett & Munger are no longer running the show, BRK may even (*gasp*) start paying a dividend.
So next week I'm going to start selling put options on BRK shares. I'll look for strike prices 10-15% OTM, hopefully around $2-$3/share, with expirations of 6-9 months. I'll limit the number of contracts we're selling so that if we get exercised then we won't be above 28% of our asset allocation.
We haven't decided what to do with the premium cash. We could certainly use it to pay for our familyroom renovation. However we've already had those funds set aside for several years and there are no other major home-improvement plans on our horizon, so there's no urgency to rebuilding that cash stash. If the options market gives us the opportunity then I might buy some long-dated calls. I'm pretty comfortable with the stock going back above $80/share within the next 12-18 months.
Of course if the calls double or triple in value then I'd be tempted to sell them instead of exercising them...
I should emphasize that we've profited immensely from the BRK-related thoughts and advice of four of this board's long-term members. You guys know who you are-- thanks again!
Those are my thoughts. Does that answer your question?