February 16, 2013 Comments

Berkshire Hathaway A shares closed Friday at a record closing price of $150,141.

This exceeds the previous high close of $149,200 on December 10, 2010. It did however reach $151,650 on December 11, 2007.

Regaining a high from five years ago is nothing to brag about. But still Berkshire has certainly done well of late. There will likely be some news about it reaching the all time high.

What I find fascinating it consider that these shares were in the $15 range as Buffett took over the company in 1965. He paid an average $14.86 for his controlling stake. The shares have since risenĀ  a staggering 10,104 fold. That is just over one million percent. And yes, the math is correct. What is equally remarkable is that it “only” took a compounded gain of 21.2% per year to achieve that. This illustrates that absolutely stunning results can occur if you compound money at 21% for say 50 years. (Even at 10% your gain is 117 fold in 50 years. Each extra tiny bit of return after 10% adds a staggering amount over 50 years. A 1000 fold gain in 50 years (100,000% gain) requires 14.8% per year compounded. It also suggests that getting much over 10% for 50 years is no easy feat. Only a few people can possibly accumulate huge wealth otherwise there would be nothing left for others. But don’t begrudge Buffett. His fortune represents “claim checks” on the goods and services produced by society (including produced by Berkshire) But he is never going to cash these claim checks he is giving it ALL away. He lives on the modest half billion or so that he has accumulated outside of Berkshire, and he will apparently give much of that away as well.

Walmart fell 2.2% to $69.30 on Friday on news about an internal email describing February month to date sales as a total disaster. And the executive wrote “The worst start to a month I have seen in my ~7 years with the company”.

When I saw the price down My reaction was to think about buying and certainly not selling. This was an internal email and no doubt was at least a bit exaggerated. Anyhow, I don’t think one should change their outlook on Walmart based on an email about sales over a two week period.

I don’t know if I honestly say I would have preferred a 5% or larger decline (I own some Walmart) but given the decline had already happened I figured the thing to do was to consider buying. I looked at my last rating which was (higher) Buy at $68.03. I had also been wanting to perhaps deploy more cash into the market. So I ended up adding 50% to my Wal-Mart position. Wal-Mart at 2.9% of my portfolio (prior to the add) was only my 12th biggest holding and so I also considered that. It had been a much larger share of my portfolio but I had sold some at about $72 and so this was also just in some way restoring the position. There are always lots of complex reasons to buy or not and in the end one just pulls the trigger or not. But those were some of my thoughts as I bought on Friday. I bought on my lunch time at $69.29. It had gotten as low as $68.13 earlier.

I have looked it up in the comments below and I note I had sold all my Walmart on October 3 at $73.63. (And I would have had good gains on that). I had previously some some on July 10 at $72 based on an order placed some days earlier to sell at that price. Also I sold some on June 12 at $67.70. The notes below indicate I bought some Walmart on April 12 at around $58. At that time it was one of my five largest holdings. I don’t know what my average price on Walmart was. TD Waterhouse shows my my average price paid for stocks I hold but it does not show me a history for a stock like Walmart that I owned and then did not own and then own again.

I also bought some Walmart back on November 19 at $68.09.

One way to pick up possible bargains without having to monitor the market at all is to enter “stink bids” below the current price. The discount that you apply in the stink bid strategy would depend on many factors. It might be just 2% low in one case and 20% in another case. Anyone who had a buy order in on Walmart at say $68.50 or $69 (which can be left as an open order for a maximum of 30 days) would have been filled at that price while being blissfully unaware of any news or price decline. That works well if the decline is temporary and rather sucks if the decline is larger and the stock falls well below your buy price. If the bad news happens when the market is closed and it opens at a price lower than your buy order you will get that lower price.

In general stink bids can be a decent way to buy and to take advantage of volatility. I have done this on occasion. If you really want to buy a stock then you probably should just buy. If you kind of want to buy but are a bit ambivalent this can be a good strategy.

 

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