Munger_Disciple

I don't think it is a coincidence that Warren has recently been talking about Coke, Amex and Japanese trading companies in the annual reports. There is no way Berkshire will sell these post-Buffett. Is there a way Berkshire can distribute the large holdings in-kind to shareholders without incurring any corporate taxes? My guess is no.

Thanks @gfp! I saw this video before; just wondering if there were any additional details. He referred to this in the video as you pointed out: "I've had my setbacks yeah I've done some margin, my wife spends money you know but I still have that original share." Good for Andy, it appears that he was able to survive that margin call & do well.

Fellow Berkshire Groupies, Andy Kilpatrick, who became famous for his massive books on Buffett, apparently became quite rich with Berkshire stock over many decades despite getting a few margin calls along the way. Does anyone know more about Andy's Berkshire stock investing?

Most brokers (A.K.A. wealth managers, but they are really glorified salesmen) at "full service" brokerages like Morgan Stanley, Goldman, JPM, etc generally hate Berkshire because they can't make money churning the account. I used to work with one of them and I got rid of them (and moved my account to a discount broker) after I started buying Berkshire stock 22+ years ago. I also think in the last 20 years, Berkshire roughly matched the S&P 500 index. So if one doesn't want to do any work on which stocks to buy & hold, she would have done just fine buying & holding the index (case in point: Astrid's portfolio as described by Warren). I think Berkshire is likely to just match the index results over the next 10-20 years. But I prefer holding Berkshire as opposed to the index even if that's the case. I like the culture, deep focus on risk, treatment of shareholders as true partners, no stock options for management, managers buying Berkshire stock in the open market like their fellow shareholders, and everything else at Berkshire.

You can exercise the calls before the ex-dividend date in this case but then it involves taking on margin debt again. So there is no easy solution.

The biggest issue with this approach is the capital gains taxes that are incurred (assuming the options are in the money) when rolling into new LEAPs just prior to expiration date. The only other alternative is exercising the options which involves taking on margin debt which was the original problem we are trying to solve.

BTW we all know the famous story about Rick Guerin, friend of Warren & Charlie who levered up a bit too much in the 70s and was forced out of all of his Berkshire A stock at something like $40 a share due to a margin call.

I also used a relatively minor amount from time to time but ideally it is better to borrow non-recourse like Buffett did with a 30-year mortgage for those who are inclined to lever-up with any stock.

I also think Berkshire is a totally different company now compared to the eighties and seventies to state the obvious. The ROE on Berkshire SH Equity in 70s and 80s was off the charts unlike today. So levering up BRK with debt is more dangerous now than before, especially given that the markets are quite bubbly.

This is very different from margin debt; mom wasn't going to call on the loans even if daughters didn't make a payment on the note for a few months. But a great strategy to keep in mind.

IIRC Warren called his broker and instructed him to sell a few Berkshire shares to raise cash saying that Susie wanted to buy a house. He probably bought back those and more later after getting a mortgage.

I am not sure you are correct. Buffett actually sold a few shares of his Berkshire stock in the 70s when his wife wanted to buy a house in Laguna Beach. More importantly, Buffett said this in the 2014 Special 50-year shareholder letter: "Another warning: Berkshire shares should not be purchased with borrowed money. There have been three times since 1965 when our stock has fallen about 50% from its high point. Someday, something close to this kind of drop will happen again, and no one knows when. Berkshire will almost certainly be a satisfactory holding for investors. But it could well be a disastrous choice for speculators employing leverage."

Do you have a reference? IIRC Buffett expressly recommended against using margin as any stock can fall > 50%.

BNSF news: https://www.wsj.com/articles/bnsf-railway-furloughs-mechanics-in-kansas-nebraska-c56ba7a5?mod=hp_minor_pos13

Yes indeed.