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Berkshire Hathaway
Berkshire's Puts

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By RaplhCramden
April 5, 2006

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Did anybody point out that this put is a way for Berkshire to get its price in buying a bunch of stocks?

Presumably Buffett sits around thinking "what price WOULD I buy this stuff at?" And of course in Buffett's case he is thinking if he did buy it he would hold it for years. And he has plenty of experience to know that, on average, that works well for him.

So along comes someone and says "how much would I have to pay you for the right to sell a bunch of securities to you at a price you would like to buy them at right now?" Buffett must feel pretty happy about this offer: if the securities get down to his price, he gets to own them. If they don't, he makes some folding money anyway.

For the man looking to buy stocks at a price lower than their current price, selling puts looks like a pretty smart move.

Come to think of it, it would seem most value investors, coming up with a buy price for particular stocks, should be selling puts on the stocks they would like to own at the prices they would like to own them. Why wait for your price for free when someone will pay you to do it?

R:


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