- Understand Berkshire’s recent and future sales by comparing them to owning shares in Berkshire Hathaway. Consider the actual realizable value of a stock position after taxes.
- Consider the likelihood that Buffett’s recent sales were at least in part to enable an acquisition of Chubb, which is likely a winner with or without being acquired by Berkshire.
- Acquisitions, which don’t trade, are more valuable than publicly traded companies, thus likely candidates for deploying Berkshire’s sale proceeds.
- Market value isn’t the true realizable amount due to tax implications, which are particularly important right now.
There is a simple explanation which might explain why Buffett has been selling both Apple (AAPL) and Bank of America (BAC) in large volume. It starts with a fairly obvious fact that all purchases and sales involve a single basic question: would I rather own shares in this company (or all of it) or shares in Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) itself? This question is modified a bit when it takes into account capital gains already embedded in a stock position. They are carried on Berkshire’s balance sheet at the current price minus the amount of taxes which would have to be paid at the current corporate rate meaning that the simple market value of the position or the amount received if it is sold is not the actual amount which can be realized from that position. I lay this out to start with not because I think Buffett is going over his portfolio and selling on this basis alone – I don’t believe this at all – but because the basic principle behind it may play a part in Buffett’s actual motivation.
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