Subject: Re: Reversion to .....mean? S&P?
On June 17, 2005, just under 20 years ago, the S&P 500 was valued about 5% more richly than its average valuation multiple since then.
On June 17, 2005, just under 20 years ago, Berkshire was valued about 5% more richly than its average valuation multiple since then.
Since those are the same, it seems like a reasonable starting point.

Currently, the S&P 500 is valued about 25.6% more richly than its average since that same date in June 2005.
Currently, Berkshire is valued about 27.5% more richly than its average since that same date in June 2005.
Again, pretty close, so it's coincidentally not such a bad end point to consider.

First, I fixed the typo, the above is correct. I said S&P twice in the last section.

And PS, that last bit should NOT be interpreted as saying that the S&P and Berkshire are equally overvalued at the moment.
They are equally overvalued relative to their respective 20-year average valuation levels, which is not the same thing.

Berkshire's 20 year average price-to-peak-book is 1.397, which is hardly high, so being a little above that would not count as overvalued in my books. We're quite a bit above that, so today might amount to "moderately overvalued"?

And the S&P's 20 year average trend real earnings yield of 4.16% equates to a P/E of 24, so even that average level seems a bit rich. As we are now sitting 27.5% above that at 30.6 times trend real earnings, it really does seem overvalued to me.

Jim