No. of Recommendations: 7
WEB's view on the IV BRK will be impacted by interest rates.
That is true but the relationship between interest rates and an the value of an individual stock has multiple factors that need to be considered including the increase in earnings in some sectors and the increased probability of deploying the significant amount of excess cash intelligently.
In the 2017 AGM he said he could hope for intrinsic value to compound at 10% provided the interest rate environment had rates a bit higher than those prevailing at the time ( which were around 2% from memory). I think we are pretty close to the territory he was hoping for.
So the question is, 'At what rate has Berkshire compounded intrinsic value over the last 10 years? And at what rate, including your explanation for it please, do you think intrinsic value can be compounded over the next 10 years?'
WARREN BUFFETT: Yeah. Intrinsic value, you know, can only be calculated ' or gains ' you know, in retrospect.
But the intrinsic value pure definition would be the cash to be generated between now and Judgment Day, discounted at an interest rate that seems appropriate at the time. And that's varied enormously over a 30 or 40-year period.
If you pick out 10 years, and you're back to May of 2007, you know, we had some unpleasant things coming up. But we've ' I would say that we've probably compounded it at about 10 percent.
And I think that's going to be tough to achieve, in fact almost impossible to achieve, if we continued in this interest rate environment.
That's the number one ' if you asked me to give the answer to the question, if I could only pick one statistic to ask you about the future before I gave the answer, I would not ask you about GDP growth. I would not ask you about who was going to be president.
I would ' a million things ' I would ask you what the interest rate is going to be over the next 20 years on average, the 10-year or whatever you wanted to do.
And if you assume our present interest rate structure is likely to be the average over 10 or 20 years, then I would say it'd be very difficult to get to 10 percent.
On the other hand, if I were to pick with a whole range of probabilities on interest rates, I would say that that rate might be ' it might be somewhat aspirational. And it might well ' it might be doable.
