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The week's question
In December 2024, in the thread "Re: BRK: Why Not XOM?", BreckHutHigh asked the members: "What about the long road trips with kids?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Investment Strategies / Mechanical Investing
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Author: mungofitch 🐝🐝🐝 GOLD
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Number: of 6132 
Subject: Re: book recommendation
Date: 07/11/25 3:30 PM
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if you do get a moment some time then it'd be interesting to see the associated scatterplot of two year forward real return vs the value measure.

Geek note:
In this sort of situation, I think it's important to reduce the noise resulting from the randomness of the valuation on the specific end date anniversary. So to calculate forward returns, I don't do (price two years from now)/(price today). Instead I do (average price 1.75 to 2.25 years from now)/(price today). It's amazing how much this helps your models: it still looks at the short term squiggles of price and valuation on purchase date which is what matters, but doesn't get thrown off by the quirks of a specific end day.

This is a scatter plot of ratio of price to my smoothed and scaled-up value line, over the last 20 years, daily figures. The forward two year returns are an annualized rate, after inflation.
http://www.stonewellfunds.com/PriceToTrendAndForwa...

With today's price of $713670 ($475.78 per B), today's smoothed line level is about $613570 and the ratio is about 1.163. Using that ratio, the formula fit from the graph suggests one might expect a forward two year return around -1.62%/year after inflation. The standard deviation of the ratio in the last 20 years has been 11.8% with mean (by construction) of 1.

Jim
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