No. of Recommendations: 4
We all agree that it's futile to predict next month's or even next year's stock prices. But instead of betting the house on it one could see as a game, right? I just had a thought I found interesting: Usually we start with thinking 'How did BRK do and will do in the future, compared with the Index? Will it do worse, same, better?'. What about turning this on it's head, starting with BRK, and guessing what the Index will do in comparison?
My thought is based on two points which both have to do with BRK's relatively easy predictability:
- DTB's post on another post that while Berkshire's valuation multiple didn't change a lot during the last decades the S&P became ever more expensive, something most here do agree upon.
- Jim's central expectation from September that with BRK's Price/PeakBV of 1.22 then the most likely share price 1 year from then is 16% higher => 470k and therefore around where it's the last 2 months (in other words: Those 16% price appreciation did already happen, though only temporary: we'll see).
Of course I don't have Jim's data and therefore no idea how reliable those central expectations are. Let's assume they were quite reliable and that this time it's not different, so that BRK's share price most likely end of next year will indeed be around where it is now.
What does that say about the S&P then? With the investment environment darker than the last years with now recession around the corner, higher interest rates etc., with investors who this year had to realize that stocks don't always go up, investors becoming more risk adverse/aware and less able to ignore that the S&P is still not exactly cheap I would bet the S&P in price won't do better than BRK's price => won't be any higher then it is now if Jim's central expectation for BRK comes true. As many here I rather see good chances for the opposite, for BRK doing better than the S&P, for multiple compression for the latter.
IF Jim's central expectation for BRK end of next year is reliable and continues to work, then this line of thinking would expect the S&P at the very best to be where it is now --- but rather lower than now.
P.S.: If that does not come true I will try to blame it on Jim.
