No. of Recommendations: 20
It does look a little more richly valued than usual. That doesn't mean you should sell, but it does mean you probably shouldn't really expect the price to be higher a year from now.
My best super-simple back of the envelope---
20 year average ratio of price to peak-to-date known book per share: 1.397.
(Same figure today: 1.714)
Typical growth in real peak-to-date known book per share last 20 years: a bit over 8%/year. (higher than 8%/year for 60% of four year intervals, lower than 8%/year for 40% of the time).
Real book today: $418806
Not-bad guess of real book a year from now, today's money, simply by adding 8%: $452300
Apply the 20-year average P/B to that price to get a somewhat plausible price a year from now: $631743, or $421.2 per B, measured in today's money.
Current price per B is $478.57 as of yesterday's close.
So, that "reasonable expectation" line of reasoning suggests that the next year might get you a real return of only inflation minus -12.0%.
(Since a 12% one year drop is more than the usual 8% annual real value growth, the 2 year outlook isn't fantastic either)
Obviously valuations might be higher or lower than typical a year from now, but that's sort of a 50/50 chance more or less by definition. Maybe valuation multiples will be higher in the next few years than was typical in the last 15-20, but there is no way to forecast that.
We certainly might see another good year for the stock price, as prices can do anything, but I don't see any particular reason to expect it.
Jim
