No. of Recommendations: 1
Fun with crude numbers
"...the ultimate safe withdrawal rate is to liquidate no more than the amount the value of the shares has increased... You could withdraw money forever, or at least as long as the real value kept rising"
......
"...the ratio of price to estimated value is a pretty good predictor of whether you're about to see unusually good or unusually bad price changes.
In the last 20 years,
Cheapest 15% of the time: Two year forward real total return average 17.8%/year
Next 15% of the time: Two year forward real total return average 14.8%/year
Next 20% of the time: Two year forward real total return average 10.0%/year (just a little cheaper than average)
Next 20% of the time: Two year forward real total return average 8.7%/year (just a little more expensive than average)
Next 15% of the time: Two year forward real total return average 0.6%/year
Most expensive 15% of the time: Two year forward real total return average -5.4%/year"
So, I wondered: as the price:EV has been a pretty consistent long-term trend, then yet another way to think about the sensible "ultimate safe withdrawal rate" would be to add up the last 20 years of results:
0.15 times 0.178 equals 0.0267
0.15 times 0.148 equals 0.0222
0.2 times 0.1 equals 0.02
0.2 times 0.087 equals 0.0174
0.15 times 0.006 equals 0.0009
0.15 times -0.054 equals-0.0081
...with the sum of the RH column being 0.0791, implying an average 7.9% pre-inflation annual withdrawal would have been a sensible USWR 2005 - 2025
As the prices are not normalized for inflation, then the average CPI over the last twenty years of 2.5% needs to be subtracted, for a net USWR of 5 - 5.5%
Of course, this includes the highly questionable assumption that the next 20 years resemble the last 20, as regards Berkshire and the US economy in general and the CPI (which hasn't seen a 2.5% year since 2020).
But hey: you go to war with the data you have.
Anyhow, it further affirms my strategy of selling 1.125% current BRK holdings/quarter* being reasonable for at least the next few years, or until the effects of current policies begin to be reflected in market conditions.**
-- sutton
(*timing occasionally varies to current price/last known book: I sold the June 30 tranche in mid-March @ $522; conversely, I sold none at all during peak pandemic weirdness)
(**please, YWH, let this be at least a month or two before the midterms)
