No. of Recommendations: 12
Thank you so much for your detailed and insightful response. I truly appreciate the effort ...
Ha! You're the one who figures out that my numbers made no sense. You get the thanks.
The simple notion at the end of my post is worth considering.
A much simpler prediction method might well be better.
Predict book per share a year ahead, measured in today's dollars. It has grown at around inflation + 7.3%/year for ages. (this millennium).
Predict P/B a year ahead. The average since the crunch has been around 1.37, give or take.
Divide by today's price and you get a one year real total return estimate.
Add your inflation estimate and you get a nominal return estimate, if you want to know the likely nominal price. (important for options, for example)
Not perfect, but a very plausible central estimate unless you have better information. For example, I think Q2 book may come in a little ahead of trend, so I might knock off a percent.
It still suggests one might reasonably expect a negative real return in the next year.
e.g., the estimate of Q2 book I posted a while back was $421,100.
Add 7.3% for a typical year's real growth and you get 2025-Q2 book (in 2024-Q2 dollars) estimate of $451,840.
Multiply by 1.37, the average multiple in the last ~16 years, and you get $619,021 in today's dollars next August on/after when the statements come out, or about $412.70 per B share.
As I type, B shares are trading at $436.75 in pre-market, suggesting a "likely" real loss of -5.5%.
Adjust your assumptions to suit.
Jim
