No. of Recommendations: 12
With the current price of $323 Price/PeakBV is 1.42, return-wise in the lower middle range of Jim's table - ...Here is another similar table I posted two years ago
http://www.datahelper.com/mi/search.phtml?nofool=y...The main difference is that this post is only observed data, no smoothing or model fit.
In that observation table the current price/peakB of 1.393 suggests a reasonable central expectation of annualized returns around inflation+7% for a hold period of 1-2 years from today.
(average of annualized returns across all holding periods from 1 to 2 years in length)
Precisely equal to my long run forward expectation, though lower than the past average.
If I do a pretty fit to that same data, it suggests inflation + 8.5%/year rate in the next ~1.5 years.
Formula to feed with PB as the current price-to-peak book level to get estimated forward real rate of return:
= 0.01550203*PB^3 + 0.28840172*PB^2 - 1.36877657*PB + 1.38544636
This obviously assumes that Berkshire's trend growth rate and valuation multiples will vaguely resemble the things seen since 2008.
For numbers geeks like me, note that most valuation metrics on any stock will tend to give an S-shaped response curve for returns over the next while up to maybe 2-3 years.
That's because valuation matters very little in the middle deciles but a whole lot at both extremes.
Therefore the choice of a cubic fit above isn't as weird a choice as you might think.
Jim
