No. of Recommendations: 1
Thanks Jim.
In the case of increase by purchasing investments, I think it is quite clear that IV should be 1x BV.
But, even in the case of retaining 100% earnings and growing just at the same rate as S&P 500, why would its IV be more than 1x BV?
Start of year 1, with $100 BV. Let's say earnings are $7 by end of year 1 and BV now is $107. Why should it be worth more than 1x BV in this case?
In the absence of buybacks/dividends, BV growth should be same as ROE. If we assume BV growth as equal to S&P 500 total return and our discount rate also equals S&P 500 return, does it not make the case that it would be worth only 1x BV?
