No. of Recommendations: 18
And Berkshire?
231 @ 9% BV growth for 10 yrs = 546 x 1.35x bk terminal (5 year average) equates to $737 and 7.92% compounded from current value.
Sounds like a sane notion.
I like after-inflation numbers, since those are what affect how much wealth you get.
My own multi-method valuation metric, a mix of my "two and a half column" calculation and a pinch of book per share, has risen at inflation + 7.3%/year or more for all sorts of time periods ending now.
The slope of the long run trend is 8.25%, so 7.3% represents a bit of a slowdown.
Projecting that 7.3% real growth rate out 10 years gives an increase of that value metric of 202%.
Multiply the current value of that metric by 2.02 and you get a target future value of the metric.
Multiply that future number by the average multiple of that metric seen since 2008 to get a target future market price in today's dollars. (almost spot on a million bucks in today's money with CPI at 305.11).
Divide that by today's price and annualize it, and I get a return target of inflation + 6.48%/year.
But the value metric is probably about to pop upwards as soon as the Q2 statements come out, so there is a pinch of conservatism in it.
Wild guess, that bump alone will add around 1/3% per year to the return forecast because the starting point will be seen to be cheaper.
If you take the difference between your nominal number and my after-inflation one, it looks like collectively we foresee breakeven inflation of only 1.44% : )
I expect inflation to average somewhat more than that, so my nominal forecast return would be a bit higher than yours.
Jim
