Somebody asked about why one would buy Berkshire stock now, there being no certainty that the price will be higher any time soon.
It’s certainly true that Berkshire’s stock price, like any stock price, can go net nowhere for a long time.
If you consider inflation, those stretches are even longer.
But, the value of a share of Berkshire generally goes up over time.
So it’s pretty clear that a very long stretch of no progress in stock price means things are getting cheaper.
A flat price with a rising value means a shrinking multiple.
Since 1998 these are the four longest stretches with no net share price progress.
They all start on a fresh all time high price in real terms, as you might guess.
For the purposes of discussion let’s assume P/B is a decent rough yardstick of value, especially if you use peak-to-date book per share.
The four longest stretches are:
1998-06-19 to 2004-02-09, 5.64 years.
P/B dropped from 2.887 to 1.935 at a rate of -6.8%/year.
2007-12-10 to 2013-05-07, 5.41 years.
P/B dropped from 1.926 to 1.367 at a rate of -6.1%/year.
2004-02-25 to 2006-10-25, 2.66 years.
P/B dropped from 2.032 to 1.610 at a rate of -8.4%/year.
2014-12-18 to 2016-11-09, 1.89 years.
P/B dropped from 1.584 to 1.386 at a rate of -6.8%/year.
A few observations:
It’s probably not a good idea to buy at a high valuation multiple : )
Other than those four, you never had to wait more than a year for a fresh all time high price in real terms, which rather surprised me.
One interesting observation is that the rate of multiple compression during the long stretches was so similar.
I doubt it means that much, but it’s interesting.
The current valuation multiple of 1.27 is lower than the lowest ending valuation multiple in any of the stretches of cheapening above.
Thus one might speculate that a long net-nowhere stretch starting here would be extremely unlikely.
Too much of the maximum possible valuation compression has already happened.
The price could certainly drop a long way from here (or not), but it’s very likely to be higher than this at some point relatively soonish.