Jim's model needs some tweaking

From 2/10/2019


Although, perhaps the 5% underestimate is explained by the inflation assumption. And there are 4 weeks to go.

Some prople prefer nominal dollar targets rather than working in today’s money, so the following table assumes we see 2.25% US monetary inflation in the next few years.

Investment Target Real Price Target Nominal Price
Horizon (Today’s dollars) (Future dollars)

Three years $426,181 ($284.12 per B) $455,600 ($303.73 per B)
Four years $462,406 ($308.27 per B) $505,449 ($336.97 per B)
Five years $501,711 ($334.47 per B) $560,751 ($373.83 per B)
Six years $544,356 ($362.90 per B) $622,104 ($414.74 per B)

It has been a while now that I’ve had my predictive model for three year forward real returns.
Three years ago it predicted the price in the week just ended would be $307,526 in today’s dollars.
The actual figure for the past week is an average market close price of $307,500.
Clearly I have work to do to improve the model.


Nice reminder.

The main prediction in the post was in real terms, early-2019 dollars.
Berkshire is trading at about $301,380 ($200.93 per B), and the latest US CPI figure I have is 252.04.
These are my expected returns for Berkshire stock from here with different time horizons:
3 years: inflation + 12.2%/year compounded…
Actually 12.25%, the extra decimal is later in the thread.

So, three years later in Feb 10 2022, you’d expect a price of about $426,259 in Feb 2019 dollars.
The current CPI number is 277.95, so that equates to $470,079 in today’s money.
The current price is $481,785, 2.5% higher than the prediction.

Not too bad a price.
Also not too bad a prediction…especially considering that it has been an odd three years.

All such predictions are problematic if you take a precise anniversary for the end date, as that precise end date might be randomly high or low.
If I (or anybody) predicts a price 3 years from now, the fairest test would be to compare the predicted figure to the average price 2.5 to 3.5 years later.
Or even 2-4 years later.



Interesting and Well done given all of the volatility. Almost hit the bullseye with arrow from 3 years away And you underpromised and overdelivered! :slight_smile: