Just a quick update to my valuation exercise.
As usual, it’s a bit conservative because I track the value of the large stock positions
based on their progress in earning power value, not market value.
In effect, I use the lower of market value and a multiple of earnings.
Since Apple is priced by the market at a multiple higher than the one I use as a cap, it gets a haircut at March 31.
Apple accounts for 78% of my haircut figure; Coke and Moody’s account for a further 14%.
So, how is the value metric doing?
Good news and less good news, I suppose.
The good news:
Increase in value per share in the last four quarters was a sprightly inflation + 12.6%.
That’s not just pandemic rebound; the three year rate of change is inflation + 10.8%/year compounded, also fine.
Since inflation was high, these are excellent results.
(indeed, inflation was so high that I did an inflation adjustment on each quarter’s operating results separately then added up the adjusted figures)
The less impressive news:
I estimate value up in Q1 by inflation + 1.0% since the year end figures.
Nice, but not at all impressive.
Based on historically typical relationships between my valuation figures and subsequent market prices,
my sundry models expect a market price increase in the next year in the range of maybe inflation+5.9%. Range 3.7% to 9.1%.
The range is fairly wide, partly because some of my models use book value without the equity portfolio haircut.
I have little idea what inflation will be, but if it comes out at 4%, that equates to a one year nominal price target of about $533550 ($355.70 per B).
The actual result will be different, but the idea is that it’s a 50/50 shot whether my expected figure will be too high or too low.
An entirely different way to look at it:
My “steady things” operating earnings figures–after tax on rails, utilities, MS&R and cyclically adjusted underwriting–amounts to about $15813/share.
I estimate look through equity earnings (excluding dividends paid) at a hair over $11000/share.
Dividend and interest income after tax is somewhat over 4000/share. (I used 21% tax, which is too high).
That comes in close to $31000/share, which puts Berkshire’s the current P/E ratio at 15.7.
I don’t usually look at it that way, so it’s not particularly accurate, but it gives an idea of valuation levels right now.
What do you get for that?
I generally expect a value per share increase in the range of inflation plus 7-8%/year and see anything better as a one-off bonus.
For most starting dates 5-25 years ago and ending now, my value metric has risen inflation + 8-10%/year.