Subject: Re: OT: Fair Value for RSP, QQQE
Fair value for a broad index is a tricky proposition. It's extremely hard to say what future market multiples might be.

About the best I can manage is to say that IF multiples resemble their average since some date in the past based on a certain metric, then the expected value these days would be X.
And, if the progress of that metric continues at about the same pace, then the forward return might be Y if the ending valuation were to end up historically typical.

In early October I pegged current expected (fair?) value of QQQE at around $73. Say, $70 to $81 depending on your assumptions.
This is based on the observation that average real earnings among that group have trended remarkably well for a very long time, so the ratio of price to *trend* earnings might make a good yardstick for an equally weighted index.
So at $83.50 today it's a bit above average but far from crazy. Especially given that trend average real earnings for the group (and therefore value) have risen so fast: in the vicinity of inflation + 7.5% or 8.0%/year.

I don't have handy numbers for the S&P 500 equally weighted (RSP). I should, but haven't looked into that in along while.

For the "normal" S&P 500 based on trend real earnings, it's 26% more expensive than its average since January 2000.
If historical returns starting at similar valuation multiples observed since 1995 are a guide to future results, and trend net earnings grow apace, then one might expect a real total return of inflation + 2.0% in the next 7 years. Not very exciting.

One can switch metrics. Based on price to sales, the S&P is about 49% more expensive than its average since 2000. That figure is a lot scarier because US corporate profitability has soared in recent years: things look cheaper on net profits than on gross sales because each dollar of sales is generating a lot more profit recently. Almost entirely because total tax expenses and total interest expenses have fallen a lot lately. Those factors may remain at their current happy levels (or may not) but the trend can't be extrapolated. Profits will not continue to grow at the rate they've managed in the last 20 years.

So, my tea leaves suggest the cap-weight S&P is quite a lot more fully valued than QQQE.
I haven't done a good calculation for RSP in ages, but I suspect it would come to a similar but slightly less extreme conclusion as for the usual cap-weight index.
Depending on your investment horizon, one might considering keeping the QQQE but lightening up (or getting very patient) with the RSP.

Again, with that big caveat: on the broad assumption that future valuations resemble their averages in the past quarter century or so.


Since this is the Berkshire board, the likely returns for [the remainder] of 2024 don't look so hot.
Valuations based on the usual things like book and peak-to-date book are somewhat above average, so short term likely returns are commensurably lower.
Based on one metric (peak to date book but continuing to rise slowly during book dips), Berkshire is 8.6% more fully valued than its average since Jan 2008. The average one year real total return since then has been about inflation + 8.2%. So, the two kinda cancel out for a year and the implied one year return after inflation is in the 0-1% range.
That "forecast" will be wrong, but the notion is that it's a toss-up whether that's too high or too low.

Jim