Subject: BRK forward return by P/B
BRK forward return by P/B
Using the book values data in post #9690 by PickTrader, I computed the forward returns of BRK vs. Price/Book value.
The computed P/B was in good agreement with other sources of P/B.
The starting points were quarterly, not monthly, since the BVs are only reported quarterly.
The P/B from Q1'1993 to Q4'1999 were very high. Almost always greater than 1.55.
The returns in this period were also very high, with most of the 12 month returns above 50%. BRK-A went from 12,750 to 56,100, CAGR 24.5%. This is unlikely to happen again, so I have also run the figures for the period beginning Q1'2000.
The figures are the N-month return, not the CAGR.
Q4 1991 to Q1 2023
Bucket Cnt Avg 3m Avg 6m Avg 12m Avg 18m
1.10 3 5.39% 10.63% 23.09% 44.35%
1.15 5 2.81% 13.46% 29.09% 38.39%
1.20 5 10.56% 18.53% 27.23% 31.56%
1.25 8 2.03% -1.98% 8.06% 20.77%
1.30 16 8.17% 13.52% 27.01% 34.34%
1.35 12 -0.89% 3.36% 4.11% 11.93%
1.40 12 4.34% 9.46% 15.42% 26.11%
1.45 8 3.49% 7.13% 19.03% 17.90%
1.50 8 -0.75% 3.84% 10.31% 9.75%
1.55 48 3.40% 6.42% 13.28% 23.75%
min 1.10 P/B range
Avg 1.55
max 2.63
med 1.46
Q1 2000 to Q1 2023
Bucket Cnt Avg 3m Avg 6m Avg 12m Avg 18m
1.10 3 5.39% 10.63% 23.09% 44.35%
1.15 5 2.81% 13.46% 29.09% 38.39%
1.20 5 10.56% 18.53% 27.23% 31.56%
1.25 8 2.03% -1.98% 8.06% 20.77%
1.30 13 7.75% 11.40% 18.88% 24.36%
1.35 12 -0.89% 3.36% 4.11% 11.93%
1.40 11 4.84% 10.15% 14.11% 22.10%
1.45 7 3.71% 8.73% 17.95% 17.08%
1.50 6 -2.75% -0.73% 4.40% 3.66%
1.55 22 -0.56% -1.53% -1.07% 2.10%
min 1.10 P/B range
Avg 1.43
max 1.99
med 1.40
My conclusion:
* Returns from a P/B greater than about 1.50 will probably be low.
* Except at very low P/B (below 1.25) the returns for holding periods of 12 months and shorter are good but unpredictable.
* The best returns are for longer holding periods, 12 months and longer.
My takeaway:
* If you are putting on leverage, particularly via DITM LEAPS, put it on at P/B 1.45 and below, and take it off at 1.50 and above. Of course, you need to factor in the cost of the leverage.