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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
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Author: DTB ✭  😊 😞
Number: of 12536 
Subject: Re: Jim Grant on Berkshire/Cash/Valuations
Date: 10/29/2024 8:30 PM
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In nominal terms I would guess something like 4.5% for T-Bills (the current yield), 3.5% for the S&P 500 (the trailing twelve months earnings yield) and 5.5% for Berkshire Hathaway's equity portfolio (S&P 500 plus 2 percentage points). If this is more or less correct, then a very high allocation to T-Bills makes sense.

If I'm allocating based on my estimated returns for the next 30 years instead of 5-10 years, then I would up the estimated S&P 500 return to maybe 8% (historical return of 10%, minus 2 percentage points for reversion to the mean, trailing P/E of 17). In that case my allocation to T-Bills would be quite low.


A lot depends on whether we get reversion towards more historically typical valuations. If you are assuming -2% annual as the S&P reverts to lower multiples over 30 years, I assume you think that the S&P is overvalued by about 45% (0.98^30-1) and 1.02^10-1). That sounds reasonable. But then, shouldn't you also expect that mean reversion over 5-10 years, also, taking the S&P's 3.5% earnings yield down to a total return of 1.5%? And leading to an even higher allocation to bonds?

dtb
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