No. of Recommendations: 6
Mungofitch:
We can also look at the past to see what usually happened next. Historically this distance above the "norm" was followed on average by meaningfully negative real returns in the next year (-13% ish), and slightly negative in the next two years (-3%/year ish). Though of course the future may be different: this "what happened before" view has the flaw of potentially overweighting the observation that following the few periods of similarly high valuation multiples the stock just happened to go on to become undervalued, not merely averagely-valued, a year or so later. It would make more sense to expect an average valuation multiple as your base line assumption, not a bad one.
May I ask what you will be doing about this? Do you keep a core holding of BRK even believing the stock price is that much too high?
On the one hand, I often wish I had a retirment port which was 1/3 SPY, 1/3 BRKB and 1/3 MRFOX, and that I didn't trade them and just lived with the 15-20% return. On the other hand it seems nuts to hang on to something that "should" go down for two years. On the third hand, I'm still glad I didn't dump out of my BRK yet since it seems to still be creeping up a bit. On the fourth hand, I am quickly running out of hands.
R:)
