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I have current Price To Peak Book @ about 1.29X. (From this valuation level, Jim's forward return chart shows a 1yr return of 10-12%. Thanks Jim!)
Does anyone have a dissimilar number?
Warren was a buyer in December @312.
Don't Back up the truck yet but maybe put it in neutral and crank up some George Michael...

https://www.youtube.com/watch?v=izGwDsrQ1eQ

May The Shrewd Be With You!

LOL at the Careless Whisper video ... memories of the 80s. I knew that as a Wham! song at the time, but I see it was marketed as a George Michael song in some places.

I posted on the Current Price to Peak Book subject not too long ago: https://www.shrewdm.com/MB?pid=517177960&wholeThre...


Using $230.31 as peak book per B-share and current B-share price of $295.50 I get a current price to peak book of 1.28, very close but not precisely what you found at 1.29. I'm sure a .01 difference isn't significant.

"
I'm starting this thread so we can have a quick place to find BRK's peak book value, which has been put forth as a better indicator of BRK's value than current book value by mungofitch.

Current Peak Book Value, using numbers reported on these boards by longtimebrk in this thread: https://www.shrewdm.com/MB?pid=496446242&wholeThre...

Quarter 1, fiscal year 2022:
$345,469 for A shares.
$230.31 for B shares, dividing by the above A share figure by 1,500.

Later in that thread Aguila gives directions how to compute the quarterly book value precisely:

As found in the Quarter 1 2022 10-Q:

BRK shareholders' equity: $508,141 million
equivalent Class A common stock basis: 1,470,875 shares
Book value: 508,141/1.470875 = $345,469

Also of interest, PickTrader posted his analysis of trend adjusted book value in the following thread, proposing it as a potentially better marker of value than Peak Book. https://www.shrewdm.com/MB?pid=192596782&wholeThre...
"

The current peak book was recorded in Q1 2022. We've just closed Q1 2023. The economy has grown a bit over the last year, and inflation has been significant. Buffett has made numerous apparently astute investments. So we might expect the business value to have grown in real terms and even more in nominal terms.

At the same time, as AdrianC posted in response to my thread on this a week ago, Apple is down a bit, and Bank of America is WAY down, so, actual book value of stocks held is likely down significantly, and I expect reported book value at the end of Q1 will not be a new peak.

Overall, I'd expect that the intrinsic value of the business has been chugging along nicely even while a declining stock market has dropped the book value, so the current peak price/book of 1.3 (using current price of 298.92.) is a better value than it was last July and August, for instance.

Book value at the end of the 4th quarter:
equivalent Class A common stock basis, there were 1,459,733 shares outstanding as of December 31, 2022
Berkshire Hathaway shareholders' equity 472,360 million.
Book value per A share: $323,593
Book value per B share: $215.73

I flushed out my Price-To-Trend-Book-Value thoughts a bit more in this post:
https://www.shrewdm.com/MB?pid=462231598

I described two methods of calculating trend BV, one nominal and one real (inflation-adjusted). The nominal calculation can easily be projected into the future. The real calculation can't since it needs to wait for the monthly inflation numbers.

Here is a chart of trend BV valuations for this year (2023). It makes it easy to quickly check the approximate P/BV.

. . Trend BV . . 1.2x . . . 1.25x . . . 1.3x . . . 1.35x . . . 1.4x
Jan . 218.39 _ 262.07 _ 272.99 _ 283.91 _ 294.83 _ 305.75 . (Trend, inflation-adjusted BV = 233.98)
Feb . 220.23 _ 264.28 _ 275.29 _ 286.30 _ 297.31 _ 308.32 . (Trend, inflation-adjusted BV = 236.85)
Mar . 222.08 _ 266.50 _ 277.60 _ 288.71 _ 299.81 _ 310.92 . (Trend, inflation-adjusted BV will be 238.42 +/- March inflation)
Apr . 223.95 _ 268.74 _ 279.94 _ 291.14 _ 302.34 _ 313.53
May . 225.84 _ 271.01 _ 282.30 _ 293.59 _ 304.88 _ 316.17
Jun . 227.74 _ 273.29 _ 284.67 _ 296.06 _ 307.45 _ 318.83
Jul .. 229.66 _ 275.59 _ 287.07 _ 298.55 _ 310.04 _ 321.52
Aug . 231.59 _ 277.91 _ 289.49 _ 301.07 _ 312.65 _ 324.23
Sep . 233.54 _ 280.25 _ 291.92 _ 303.60 _ 315.28 _ 326.95
Oct . 235.51 _ 282.61 _ 294.38 _ 306.16 _ 317.93 _ 329.71
Nov . 237.49 _ 284.99 _ 296.86 _ 308.73 _ 320.61 _ 332.48
Dec . 239.49 _ 287.38 _ 299.36 _ 311.33 _ 323.31 _ 335.28

Summarizing this thread, the various Price to Book Value ratios are currently (based on Mar 24 BRKB close of 298.92):

1.39x based on the most recent BV of $215.73
1.30x based on peak BV of $230.31
1.37x based on trend BV of $222.08 (Mar 31st)
1.25x based on inflation-adjusted trend BV of $238.42 (Mar 31st)

What do you make of the distinct knees in the same, semi-log plot of BV/share versus time when one plots the data back to 1965? The knees occur at about 1979 and 1999. From 1965 to 1979 the slope is fairly constant at 15.6%/year: the slope is also fairly constant from 1979 to 1999 at 27.0%/year, and the slope is fairly constant from 1999 to 2023 at 10.3%/year. My suspicion is that BV/share is following the S&P 500, which has knees at about the same points in time as Berkshire's BV/share, but with Berkshire's BV/share having higher slopes in all three time periods. The slope of the S&P 500 index from 1965 to 1979 is 1.4%/year; from 1979 to 1999 it is 13.0%/year, and from 1999 to 2023 it is 6.1%/year. What are your thoughts?

"From 1965 to 1979 the slope is fairly constant at 15.6%/year"

Although BV/share does decline from 1974 to 1976, as does the S&P 500. Same thing for 2008.

Sorry. I made this point in PickTrader's thread beginning Jan 2nd. No ned to repeat it. I do think that the knees in BV/share versus time, such as the one that occurred in 1999, show that we need to be cautious about extrapolating the trend of BV/share versus time. I also suspect that the change in the growth rate of the S&P 500 index from 13%/yr pre-1999 to 6%/year post-1999 was responsible for the change in the growth rate of Berkshire's BV/share from 27%/year pre-1999 to 10.3% post-1999. Berkshire's equity portfolio makes up roughly half of BV. In trying to extrapolate BV/share growth I would give considerable weight to the expected growth rate of the S&P 500. Growth rates can turn sharply if a stock market bubble bursts.

"I also suspect that the change in the growth rate of the S&P 500 index [in 1999] ... was responsible for the change in the growth rate of Berkshire's BV/share."

The returns of Berkshire's equity portfolio support this hypothesis:

period, return of Berkshire's equity portfolio, return of the S&P 500

10 years ending 1999, 22.4%, 18.2%
10 years ending 2009, 4.9%, -1.0%

Rrr12345, I'm not sure I agree the S&P's growth rate dropped suddenly post-1999. There was a serious market downturn from 2000-2008, but that's just a normal part of market action over the long term. If you calculate the growth rate starting at the peak (2000-2023), you'll get a growth rate substantially below the long-term average. Doing the same calculation starting at the market bottom (2008-2023) will give you a number substantially higher than the long-term average. There's no clear evidence the long-term growth trendline has changed, at least in my eyes.

That said, I agree long-range forecasts have their issues and you need to be careful when using them. If we ended up having a 1929-style depression (or worse), the long-term forecast is going to be garbage. This is unfortunately something difficult/impossible to anticipate, so that is a risk factor for not only Berkshire, but pretty much everything out there.

Another risk factor is Berkshire's underlying business model changes substantially. This is something that has happened in the past (e.g. amount of money being invested) and could easily happen in the future. Fortunately, this is something that often happens slowly and you can watch it unfold and anticipate its possible effects well in advance. Having time to adjust makes it much less worrisome. I've thought a lot about what will happen when Warren and Charlie leave Berkshire. I have no idea what the stock price action will look like, but I think it will have very little effect on the stock price five years out. Berkshire is a huge earnings battleship that will continue moving reliably forward long into the future. Any attempts to change course will take a long time before they have a substantial effect. There will be ample time to notice and you can make adjustments long before they have any dramatic effect on the stock price.

I flushed out my Price-To-Trend-Book-Value thoughts a bit more in this post:...

Though I think it's a remarkable fact that book per share has trended so well over the years, I would URGE people not to use the trend line for prognostication.
(nor consider the ratio of current price to long run trend line as having any meaning).

The fact that the figures have trended so well should be considered a cute coincidence, and also a remarkable complement for management on what they have accomplished...in the past.
But the value of something is what it will do in future, as estimated from what's visible today, not what it would have been if an old trend had continued.

For an excellent example of the problem, consider the UK economy recently : )
https://www.economicshelp.org/blog/9271/economics/...
It would not be wise to see the huge gap below prior trend as suggesting that the current values are temporarily low.

In short, the trend might not continue.
And to the extent that it might, recent typical results build better extrapolation than the long run trend, because it's at least based on today's reality.
The results in the 2000s and 2010s say pretty much zip about what's going to happen in the next decade.

Jim

I'm not sure I agree the S&P's growth rate dropped suddenly post-1999. There was a serious market downturn from 2000-2008, but that's just a normal part of market action over the long term.

I sometimes like to look at what the underlying business are doing, rather than varying the start and end period to mitigate the effect of sentiment. Instead, we can just cut out sentiment completely.

One approach is to look at the sales per share - economically meaningless to investors on its own but fairly good when comparing a broad basket of businesses over different periods, as it doesn't suffer the fluctuations that earnings do.

From 2000-2023 sales per share of the S&P500 went from 780 to 1714, not adjusting for inflation. That is 3.6% per year. Adjusting for inflation of around 3%, sales per share have almost not increased at all since 2000, even after all the buybacks. Not much growth - in fact, none. For each dollar invested today, we are getting only about the same real sales that we got when investing even in 2000. You'd think that waiting 23 years is a long time for such little improvement in business.

Real annual sales per share growth of the S&P500 was higher looking back 100 years, in the 1% to 2% range. Business has slowed down a little the last 23 years.

Corporate margins did increase but that has happened in the past, and they can revert backwards also as business policy changes. (Corporate earnings to GDP is a similar concept to margins, given that GDP means sales. You can see that margins were high also in the past, and declined, and can do again.)
https://www.economist.com/img/b/800/871/90/media-a...

Over the next 23 at least mentally be prepared for - even if you don't believe this to be the case - more headwinds for business owning to relatively higher resource constraints and necessary regulations for environmental effects.

- Manlobbi

Jim, and others who may have thoughts on this,

I believe in the past you've suggested you prefer Price/PeakBook to Price/Book as a metric, to the extent you still track the ratios. I can't recall your entire justification, but I believe it rested in part on the observation that, for BRK, dips in Book tend to be fleeting, and that Price/PeakBook has historically given a more accurate projection of future expected returns and/or the historical growth rate in book. Apologies if I have that wrong.

In any case, my question is how your preference for PeakBook over last-reported-Book squares with your critique re: trendline analysis, in the very specific case of it being applied to BRK (the proverbial tortoise)?

Intuitively I would expect Price to PeakB to have a "lag" in identifying a step down in the average returns for BRK (i.e., off the trendline), whereas Price to Book would pick up the drop more quickly. In other words, I would expect PeakBook to display a historical trendline/past-looking bias.

I think you personally mitigate this difference by applying haircuts to overvalued stocks (e.g., haircutting Apple when it was at 180) in your calculation of Book, and by only using a history that is in tune with the current reality of BRK (e.g., post GEN Re or post 2008), but from where I'm sitting the general question still stands. Do you view using Peak rather than last reported Book as importing in a "trendline" bias, perhaps to be mitigated as you do, or as something different?

Jim,

I have the same question as Lear, but from a slightly different perspective. In the past, you have suggested that, in the long run, you expect the per share value growth (instead of per share price growth) of Berkshire to approach Siegel's constant (i.e., around 6.7% + inflation) and not fall below that. And even that may take time as we are not there yet (if I recall correctly, your recent estimates of per share value growth are around 8.5% plus inflation).

Hence, even if the trend line falls, you don't expect it to fall too much (more than a couple percent points per year)? Did I get that right? If so, the price per trend book value may still be a meaningful metric to use. No?

Please let me know if I missed something.

Thanks!

From 2000-2023 sales per share of the S&P500 went from 780 to 1714, not adjusting for inflation. That is 3.6% per year. Adjusting for inflation of around 3%, sales per share have almost not increased at all since 2000, even after all the buybacks. Not much growth - in fact, none. For each dollar invested today, we are getting only about the same real sales that we got when investing even in 2000. You'd think that waiting 23 years is a long time for such little improvement in business.

Real annual sales per share growth of the S&P500 was higher looking back 100 years, in the 1% to 2% range. Business has slowed down a little the last 23 years.

CPI at 2000 yearend was 174. Latest CPI is 301.648. So 780 sales in 2000 translates to (301.648/174) * 780 = 1,352.22 in today's dollars.

1352 increasing to 1714 over 23 years is a compound annual growth rate of 1.04%

Seems to me we are at the lower end, but still within the historical range 1 to 2 percent growth for real annual sales per share.

One of the great values of posting on forums like this is to have your ideas stress-tested. I'm happy to be having this experience. I am moving to using trend book value as a quick shortcut for valuing BRK. I want to verbalize my thought process, rather than any actual math, to expose any potential weaknesses.

The S&P has long been considered a reliable, long-term market investment that is expected to grow at a particular rate, i.e. Seigel's Constant. The premise, I suppose, is the S&P represents a slice of the economy and grows along with it. Stocks are added/removed to ensure it remains representative of the economy.

Berkshire has become sufficiently diverse to share that trait. But it's also different in one important respect. It's a curated list of companies selected not to match the general economy, but rather to be a collection of reliable companies growing at an above-average and sustained rate. "Our favorite holding period is forever." -- Warren Buffett

So why not give Berkshire its own, slightly higher, Constant? Back-calculate it, which I'm assuming is how Seigel's Constant was derived, and use this Berkshire Constant going forward.

That is not to say I don't have caveats or concerns. For example: (1) Buffett has liked BV in the past but now expressly says to not use it going forward. (2) Berkshire's business could change significantly, altering its rate of growth. (3) Externalities could change the U.S. or worldwide economy. These are concerns, but I don't plan to blindly use the calculated trend. Rather I view it as an expected path going forward and will watch the numbers and the company as I walk towards the future and make adjustments as necessary.

I would like to address Jim's concerns directly. I have a deep respect for your opinions and am very interested in understanding your reservations.

"The fact that the figures have trended so well should be considered a cute coincidence ..."

Is it? Or is the conglomerate that is Berkshire big enough that its temporary strengths and weaknesses roughly cancel out and it grows along with the economy but at a slightly faster pace as discussed above?

consider the UK economy recently<\i>

Brexit was the train wreck that lead to dire outcomes for the British economy. This was very public and very obvious when it was passed more than three years ago. I know this is just an example, but I think it illustrates that something significant to destroy an economic engine should be obvious enough, early enough, to point out that the model has broken. Adjustments can be made before the damage is inflicted.

The results in the 2000s and 2010s say pretty much zip about what's going to happen in the next decade.<\i>

Most of 2013 Berkshire remains part of 2023 Berkshire. Sure it's grown, but those new businesses are in the same character and style as Berkshire has always held. I believe the next 10 years of Berkshire's growth will be quite similar to the last 10 years. It will certainly rhyme, IMO, and probably something even closer than that.

"The S&P has long been considered a reliable, long-term market investment that is expected to grow at a particular rate, i.e. Seigel's Constant."

I realize that you're directing your questions to mungofitch, but if I may, I'd like to throw in my two cents on the Siegel constant. I think that it has very limited utility. Siegel derived his constant from 100+ year returns, ending in 1992. In September of 2022 Siegel defended the constant by saying that he updated the data to 2022, and that the constant remained unchanged at 6.7%. 130+ year holding periods, while interesting, have little use for individual investors. In his 1994 book "Stocks for the Long Run" Siegel made the valid point that the period-to-period scatter in returns decreased as one moved from 1-year holding periods to 10-year holding periods to 20-year to 30-year. However by averaging all 10-year or 20-year holding periods he completely missed the huge role of starting valuation. The variation of 10-year or 20-year market returns with starting valuation is extremely important to individual investors. If one is looking at 10-year or 20-year returns the "Siegel constant" is not constant. Real, 10-year returns, for example, range from 18% to -5%.

Pulling this thread back out of the quicksands of time.

I just went through the exercise of calculating the last 8 quarters or so of book value and I get a current peak book value per A share of $437,580. which is the latest book value, 3rd Q 2024.

Latest price is $724,040.00 at close Nov. 29th 2024.

Current Price to Peak Book = 1.65

Getting on up there.

Anyone have handy a link to a chart of price to peak book over the years? I'm sure mungo has posted it before, but I can't find it after a little searching.

Anyone have handy a link to a chart of price to peak book over the years? I'm sure mungo has posted it"

https://ycharts.com/companies/BRK.B/price_to_book_...

----------

In other news: this factoid I just saw in Bloomberg today adds to the position that Berkshires enormous current cash cache is at least partly due to...well, not exactly timing the market, but acting on a long-held belief:

"The market capitalization of US stocks is approaching $62 trillion - more than twice the size of the economy, and at a ratio that Warren Buffett explicitly warned about more than two decades ago... Buffett commented back in 2001 that if the percentage relationship [between market cap and GDP]... approaches 200%... you are playing with fire." - Ven Ram, Macro View

-- sutton

Bringing into this thread a chart that Jim posted some time ago:

https://www.shrewdm.com/MB?pid=393116117

"
Average one year forward REAL returns, based on ratio of price to peak-to-date book per share on purchase date.
Ending dates smoothed a bit.

First column is the average price-to-peak-book in that bucket. Each bucket is 1/20th of the observation start dates.
Second column is the average real one year return starting with a P/peakB in that bucket.
Third column is my smoothing of that data.
(I did a linear fit, and a cubic fit, and averaged those two results)


P/Peak Obser Model
1.075 34.6% 30.1%
1.165 22.2% 20.6%
1.204 19.1% 17.5%
1.250 15.4% 14.5%
1.295 10.5% 12.1%
1.323 4.6% 10.8%
1.343 5.5% 10.0%
1.359 9.7% 9.4%
1.376 8.5% 8.8%
1.392 5.5% 8.2%
1.412 4.5% 7.6%
1.438 5.7% 6.9%
1.461 6.8% 6.2%
1.483 5.3% 5.6%
1.509 7.7% 4.9%
1.537 8.1% 4.0%
1.579 3.5% 2.7%
1.638 4.0% 0.4%
1.693 -2.2% -2.4%
1.808 -12.0% -10.9%
"

1.56 Price to Peak Book today per my calcs, expected 1 year forward return using Friday's closing share price, interpolated from the modeled returns: ~3.4%

One health warning from that exercise:

(other than the obvious one that the future may not resemble the past all that closely)

The table is created from observations of what returns were seen in the past after particular valuation multiples. However, in the past, we saw a lot of situations that above-average valuation multiples were followed by quite low ones within a year or two. Thus, a model based on those observations will come to EXPECT an overshoot to the downside in valuation levels, meaning a quite low one- or two-year price return. Maybe that's pretty typical--after all, valuations have to be below average around half the time--but one would not want to plan one's portfolio on the assumption of an overshoot. It might be more prudent to expect the future to be typical, since there is no way to know if a given future date will be above or below average.

A more "conservative" approach to guessing what happened next would be simply to assume that valuation are average at some point in the future (say, 1.4 times book), and observable value per share grows on trend (say, inflation + 7-8%/year). Picking figures for those two inputs will tell you a fairly plausible (real) price for any future date.

Jim

"1.56 Price to Peak Book today per my calcs, expected 1 year forward return using Friday's closing share price, interpolated from the modeled returns: ~3.4%"

Reasonable expectation. Would you make any adjustments based on other factors? For example, do you adjust the expectation depending on whether P/B is rising or falling, or based on recent BV growth rate, or based on recent BRKB returns, or based on the broad stock market valuation, etc.?

Just considering one factor, whether P/B is rising or falling, does lead to different forecasts. I don't have the data for Berkshire in front of me, but I do have data for the S&P 500. The S&P 500 goes through long cycles of rising P/E and declining P/E (see Robert Shiller's graphs) with P/E not reverting to the mean, but rather cycling about the mean, which is different. Forward returns track the P/E (inversely), but along two different curves of return versus P/E. One curve, during periods of rising P/E, is concave upward, and another curve, during periods of falling P/E is concave downward. The two curves meet at the extremes of P/E, giving an overall return versus P/E graph that is football shaped. In the middle a P/E of 16 has a higher forward return when P/Es are rising and a lower forward return when P/Es are falling. Jim's averaging of a linear fit and a cubic fit for BRKB recognizes this, although he doesn't explain it in his post and may not agree with my explanation. He just observes that a linear fit is fat in the middle. If one thinks that Berkshire's P/B is now falling (after having risen from 1999 to 2022), then one might want to subtract a small amount from the 2025 expectation.

This is a bit esoteric. Just using the smoothed fit (third column) is perfectly fine. However I do tend to think that other factors besides P/B will affect Berkshire's return in 2025. In particular I am concerned about the return of the broad market, and how that might affect BRKB's return.

Thanks for your update on Price to Peak Book.

rrr12345

"One curve, during periods of rising P/E, is concave upward, and another curve, during periods of falling P/E is concave downward."

Oops. I said that backwards. During periods of rising P/E the curve of forward return versus P/E is concave downward, and during periods of falling P/E the curve is concave upward. Ignoring whether one is in a period of rising or falling P/E gives a plot of forward return versus P/E that is fat in the middle.

Interesting stuff, rrr. Thanks for sharing your thoughts about how the recent trend in valuation is related to near-term forward returns. Makes sense.

I don't apply any such adjustments myself. I just like to keep an eye on price/peak book so I have an idea of where BRK stands on the valuation cycle. Sometimes I've added when valuation is below average. I've never yet sold any due to overvaluation concerns.

I knew I remembered some posts by Jim that went into more detail about the relationship of price/peak book to returns, so I went looking and found this one without much fuss. Any links to charts on the subject, or other related analysis would be welcomed.

"If one thinks that Berkshire's P/B is now falling (after having risen from 1999 to 2022), then one might want to subtract a small amount from the 2025 expectation."

Another correction. Berkshire's P/B fell from 1999 to 2010, and has been rising since. Still, it's almost a given that if P/B falls, then the return will fall.

Updating this thread for future reference.

From the recent annual report, BRK shareholders' equity is $649,368,000,000 and equivalent Class A stock basis is 1,438,223 so the book value per A share is $451,507.17. This is also the new Peak Book value.

At a current price of $752,405 per A share, the current Price to Peak Book is 1.67, which is on the high side.

Calculating this for myself, reading mungo and others, and considering the potential for flat or negative returns in the near future from BRK, makes me consider selling some and doing something else with the money. But, I also am trying to be better about just holding the damn stock.

considering the potential for flat or negative returns in the near future from BRK, makes me consider selling some and doing something else with the money. But, I also am trying to be better about just holding the damn stock.

Holding the stock is absolutely fine, as long as you're cool with expecting some fairly modest returns for a while. Selling some stock to try to find a better opportunity at some point is also fine, provided you're cool with the observation that it's hard to buy things when panic sets in, and in any case nobody knows how long the wait might be.

Personally, the main reason I go on about such things (other than my geeky nature) is to make sure the minimum number of people opt for an alternative that isn't fine: simply expecting that the price will keep going up without any concern about valuations rising towards infinity.

This isn't generally a big problem with Berkshire holders, but it's distressingly common in other areas of the market. It's just nice to have your eyes open. If you expect your tree to grow to the moon, you'll be disappointed.

Jim

I'd suggest a third option -- which perhaps does not warrant its own category as it's really a variant of the others:

if you've been part of the "lucky me" market cap weighted index crowd, you may consider a swap into Berkshire even at current prices as Berkshire is clearly not as pricey as the S&P at these levels

I've done paired trades and I think your third option is good one.

I have concerns about the investing returns expected from generative AI, and the S&P being 25-30% AAPL, MSFT, NVDA, AMZN, META, and GOOGL is concerning.

My recent purchase are lower roe and more picks and shovels or brick and mortar. I have concerns with BRK but less so than the rest of the market, and I don't have alternatives I enjoy outside of US traded equities.

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