No. of Recommendations: 28
I have always been fascinated by Mungofitch's posts where he will talk about BRK.B's current price in terms of Price/Value ratio, and report things like "at this P/V, the expected return in 1 year is 12% above inflation or -5% loss below inflation" or whatever.
I have also recently been fascinated by AI.
I decided to put these things together. I used chatGPT to help me write Python code that would help me analyze, and especially to visualize the historic performance of BRK.B stock st arting at various levels of Price/Value. The results are on blog here:
https://kazart.blogspot.com/2024/09/predicting-ber... A quick summary of what I did and what I found:
I used Book value per share as my Value metric.
I used Python to scrape 5 years of BRK.B price history from Yahoo financial website.
I created by hand using SEC filings a table of Book/Share values for BRK.B that goes back more than 5 years.
The data I got covers a range of P/B ratios from about 1.1 to over 1.7.
I show price and P/B vs time for 5 years. P/B over 5 years seems to have a trend upwards. I wonder what could be happening?
I found annual real stock returns from ~50% at P/B = 1.1 down to ~0% at P/B > 1.5
For stock hold periods less than a year, the results are a lot noisier, but there is still clear outperformance in stock return for P/B <= 1.3 even for 3 month holding periods.
There are no real large parts of parameter space where the real return on the stock is negative. This suggests it will may not be possible to consistently make money with Covered Call strategies.
Anyway, I think the plots I made from the data I processed are cool and evocative. If you are a visual learner and you are fascinated by the hint that the market may not be all that efficient, you will enjoy looking at these plots on the blog site
https://kazart.blogspot.com/2024/09/predicting-ber... R:)
