Post #4104 by mungofitch on the Berkshire Hathaway board

Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)

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Profit margins are also a wildcard. Historically they have varied between 6 & 12. In recessions, they are lower but that's temporary. There is a limit to how high they can go because labor and society in general will demand its pound of flesh from capital. They are unlikely to go very low either because technology improvements will continue to increase productivity for the foreseeable future. So let's settle down on 9 in the middle.

As an aside, it's possible that 9% might still be pretty optimistic.
US net corporate margins have been high since around late 2004. Presumably some mix of low interest rates, low share of national income to labour, and low tax rates.
But what if this recent stretch is just a slow transient bump in the very much longer history of such things?

During the "old normal", say from January 1950 up till mid 2004, the absolute peak quarter net margin figure was 8.48% and the median was 6.11%.
https://fred.stlouisfed.org/graph/?g=cSh

If you're looking ahead a number of years, I for one would not count on profitability averaging near the 9% range.
It might be, but I wouldn't bet on it.

Jim

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