No. of Recommendations: 22
Anyone see any news to explain this INCREASE in DEMAND, which tends to push stocks higher?
That is something that you take as an axiom, without bothering to consider whether there is any evidence for it. Is there?
Financial securities are not the same as capital goods in that sense. A bag of fifty $100 bills is worth $5000. It doesn't matter a whit how many people want to buy a bag like that (demand), nor how many such bags are for sale (supply). There are short term price squiggles for anything, but over time it's not the demand or supply that determines the going price of a purely financial asset, it's the average amount people think it's worth: pretty darned close to $5k, I imagine.
Using book as the currently convenient metric for Berkshire, both value per share and price per share have risen at precisely the same rate in the last 23 years. (Ignore that book per share is changed by buybacks. Let's just say there is also some other equally accurate valuation metric that has also risen the same rate as price in the last 23 years). Berkshire shares are, within convenient rounding error, exactly as expensive now as in Feb 2003.
So...
You think that if there had been more buybacks, the valuation multiple would have expanded in that interval rather than being flat, and that both the valuation multiple and the price would as a result be higher today? Why? And by how much? What annualized rate of getting more expensive?
Do you expect that the more expensive situation would continue at today's new higher level indefinitely, or continue to expand to higher and higher and higher levels forever, or revert back to the trend of value? Would price continue to pull away faster than value? And what is the reasoning behind your choice?
Incidentally, I think the market price would in fact be higher today had there been more buybacks in the past. But not all that much. Primarily because now, with hindsight, we can see some past periods with (a) valuations that were lower than Feb 2003 or Feb 2026 and (b) excess cash that was ready to deploy on short notice that was not deployed because no opportunity came up. There is a problem with using hindsight to justify a decision, of course : )
Jim
