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BRK forward return by P/B

Using the book values data in post #9690 by PickTrader, I computed the forward returns of BRK vs. Price/Book value.
The computed P/B was in good agreement with other sources of P/B.
The starting points were quarterly, not monthly, since the BVs are only reported quarterly.

The P/B from Q1'1993 to Q4'1999 were very high. Almost always greater than 1.55.
The returns in this period were also very high, with most of the 12 month returns above 50%. BRK-A went from 12,750 to 56,100, CAGR 24.5%. This is unlikely to happen again, so I have also run the figures for the period beginning Q1'2000.

The figures are the N-month return, not the CAGR.

Q4 1991 to Q1 2023
Bucket Cnt  Avg 3m  Avg 6m   Avg 12m  Avg 18m
1.10   3    5.39%   10.63%    23.09%   44.35%
1.15   5    2.81%   13.46%    29.09%   38.39%
1.20   5   10.56%   18.53%    27.23%   31.56%
1.25   8    2.03%   -1.98%     8.06%   20.77%
1.30  16    8.17%   13.52%    27.01%   34.34%
1.35  12   -0.89%    3.36%     4.11%   11.93%
1.40  12    4.34%    9.46%    15.42%   26.11%
1.45   8    3.49%    7.13%    19.03%   17.90%
1.50   8   -0.75%    3.84%    10.31%    9.75%
1.55  48    3.40%    6.42%    13.28%   23.75%

min     1.10   P/B range
Avg     1.55
max     2.63
med     1.46


Q1 2000 to Q1 2023
Bucket Cnt  Avg 3m  Avg 6m   Avg 12m  Avg 18m
1.10   3    5.39%   10.63%    23.09%   44.35%
1.15   5    2.81%   13.46%    29.09%   38.39%
1.20   5   10.56%   18.53%    27.23%   31.56%
1.25   8    2.03%   -1.98%     8.06%   20.77%
1.30  13    7.75%   11.40%    18.88%   24.36%
1.35  12   -0.89%    3.36%     4.11%   11.93%
1.40  11    4.84%   10.15%    14.11%   22.10%
1.45   7    3.71%    8.73%    17.95%   17.08%
1.50   6   -2.75%   -0.73%     4.40%    3.66%
1.55  22   -0.56%   -1.53%    -1.07%    2.10%

min     1.10   P/B range
Avg     1.43
max     1.99
med     1.40

My conclusion:
* Returns from a P/B greater than about 1.50 will probably be low.
* Except at very low P/B (below 1.25) the returns for holding periods of 12 months and shorter are good but unpredictable.
* The best returns are for longer holding periods, 12 months and longer.

My takeaway:
* If you are putting on leverage, particularly via DITM LEAPS, put it on at P/B 1.45 and below, and take it off at 1.50 and above. Of course, you need to factor in the cost of the leverage.

Just anecdotally: This moment in time will be a huge outlier in a future update of Ray's table:
- BRK-A closed at $686,182. 6 months ago when Price/BV was around 1.6 it closed at $634440 => +6%
- Even more extreme if going one month back, as it closed at $715,300 end of August and $616,561 end of Feb when Price/BV also was around 1.6 => +16%.

The bucket which comes closest in Ray's table is a Price/BV of (even lower) 1.55, with average(!) six months forward returns of -1,53% since 2000. Without knowing the standard deviation of that bucket it's hard to say how extreme this outlier really is, but +6% and +16% sure do look extremely deviating from those averages.


Btw: In case anybody is interested Ray's post motivated me to update my slightly modified version of Jim's "Correlation between Brk's price and the WMA (weighted moving average) of peak BV, inflation adjusted" chart:

https://drive.google.com/file/d/1XhVEkCju0hwNwXgqn...

To be taken with 2 grains of salt: One, that I guessed Q3 BV (at $440,000) instead of waiting a little until it's published. Second, that 2024 BV numbers are not yet inflation adjusted. Minor flaws which should not really influence the not surprising result that valued that way Berkshire is more expensive than usual.

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