No. of Recommendations: 14
Kish conservative (DCF model), 1.45
Kish more conservative (two-column model), 1.31
Weighing machine (P vs BV model), 1.32
Well, the consensus of all market players at the time was that the correct answer was 2.0 : )
Most folks on the boards in the stretch 1999-2004 would probably have said a number for value would be around 1.55-1.60, doing a mental average of my memories. I used 1.6 in a spreadsheet last updated in March 2003. Mr Kish's "conservative" figures for 1996-2002 averaged 1.6005 times book. If I (or anyone else) thinks the fair multiple is a hair lower now, I think that's more because there has been a slowly rising appreciation that the high growth rates of the 1990s were gone for good, not because anything big changed in the economic prospects of the firm.
More to the point, I don't think the ratio of true intrinsic value to book value per share has changed since around 2000 (around the time that overvaluation in the stock portfolio wore off, a transient distortion to book per share), certainly within the error bars of either. Especially if you smooth or peak-to-date book-per-share. There is no reason the two shouldn't diverge, but they simply haven't yet.
The best case for the fair IV-to-book ratio rising over time is that buybacks done at a market price above book depress book value. If they are also done at below IV, then they add to IV while decreasing book, so the ratio shifts a little. This has definitely happened.
But...
There are other factors at play, and all those several moving parts both up and down have (so far) cancelled out very closely. For example, investments are clearly not worth a multiple of their carrying value, nor are recent acquisitions which are generally paid for and booked at around fair value. Capex within an existing operating division, other than a railroad, is on average worth more than what was spent on it, driving fair P/B up over time. But some units have had falling profitability, so they are not obviously rising in value at all. Consider the railroad: though things will no doubt turn up at some point, the net earnings in the last many years is not pretty: four quarters after tax earnings are running 18% below their *lowest* level in the stretch 2019-Q2 through 2022-Q4.
Using my own valuation method, it actually shows the "fair" (true intrinsic value) P/B has been falling a bit in the last 10-15 years. Maybe 7 points lower in the last 20 quarters (5 years) than it was in the 20 quarters ending 2017. But I think this is in large part a mix of transient factors and limitations to my valuation skills, so I wouldn't put too much faith in it. I basically assume that it's flat--fair P/B isn't changing--and certainly I see no evidence that fair P/B is rising.
Jim
