The Motley Fool Discussion Boards

Previous Page

Stocks B / Berkshire Hathaway


Subject:  Re: Influence on ROE in Investing returns Date:  10/10/2012  6:27 PM
Author:  StevnFool Number:  194810 of 226519

You don't have to do an inflation adjustment on an instantaneous earnings-related rate


The thinking behind my inflation adjustment was to related to WACC.

The ideal being.

Target ROE = WACC + some margin.

For WACC, I was reading from your post # 194745 where you said.

That should provide a good sanity check, since the cap-weighted average of
the WACCs you estimate should come close to Siegel's constant for the US
That's again contrary to theory, as most MBAs will come up with much
higher WACCs than 6.5% above inflation.

I inferred from the above that:
* when you suggested Siegel's constant as a sanity check
* and Siegel's constant happens to be 6.5%
* and you then made reference to WACC's 6.5% above inflation

that you meant a sanity check on WACC would be Siegels constant + inflation.

This led me to the WACC of 10% and a target ROE of 15% with a 5% margin.

Perhaps I misunderstood.

Copyright 1996-2016 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us