Message Font: Serif | Sans-Serif
No. of Recommendations: 2
So why the disconnect? Could it because interest rates are so low that paying a higher than average multiple is justified? Buffet did say that interest rates are a terribly important variable in the valuation of assets.

The 10 YR TIPS traded at 0.55 today. This is the risk free real return you can get today. My estimate for the 10 YR real total return for the index starting from today's prices is around 2.25. So that's a premium of 1.71% over the risk free rate.

I don't think Buffett would use the TIPS return, but the 10 year Treasury. Stock returns are (to a large extent) not inflation protected either.

Interest rates definitely impact the valuation. If I were offered >10% for a long-term treasury bond, I wouldn't own any BRK at today's prices.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.