In his 1983 letter to Berkshire Hathaway shareholders, Warren Buffett wrote: “During the 19-year tenure of present management, book value has grown from $19.46 per share to $975.83, or 22.6% compounded annually. Considering our present size, nothing close to this rate of return can be sustained. Those who believe otherwise should pursue a career in sales, but avoid one in mathematics.”
Forty-two years later, the share price is well over $725,000. Over this period, it’s grown at an average annual rate of 17.5%. Okay, this is shy of 22.6% but it’s not that far off. And I think it’s near enough to prove Buffett’s “nothing close” prediction wrong.
But forecasting’s difficult.
Some examples
On 11 March 2008, Jim Cramer was contacted by a viewer of his CNBC show and asked whether they should be worried about the fate of Bear Stearns. The former hedge fund manager excitedly told them: “No! No! No! Bear Sterns is fine”. Six days later, the bank’s share price tanked 90% and it was bought by JP Morgan.
In 1929, just before the Wall Street Crash, American economist Irving Fisher said stock prices appear to have reached “what looks like a permanently high plateau“. Within three years, the Dow Jones had lost nearly 90% of its value.
Then there’s oil. Academics have found that assuming the price of ‘black gold’ will be the same tomorrow as it is today is more accurate than some of the forecasts produced by industry ‘experts’ using sophisticated financial models.
As the author Douglas Adam’s once wrote: “Trying to predict the future is a mug’s game.”
Here goes…
Bearing this in mind, I’m now going to make a prediction. Namely, that the Persimmon (LSE:PSN) share price will be much higher in five years than it is today. There, I’ve done it!
That’s because I think there are signs that the housing market could be on the turn. According to the Financial Conduct Authority, gross mortgage advances in Q1 2025 were 12.8% higher than during the previous quarter. In fact, they were the highest since Q4 2022. And the proportion of lending to first-time buyers — a crucial target group for housebuilders — was 31.4% compared to 25.8% during Q1 2024.
Some of this could be due to a rush to buy ahead of Stamp Duty changes that took effect at the end of March. But recent trading updates from the UK’s largest housebuilders have all reported continuing signs of a recovery.
And although interest rates might not be falling as quickly as some had hoped, most economists are expecting further cuts over the next 12 months, or so. Also, competition’s driving mortgage rates down.
Persimmon expects to build 11,000-11,500 homes this year. If achieved, this would be 3.2-7.8% higher than the number completed in 2024. Its dividend yield’s also above the FTSE 100 average.
However, despite these encouraging signs, a housing market recovery isn’t guaranteed. The UK economy remains fragile and vulnerable to global events. Also, inflation (and interest rates) might not fall as expected if conflict in the Middle East continues to spook the oil market.
But with no debt and 83,800 plots to develop — alongside the government’s emphasis on building more affordable homes and planning reforms — I think Persimmon’s a stock for long-term growth investors to consider.
