npv72000,

The second sentence should read:

"So, those of you demanding a dividend, be careful what you wish for ... you may just get it."

You, of all people, didn't deserve that. You obviously have given a lot of thought to the effect on value (and the market price which should track it) if dividends commence anytime soon.

I learned to do calculations involving future projections in the "real" (inflation corrected) world by studying and "reverse engineering" Jeremy Grantham's calculations. It just makes so much sense to do it that way. Inflation is known in hindsight but cannot be predicted with any degree of accuracy going forward. If you make the assumption that the growth rates of earnings, dividends and book value of all good businesses [Footnote] are at the very least inflation protected you need only make assumptions with regard to their real growth rates going forward when making projections. Of course you must also define the discount rate (return) in real terms also (the average coupon on TIPS, Treasury Inflation Protected Securities, is a convenient means of doing just that). No mixing of real and nominal in the same equation!

I also agree that the market price volatility (as measured by the standard deviation of the Price/Book ratio) should decrease once regular dividends have begun. Unfortunately, the mean (average) Price/Book ratio should also decrease because the real growth in Book/share will also decrease as a result of less retained earnings.

[Footnote]

Definition of a good business -- one that has a sustainable growth rate greater than or equal to the rate of inflation.

I know, that's circular reasoning. Or is it recursive (defined in terms of itself)? Anyway, I'm sure you know what I mean.

Regards,

jad