Following the post on ADSK, we revisit our prediction of IBM share prices made in January 2011. We also repeat the previous post on IBM in Appendix A in order to present our concept of share pricing and refresh the prediction. Overall we expected a healthy growth of the IBM share in 2011 and 2012 because the underlying model was very stable over the previous year and the trend in the difference between two defining CPI components (the consumer price index of motor vehicle insurance,

*MVI*, and the index of housing,*H*) had not been changing since 1994.The Bureau of Labor Statistics published new CPI estimates on 14.04.2011 and we have recalculated the model at the end of the first quarter. The obtained model does not differ much from the previous one:

*IBM(t) = -4.60H(t-1) – 1.41MVI(t) + 41.58(t-1990) + 803.15*

The closing price in November 2010 was $146.76 and December 2010 - $162. The model predicted the price to grow to $142.4 by the end of March 2011. Actually, the price was $166.21. The increasing deviation may end up in a downward correction in Q2 or Q3 as it happened in July 2008 (see Figure 1). However, the overall growth in 2011 and 2012 should not be compromised by this correction, as discussed in Appendix A. We expect the share to rise.

**Appendix A**

Here we extend the modeling period in both directions - between January 1995 and December 2010. As before, the model coefficients are obtained by minimizing the RMS residual error. Current IBM model is as follows:

*IBM(t) = -4.32*H(t-1) – 1.48*MVI(t-1) + 40.69(t-2000) + 779.0*

The predicted curve in Figure 2 leads the observed price by 1 month with the residual error of $9.49 for the period between January 1995 and December 2010. Currently, the price is slightly underestimated, as Figure 3 shows, and one cannot exclude a downward correction in the first quarter of 2011.

In the long run, the index of housing will be decreasing during the next 10 years. This is a helpful background for IBM share. The MVI has a clear rise/plateau structure. The next segment is likely to be a shelf, starting in 2011 of 2012. Hence, the price share looks good at a two-year horizon.

Figure 1. Evolution of the price of H and MVI.

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