The Buffett Indicator
How does the future of the stock market and economy look? Not very good to the “Buffett indicator”. Well what the heck is the “Buffett indicator”?
After the dot-com crash two decades ago, billionaire Warren Buffett said investors should have seen it coming by looking at one metric, the ratio of the market cap of global stocks to global GDP. That ratio is now known as the “Buffett indicator”, and a ratio above 100% is supposed to indicate that the stock market is overvalued.
The “Buffett indicator” climbed above 100% yesterday for the first time since early 2018. The gauge has risen above 100% two other times in the past two decades, with one being the dot-com crash Buffett referred to and the other in 2007 and 2008 before the Great Recession.
The indicator is not a perfect science, but it is another voice in the growing choir that believes the stock market is currently overvalued.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.