Warren Buffett’s favorite measure of the health of the stock market is sending some serious warning messages. In fact, this so-called “Warren Buffett indicator” is projecting that the US stock market has to fall by a whopping 45.1% in order for the stock market to be considered fairly valued. We are going to go into more detail on the specifics you need to know later on in this video, but first, a story.
The year was 1999. Warren Buffett was an attendee at the exclusive Sun Valley Conference in Idaho. This annual event is invite only and its attendee list consists of some of the biggest names in business and finance during that year. For background, 1999 was the peak of the infamous dot com bubble. The stock market had been soaring to sky high levels, seemingly shattering a new record every week. The Tech heavy NASDAQ index had rallied from 1,500 in January of 1995 to as high as 8,500 by the soon to be peak in February of 2000. This stock market bubble was driven by young internet companies with virtually no revenue or profits who had become the darlings of the stock market. Companies like Pets.com, Webvan, and Boo.com. These companies had little to show in the way of actual financial success. However, even more importantly to Wall Street at the time, these companies were internet based. In the minds of Wall Street, these businesses were destined to be massively profitable one day as the internet continued to grow in popularity.
This optimism came at a hefty price tag. During the dot com bubble, these internet companies saw their valuations soar to billions of dollars. Making their founders and early investors rich and famous. As a result, many of these newly minted billionaires were invited to the Sun Valley conference in 1999. Many of those invited to the conference were asked to give a presentation about a topic of their choosing. For days, Buffett listened to these newly minted wealthy founders give talks about how stock valuations didn’t matter, and that the stock market was going to continue to rise forever.
Finally, the time came for Buffett to speak his mind. The Keynote presentation at the end of the multi day conference was none other than Buffett himself sharing his thoughts on the stock market. Buffett got up on stage in front of a room full of new internet millionaires and billionaires proceeded to explain to them in his own folksy way why all of them were wrong. Buffett went on to explain how the stock market was incredibly overvalued. He argued that stocks were pricing in an excessively optimistic future. To make this point, he compared the total market capitalization of the stock market at the time, to the size of the economy.
Stock prices were so inflated that the value of the stock market was significantly larger than the size of the US economy. Buffett explained how this was unsustainable and the stock market would have to decline significantly at some point. As I’m sure you can imagine, the newly rich internet executives did not like what Buffett had to say. Both in public and behind his back, many of these people claimed that Buffett was out of touch and washed up. They said Buffett simply couldn’t grasp the fact that this time things were different. Oh the famous last words of investing: “This time is different”
*Disclaimer: Neither this video, not any content produced on this channel should ever be considered investing advice or official financial advice. All content is made for entertainment and educational purposes.
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23 Comments
I dont even know where the stock market is headed to right now. my portfolio of around 200k is not increasing more than 5% and people are predicting a crash .
Sold my investments, it's about to crash.
5:41 7:26 7:56 8:10 10:05 11:38
Really solid video 👍 🚀
During a market crash, wealth often changes hands. As stocks drop, I increase my purchases, focusing on making better investments and earning more, especially as recession fears rise. It seems there are strategies to triple gains in this current market. I recently read about someone who made a profit of $350k within 6 months. It would be great if you could create a video covering these strategies.
Don't listen to this man. He's been spinning lies to create his own wealth!!!
I'm saving to 20k or more, learning what I can along the way
I’m under pressure to grow my reserve that currently holds about $500k. I’m down by 20% already following the crash and I fear I could lose more.
WILL5000INDFC Wilshire 5000 Total Market Full Cap Index (DISCONTINUED) (WILL5000INDFC) is discontinued. The last data available was May 30 2023 not July 2023. The WILL5000INDFC is an index and not in dollars. Where did you get the dollar value for the index?
Stocks seem like an interesting investment. I am currently doing an experiment where I am trying to trade 2$ to 1000$ just to see if it can be done. I just do Forex and commodities CFDs etc though and mainly statistical and technical analysis rather than fundamentals. But I'm trying lol. BTW I'm up to 30$ so far.
Wait, no major US index was 8500 or so in 2000 peak, yet at 3:30 you claimed Nasdaq reached a peak of 8500 … 🤔
Only invest money you do not need for a living in the stock market so you are less likely to panic when something bad happen. On the long run you will be rewarded.
How about 5.25% return, compounded DAILY, guaranteed for 5 years. No sales fees or charges. Boring yes, but safe. Account growth can be tracked daily.
Warren wants to scare everyone. So stocks drop and he can buy them up. Sounds like what Soros did.
I remember Warren Buffett saying in the early 1990s that in the next decade the stock market would not match the gains that the stock market experienced in the decade of the 1980s. The man was wrong then and has been wrong other times. Don't treat him as a magical someone who can predict the future.
Would be more impressive if he called the actual top. Anyone listening to him would have missed out on doubling their money in a very short time.
Ever hear of a self fulfilling prophecy? This sounds like it could become one.
It's crucial to consider the global perspective in these economic predictions. Different economies and their interplay with the stock market can reveal valuable insights, especially in a globally interconnected world. 🌍📊
So who is the narrative person. What do they know! Ins’t strange they used Warren Buffet as a attention getter. I think it’s fabricated bunk! It’s called Investor Center like this is critical information. Nah.
Beware of people claiming large profits in these videos. Many are a scam! Just do your due diligence before jumping on the bandwagon.
Over the past 10 years the price of "real" stocks has risen by around 5x, BUT the output/saleable assets of the companies has not increased by 5x. The difference between the 2 numbers is how much people are going to lose when the stock market "resets", then comes to rest after the after-shocks. Can elites keep the bubble going? bush 2 tried to put our Social Security in his failing market in 2007. Other presidents have racked up trillions in debt in the bond repo markets. Sooner or later this game of musical chairs is going to prove you can't dance forever without paying the piper.
…..this time is different…no….really
Nice review. For many late stage "Baby Boomers" such a myself, investing heavily in stocks made sense because there was no return from bonds. That has changed. I can now get nearly a 5% return on my portfolio with very little risk. Two weeks ago, I shifted heavily into bonds and even a money market fund paying 4.6%. Many of my peers are doing the same. Nobody can truly time the stock market (short term); however, the risk of a major correction is higher than it has been in nearly a decade.