(#stocks , #investing , #warrenbuffett)
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The Warren Buffett indicator is used by Warren Buffett to determine whether the stock market is overvalued or undervalued. Warren Buffett is universally regarded as the greatest investor ever. A large part of his success has been him being able to know whether or not it is a good time to invest in the stock market. He has been able to avoid getting caught up in stock market bubbles. He is able to wait patiently on the sidelines until a crash happens, then buy up tens of billions of dollars in stock for huge discounts. While Buffett is called the Oracle of Omaha, it isn’t just pure intuition that allows him to seemingly time the market so well. It is backed up by cold hard numbers. The metric that Buffett uses to evaluate the stock market has become known as the Buffett Indicator.
The Buffett indicator is a way to help evaluate whether the stock market is undervalued or overvalued by comparing the value of stocks to that of a country’s economy. Buffett has even gone as far as to say this is the single greatest measure of where valuations in the stock market stand at any given moment. Here’s how the Buffett Indicator is calculated. In the numerator of the fraction, we have the value of all stocks in the United States. This is the current value of the Wilshire 5000 Total Market Index. This is an index that includes all publicly traded stocks. As of the making of this video, the index consists of the 3,218 stocks that are publicly traded in America. Think of this as the current value of the stock market. On the bottom of the fraction, we have America’s Gross Domestic Product, or GDP for short. Simply put, Gross Domestic Product is the total value of the goods and services produced by a country in a specific period of time. Think of GDP as a measure of the size of an economy. The larger the GDP, the larger the economy. Once you divide the value of the entire stock market by the size of the economy, you then multiply that number by 100 to get a percentage. The higher the percentage, the more expensive the stock market is. The lower the percentage, the cheaper the stock market is and in theory, the better the time to buy stocks.
Think of the Buffett indicator as almost like a PE ratio of a stock. A PE ratio is calculated by taking a company’s stock price and dividing it by its earnings per share. So If a company’s stock is trading at $30 a share and it did $2 in earnings per share, the PE ratio is 15. The same basic logic applies to the Buffett indicator. Instead of the price of one stock, the Buffett indicator uses the value of all stocks in the top of the equation. Instead of earnings per share, it is the total value of the economy. It makes sense that the size of the economy is used because the profitability of the stock market as a whole is directly tied to the health of the economy. As the economy grows, it’s better for the companies that operate in that economy. A larger economy means there are more opportunities for companies to sell their goods and services and make more money for investors.
*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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20 Comments
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Could say the same thing about Dow Gold ratio. Dow was 18 ounces of gold in 1929, at the peak, and 18 ounces of gold in 2022. No honest progress, just fake progress from debasement, issuing more fake currency, Fed debt notes. Try a presentation on Dow Gold ratio.
Wow
I hope the stock prices go as low or even lower as during the plandemic 🙏
I think the buffet indicator ignores expected earnings growth and interest rates were recently low. Still interesting to see how much higher compared to average the buffet indicator is at.
Nose si es el mejor pero que tiene paciencia, no se puede negar.
Buffet's buying! These are sales! LOL!
Sounds like the female version of the burger king foot lettuce guy
people might wanna consider taking their marketting advice from someone who can actually read out numbers in the correct order
Clk bait hysteria title! Buffet does not say stk mkt is 50% over priced! Many predict bull mkt in next decade as companies bring bk their operations to US!
"sing songy" delivery by woman narrator is hard to listen to!!
You want to understand finance take the CFA. Listening to videos like this can be hugely misleading, no one can time the market which is the theme of this video.
To my understanding this just proves how much we need an edge as investors because playing the market like everyone else just isn’t good enough. I've been quite unsure about investing in this current market and at the same time I feel it's the best time to get started on the market, what are your thoughts?
Great presentation, and the Buffet indictator is certainly interesting as a benchmark tool for considering if the market may be overvalued, but we're left uncertain as to how accurate or useful it really is, in an increasingly global economy with higher profitabilty. Are we to conclude it's not longer a useful indicator, or should we conclude it provides some indication that stock market investors should be extra vigilent and cautious about investing too much into stocks at this time?
I'm sure Buffet relies on a lot more than just this indicator on deciding when to buy stocks. I know he looks at the data and earnings performance of companies closely, and their stock price individually over time, and does some measurements there, he prefers to buy when stocks are undervalued or the market is in downturns.
lol yes when it comes to candy bars he is a great investor . but he wouldn't know tech if it hit him on the head . just uselesss
If you wanted to calculate the denominator of the buffet indicator using real GDP what change in the numerator would you have to make it real as well?
With all these YT experts predicting a market collapse we are either in for a bad time or somebody is shorting heavily.
There is no doubt that Buffett is a great investor, but even he has made some very expensive mistakes. He refused to get into technology missing out on the biggest growth period of Apple. Now he loves Apple and he is buying tech stocks. He and I both bought TSM stock several months ago, he sold 86% of his holdings and bought more Apple, and I kept my small position we will see how that turns out. I am 80 YO so my toy-buying days are over. I am relatively healthy so I don't have to spend much on healthcare. Life is good for me, if the market drops 50% I will be OK.
Some US indexes (I.e Russel 2000 and 3000) was shorted more than 50%, about a year ago. So if the stock market still is overvalued, with the amount of shorts in the system, -how fucked is the economy then?
911 call now 😂😂😂