The Warren Buffett Indicator Says It Is Time to Buy Berkshire Hathaway CEO Warren Buffett's favorite valuation metric is telling investors that equities are cheap.
By David James
Ahead of Berkshire Hathaway's annual meeting in Omaha, Nebraska, this weekend, stock analysts are pointing out that the "Buffett Indicator" is saying it is a good time to buy.
Bloomberg defines the Buffett Indicator as a ratio of the total value of the U.S. stock market via the Wilshire 5000 Index divided by the dollar value of U.S. gross domestic product. Berkshire Hathaway CEO Warren Buffett has said it is the "single best measure of where valuations stand."
"The Buffett Indicator expresses the value of the U.S. stock market in terms of the size of the U.S. economy," according to Current Market Valuation. "If the stock market value is growing much faster than the actual economy, then it may be in a bubble."
The indicator sits at 180%, which signals that equities are cheap, which is music to the Oracle of Omaha's ears.
Adam Sarhan, founder of 50 Park Investments, told Bloomberg, "This is a crucial indicator because it helps traders know when to deploy capital and buy stocks." He added, "There are reasons to still be concerned about the global trade war, but if Trump isn't playing hardball with tariffs, people are going to buy, buy, buy with valuations much more reasonably priced now."
Some critics of the Buffett Indicator say it doesn't account for costs associated with high interest rates, and that the market corrections can take a long time to play out. But for investors looking for the closest thing to a sure bet, it is hard to argue against following the strategy of one of the most successful investors of all time.
As a reminder, when he started his career at the age of 21, Buffett's net worth was just $20,000. Today, his net worth is estimated at $167.7 billion.
