Buffett Indicator – Estimating the overall value of the market

Formula of the Buffett Indictor

% of total market cap to GDP Ratio

= (#The value of all public stocks / GDP) * 100

= 45,030,000,000,000 / 22,061,503,000,000

= 204.11% (Enormously Overvalued)

%	Value
Ratio ≤ 74%	Enormously Undervalued
74% ≤ Ratio ≤ 96%	Modestly Undervalued
96% ≤ Ratio ≤ 117%	Fair Valued
117% ≤ Ratio ≤ 138%	Overvalued
Ratio > 138%	Enormously Overvalued

^ Table1 for the Buffett Indicator Ratio

This table is used to determine the overall value of the stock market.

The Buffett Indicator is a metric proposed by Warren Buffet in 2001. This indicator focuses on estimating the stock market’s valuation in a nation or region that determines the stock market undervalues, value, or overvalue.

Reminders

In the United States, it is typical that using Wilshire 5000 Capitalization to represent the total value of all the public stocks.

Materials

Wilshire 5000 Market Cap. (n.d.). Retrieved 23 August 2021, from https://ycharts.com/indicators/wilshire_5000_index_market_cap

U.S. Bureau of Economic Analysis. (1946, January 1). Gross Domestic Product. FRED, Federal Reserve Bank of St. Louis; FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/GDP

Buffett Indicator: The percent of total market cap relative to Gross National Product? (n.d.). Retrieved 23 August 2021, from https://www.gurufocus.com/stock-market-valuations.php

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Marcus

Marcus Cheung is an ordinary university student that continues to aim at financial freedom, success, and becoming a truly free man to live light-hearted and joyous.

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