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The Buffett indicator
Add up what the stock market says every US listed company is worth. Divide that by the size of the US economy. That single number is the Buffett indicator, and the question behind it is easy to state: has the value of American businesses run ahead of the output that ultimately has to pay for it? Simple idea, and honestly that simplicity is most of why it's so widely quoted.
Warren Buffett laid the ratio out in a Fortune article in December 2001, calling it probably the best single measure of where valuations stand at any given moment, and the name stuck to it. On this page you'll find the current reading, the long run average it gets measured against, the thresholds Buffett himself described back then, and a section on the three structural changes that have pushed the ratio up for reasons that have nothing to do with anything being expensive.
That last section is the reason I built the page. This is one of the most repeated numbers in finance and one of the least examined. It shows up as a headline every few months, and the headline almost never mentions that different vendors publish readings several points apart for the exact same date. Both sources sit at the bottom with their dates on them. If you're going to quote this thing, quote it from there rather than from me.
The Buffett indicator, total US stock market capitalisation divided by GDP, reads 235.6% against a long run average of 164.5%. On a GNP basis the figure is 233.8%. Buffett described the ratio in 2001 as probably the best single measure of where valuations stand at any given moment. He has not repeated that endorsement in the same terms since, and the measure has significant structural problems that have widened over the last two decades.
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Below this point there are 7 sections, 1 chart and 2 named sources, roughly 1250 words of it. Every figure carries the source it came from and the date the data is from.
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