Market Correction Ahead: Warren Buffett's Historical Warning for Investors
The Buffett indicator is at an all-time high and far above the level he originally said was "playing with fire."
Market Correction Ahead: Warren Buffett's Historical Warning for Investors
Overview
In a 2001 Fortune magazine interview, former Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) CEO Warren Buffett talked about the Buffett indicator. This is the ratio he created years ago that measures total U.S. market capitalization to gross domestic product (GDP).
He noted in that interview that "it is probably the best single measure of where valuations stand at any given moment." Like any market signal, it's not foolproof, but it does give us a glimpse into the Buffett investing style and what he looks for in stocks.
Details
In this interview, Buffett explained how to interpret this ratio: "For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% -- as it did in 1999 and a part of 2000 -- you are playing with fire."
Source
Originally published at www.fool.com.
