Warren Buffett Once Warned That the Stock Market Is "Playing With Fire" When His Famed Indicator Hits Over 200%. Should Investors Be Worried?
The Buffett indicator says the S&P 500 is historically expensive. That doesn't mean it's a signal to sell.
Overview
For decades, Warren Buffett has encouraged investors to maintain a long-term perspective and avoid paying too much for stocks.
In a 2001 Fortune magazine article, he described the ratio of the total value of U.S. stocks to the size of the U.S. economy as "the best single measure of where valuations stand at any given moment". It later became known as the Buffett indicator, and it's flashing a warning right now.
Details
As of June, the Buffett indicator was at 218%. To provide some context, Buffett has said that when this indicator is in the 70% to 80% range, buying stocks is likely to work out well. However, as he said in the 2001 article, if it gets above 200%, investors are "playing with fire."
Source
Originally published at www.fool.com.