Dear Reader,
When the ‘Oracle of Omaha’ offers investment advice, it’s time to pay attention.
Buffett mentioned that Canada looks appealing, which means there is value for his potential investments.
So let’s put our Berkshire hat on…
The Buffet Indicator is the ratio of the total value of the stock market, relative to GDP.
This indicator can be applied to any country. Below is an example.
The Buffett Indicator posits that the stock market’s value should align with the country’s GDP. However, take note that the US stock market (the numerator) is forward-looking, reflecting future earnings.
In contrast, GDP (the denominator) is backward-looking, measuring past economic performance.
This makes the comparison somewhat mismatched, like apples to oranges.
That said, let’s put Warren’s indicator to work, since 1970.