To the clients and friends of ProfitScore:

The Buffett Indicator Is Near an All-Time High

Warren Buffet is often mentioned as the greatest investor of all time.  Berkshire Hathaway, Warren’s investment company, has 189 billion dollars invested in cash equivalents. It’s the largest cash position in the history of Berkshire Hathaway.  So why does Warren have such a large cash position?

When asked in a recent interview, “What are you waiting for, and why are you not deploying the money?” Warren responded, “None of us have any idea what to do with it.”  

Warren Buffet is not a market timer, for Buffet feels that predicting when the market is going up or down is too difficult.  Instead, he focuses on buying great companies at a reasonable price.  If he can’t find anything reasonably priced, he builds cash by selling overvalued companies.  For example, he recently trimmed his position in Apple stock.  If you read between the lines, Warren Buffett times the market based on value.  He sells overvalued companies and patiently waits for a good opportunity to purchase great companies at reasonable prices.  Which ironically generally occurs after a market correction.  

To help him quantitatively measure value, Warren created the Buffet Indicator.  The Buffett Indicator is the total US stock market value ratio divided by GDP.  Warren called the ratio “the best single measure of where valuations stand at any given moment.”  (Buffett has since walked back those comments, hesitating to endorse any single measure as either comprehensive or consistent over time).

Source www.currentmarketvaluation.com

The current state of the Buffet indicator is at 199% or 2.0 standard deviations above the historical trend line.  Historically, whenever this indicator has seen such heights, it is followed by downturns.  Analysts comment that Warren is as bearish as he ever gets and is most likely waiting for “blood in the streets” to buy assets at deep discounts.  We at ProfitScore are passionate about the ever-changing market dynamics, and this kind of analysis always piques our interest.  I know our friends will find it interesting as well.