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The Buffett Indicator

 If you check the stock market, you see that it gives the best picture of the economy but it is not if you compared with GDP which is falling and now it is negative also. 

If you see the Buffett indicator it holds true that the market is really overvalued and it is not showing the correct picture of the economy. 

For those of you who heard about the Buffett Indicator for the first time let me explain to you that it is the Indicator built by great investor Warren Buffett after the Dot-Com Crash which happened two decades ago. Warren Buffett said to investors that to check whether the market is overvalued or not you can check by one metric which is – “Ratio of Market caps of Global stocks to Global GDP.” This ratio is known as the Buffett indicator. 

If it is above 100% means the stock market is overvalued. 


On 12th August, the Buffett indicator crossed the 100% mark. This was not the first time it crossed the 100% Mark. Earlier it happened in Dot-Com Bubble which Warren Buffett always referred and other before the great recession in 2007-08. 

It is not the perfect indicator but it gives some clarity in the noise which everyone said that the stock market is overvalued. 


Source - LinkedIn

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