Buffett’s Favorite Market Valuation Metric

With the market rising approximately 50% from the March 9, 2009 low, I thought it was appropriate to look at what Buffett considers the “best single measure of where valuations stand”: the market value of all publicly traded securities as a percentage of GNP.

According to Buffett, “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.”

According to my calculations the ratio currently stands at 89.4%. Generally speaking stocks look neither under or overvalued at this level.

Here is my data.

Here are two Fortune articles on the subject if you want to read more on this:

“Warren Buffett On The Stock Market”

“Buffett’s metric says it’s time to buy”


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