This Warren Buffett Indicator Is a Red Flag. Should Investors Worry?
Warren Buffett doesn't label himself as an economist, but with the business and investing success he's had, he knows a thing or two about the economy. One tool that Buffett has become known for is an indicator that gives insight into whether the U.S. stock market is overvalued or undervalued.
The Buffett Indicator is the ratio of a country's total market capitalization of public companies to its gross domestic product (GDP). Simply put, it compares the value of a country's public companies to the total value of the goods and services the country produces in a year.
Calculating the Buffett Indicator is straightforward: You divide a country's total market cap by its GDP. If the number comes back over 100%, the stock market is seen as overvalued relative to economic output. On the other hand, a ratio under 100% could signal the stock market is undervalued.
Source Fool.com
