20 years ago, Buffett proposed a theory on how to judge whether the stock market is overheated. The ratio of the total market value of the stock market to GDP can be used to judge whether the overall stock market is too high or too low, so it is generally called the Buffett indicator.
Buffett's theoretical index indicates that 75% to 90% is a reasonable range, and more than 120% indicates that the stock market is overvalued.
It reached 59 after the financial crisis in 2008, and the Internet bubble in 2000 rose from 140 to more than 60. This indicator was quite useful in the early days.
However, this indicator does not have a particularly great significance for individual stocks. For example, when Nvidia started, this indicator was already around 100 - of course, from another perspective, the market did not rise much, and the seven giants of technology stocks led the market to run wild.
In addition, this indicator actually has a curve, that is, the trend is still upward - because GDP is also upward, so this ratio can change slightly with the improvement of productivity.
But why does Buffett think there is nothing to buy now? It may be similar to the time when he unlocked the company in the 1960s. He is really worried about the loss of profits. He has been studying how to sell better for many years, and even regretted not selling at the high point.
Currently, the index is 190, which should be very helpful for understanding Buffett's selling stocks.
Buffett's theoretical index indicates that 75% to 90% is a reasonable range, and more than 120% indicates that the stock market is overvalued.
It reached 59 after the financial crisis in 2008, and the Internet bubble in 2000 rose from 140 to more than 60. This indicator was quite useful in the early days.
However, this indicator does not have a particularly great significance for individual stocks. For example, when Nvidia started, this indicator was already around 100 - of course, from another perspective, the market did not rise much, and the seven giants of technology stocks led the market to run wild.
In addition, this indicator actually has a curve, that is, the trend is still upward - because GDP is also upward, so this ratio can change slightly with the improvement of productivity.
But why does Buffett think there is nothing to buy now? It may be similar to the time when he unlocked the company in the 1960s. He is really worried about the loss of profits. He has been studying how to sell better for many years, and even regretted not selling at the high point.
Currently, the index is 190, which should be very helpful for understanding Buffett's selling stocks.