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Warren Buffett's Market Indicator Stays Above 145%

On Thursday, a day where U.S. markets reached a new high, Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio)'s favorite market indicator stood at 145.6%, approximately 2% from its all-time high of 148.5%. Based on this market valuation level, the implied U.S. market return over the next eight years is -2.3% assuming a reversion to the mean level of 80%.


Dow blasts higher on tariff rollback announcement

The Dow Jones Industrial Average closed at 27,674.80, up 182.24 points from Wednesday's close of 27,492.63. Apple Inc. (NASDAQ:AAPL), Berkshire's top holding, traded up approximately 1.3% from the previous close of $256.47.

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U.S. markets hit new highs early this week as investors continue believing that President Trump will sign phase one of the trade deal with China. Despite this, the market rally paused on Wednesday on reports that the signing of the trade deal might be postponed to December as the U.S. and China seek alternative locations following the cancellation of the APEC Summit in Chile, which was supposed to take place in mid-November.

News that China and the U.S. agreed to eliminate existing tariffs propelled markets further on Thursday, rekindling the early rally. Stocks that contributed to the new rally include Apple, Caterpillar Inc. (NYSE:CAT) and Boeing Co. (NYSE:BA).

Buffett's market indicator nears all-time high

Unfortunately, as markets set new all-time highs, market valuations become more overvalued. On Thursday, the ratio of total market cap to gross domestic product stood at 145.6%. Any Buffett indicator value above 115% suggests significant overvaluation.

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Based on current market valuation levels, the implied market return is -2.3% per year assuming a reversion to the mean of 80%. However, if the implied market return reverts to an optimistic level of 120%, the implied market return is 2.6% per year.

Value screeners identify opportunities

GuruFocus tracks several value investing strategies, including teachings from Benjamin Graham, Peter Lynch and the Oracle of Omaha himself. Table 1 lists the value screener record as of Thursday.

Screener

USA

Asia

Europe

Canada

UK

/Ireland

Oceania

Latin America

Africa

India

Graham Net-Net

129

500

187

41

42

10

6

13

60

Undervalued Predictable

40

84

111

7

46

5

39

3

18

Buffett-Munger

22

98

57

3

28

0

20

3

45

Historical Low PS

13

138

53

1

18

0

22

7

38

Historical Low PB

56

136

60

1

31

2

30

8

48

Peter Lynch Screen

24

53

30

0

13

0

5

4

24

High Dividend Yield

56

39

125

7

16

4

17

12

16



Table 1

Disclosure: No positions.

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This article first appeared on GuruFocus.