Buffett Indicator
| Buffett Ratio = Market Cap of Corporate Equities / Nation’s GDP |
Market Cap of Corporate Equities in USA = 24.49 trillion USD (January 2021)
USA GDP (Gross Domestic Product) = 20.81 trillion USD ( January 2021)
Buffett Ratio = 24.49 trillion USD / 20.81 trillion USD
= 118 % we take this as a percentage
- The Buffett Ratio was introduced by the great investor Warren Buffett in 2001.
Shiller PE Ratio
- Averaged the earnings past 10 years & adjusted them for inflation, so the market fluctuations would not be in the equation. It is introduced by Prof Robert Shiller.
Return We Get in Stock Market vs Other Assets
Average Stock Market Return = 1 / Market PE
S&P 500 PE Ratio = 39.90
Average Stock Market Return = 1 / 39.9
= 2.51%
Then we have to compare this number with bond yield, real estate return, etc.
