Mephistopheles Posted December 31, 2013 Share Posted December 31, 2013 Does this concern anyone? The ratio is now 116%. http://www.gurufocus.com/stock-market-valuations.php Link to comment Share on other sites More sharing options...
Guest Posted December 31, 2013 Share Posted December 31, 2013 I'll admit that it concerns me a bit. People think that we're off to a secular bull market. I don't see how giving that we're already above average valuations for many, many metrics. I'm not quite that optimistic about it. Klarman stated, by in June, I think, about how in economics, there's no free lunch. We'll see what happens. With that being said, I'm still almost fully invested. That could change though based on what I hear from Eric or Packer. Haha Also, I don't think it'll change the number too much, but Buffett's metric uses GNP not GDP. Link to comment Share on other sites More sharing options...
augustabound Posted December 31, 2013 Share Posted December 31, 2013 Also, I don't think it'll change the number too much, but Buffett's metric uses GNP not GDP. I always wondered about that since some seem to use that number interchangeably. Link to comment Share on other sites More sharing options...
frommi Posted December 31, 2013 Share Posted December 31, 2013 Thats one reason not to invest in index funds. ;D In 1998/1999 we had a similar overvaluation, but were the following years so bad for value investors? Link to comment Share on other sites More sharing options...
muscleman Posted December 31, 2013 Share Posted December 31, 2013 Does this concern anyone? The ratio is now 116%. http://www.gurufocus.com/stock-market-valuations.php This article says that Buffet uses it to make market calls. But recently I think Buffet said he is optimistic. Link to comment Share on other sites More sharing options...
merkhet Posted December 31, 2013 Share Posted December 31, 2013 I think GNP is about $17 trillion or so, and it would knock the calculation down to 114% or so. Not a huge difference. Link to comment Share on other sites More sharing options...
wescobrk Posted December 31, 2013 Share Posted December 31, 2013 In 2000 it was 200 percent to GDP. We aren't in a bubble but it definitely isn't cheap. Link to comment Share on other sites More sharing options...
Guest Posted December 31, 2013 Share Posted December 31, 2013 In 2000 it was 200 percent to GDP. We aren't in a bubble but it definitely isn't cheap. From memory (so I may be off), I think Buffett says he gets concerned when it approaches 200%. Link to comment Share on other sites More sharing options...
thepupil Posted January 1, 2014 Share Posted January 1, 2014 Despite whatever predictive power it may have, I don't think it is a good indicator. The big companies that move the indices all have operations in many countries and are not entirely dependent on the size of the US economy. Link to comment Share on other sites More sharing options...
argonaut Posted January 1, 2014 Share Posted January 1, 2014 For what's it's worth...my notes from reading Tap Dancing to Work a few year's ago on market valuation: ... total value of US stocks to GNP: Buffet said 70-80% according to Fortune article from 2009 is a good range to buy stocks at) 75% or less - market is Undervalued- begins to be a place to buy...over 90% begins to be overvalued and not a good time to buy..begins to be time to sell... P286 There is a graphic too showing that most of last century the market was 70-90%.. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 1, 2014 Author Share Posted January 1, 2014 Despite whatever predictive power it may have, I don't think it is a good indicator. The big companies that move the indices all have operations in many countries and are not entirely dependent on the size of the US economy. Yes, but GNP accounts for operations in other countries of U.S. companies. And the 2 numbers (GDP and GNP) are very similar. From the Gurufocus page: "GDP in Q4 2012 stood at $15,851.2 billion. GNP at Q3 2012 (the last data point available) stood at $16,054.2 billion." There's also a chart available on that page comparing GNP and GDP historically, and they are pretty much the same. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 1, 2014 Author Share Posted January 1, 2014 In 2000 it was 200 percent to GDP. We aren't in a bubble but it definitely isn't cheap. It was 150% in 2000, per one of the charts on the gurufocus page. Link to comment Share on other sites More sharing options...
Guest Posted January 1, 2014 Share Posted January 1, 2014 In 2000 it was 200 percent to GDP. We aren't in a bubble but it definitely isn't cheap. It was 150% in 2000, per one of the charts on the gurufocus page. http://www.ritholtz.com/blog/wp-content/uploads/2013/01/stock-market-cap.jpg This one says it was 183% in 2000. haha how can they be that off? Link to comment Share on other sites More sharing options...
Vish_ram Posted January 1, 2014 Share Posted January 1, 2014 I can make an argument that market is very cheap based on market cap/GDP. The GDP/GNP are practically same. 1) Someone (pupil I think) earlier had mentioned the profits generated by US companies in non-US soil. This reflects in market cap but not in GDP or GNP (as GNP only includes earnings by US person in foreign soil). 2) The corporate profits as a percentage of gdp historically is 6.2, right now it is more than 11%. Lets not go into details as to why it is high or will it mean revert. The profits drive market capitalizations. So all things equal, we can afford to have say 25% higher market cap due to superior profits. http://research.stlouisfed.org/fred2/graph/?g=cSh If we apply both these factors and normalize it, we may be closer to the average market cap/GDP ratio of 60%. Far from the bubble territory. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 2, 2014 Author Share Posted January 2, 2014 I can make an argument that market is very cheap based on market cap/GDP. The GDP/GNP are practically same. 1) Someone (pupil I think) earlier had mentioned the profits generated by US companies in non-US soil. This reflects in market cap but not in GDP or GNP (as GNP only includes earnings by US person in foreign soil). I'm pretty sure that when they say foreign earnings of citizens, they are including American businesses as well as individuals. The definitions found on the internet are a bit misleading because many of them say "foreign earnings of U.S. residents", but I think that by residents they mean businesses too. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 2, 2014 Author Share Posted January 2, 2014 In 2000 it was 200 percent to GDP. We aren't in a bubble but it definitely isn't cheap. It was 150% in 2000, per one of the charts on the gurufocus page. http://www.ritholtz.com/blog/wp-content/uploads/2013/01/stock-market-cap.jpg This one says it was 183% in 2000. haha how can they be that off? They must be using a different index. If you look at the total market cap numbers of both on Dec. 2012, they are different by about $1.86 trillion. Also I found out where the 200% in 2000 from Buffett came from the comments section on the gurufocus article. He included the value of private companies also. Link to comment Share on other sites More sharing options...
APG12 Posted January 2, 2014 Share Posted January 2, 2014 Greenbackd has several informative articles on this subject: http://greenbackd.com/2013/03/25/warren-buffett-and-john-hussman-on-the-stock-market/ Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 2, 2014 Author Share Posted January 2, 2014 I can make an argument that market is very cheap based on market cap/GDP. The GDP/GNP are practically same. 1) Someone (pupil I think) earlier had mentioned the profits generated by US companies in non-US soil. This reflects in market cap but not in GDP or GNP (as GNP only includes earnings by US person in foreign soil). I'm pretty sure that when they say foreign earnings of citizens, they are including American businesses as well as individuals. The definitions found on the internet are a bit misleading because many of them say "foreign earnings of U.S. residents", but I think that by residents they mean businesses too. But of course, GNP includes foreign earnings only, not production, whereas it includes domestic production. So if American companies are doing more and more business abroad, then a higher ratio is warranted. Link to comment Share on other sites More sharing options...
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