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abwillingham
Buffett Indicator looking fat

https://fred.stlouisfed.org/graph/?g=qLC

Nov 10, 2020 12:19:56 PM       
Edit 1 times, last edit by abwillingham at Nov 10, 2020 12:24:06 PM
Chipper6
Re: Buffett Indicator looking fat

World stock markets--Valuations vs. Corruption Index.

Interestingly: Valuation in the USA is extremely expensive. That is not a timing indicator but a long term indicator. The best market to invest in right now is Singapore. They have good valuations and low corruption. Australia, Spain, the UK and Belgium look good too.

I hope that global data gets implemented before the next crash!

Attachment Global Stock Markets.png (28375 bytes) (Download count: 135)


Attachment 2020 Global Valuations.xlsx (22798 bytes) (Download count: 2)


Nov 10, 2020 1:44:58 PM       
abwillingham
Re: Buffett Indicator looking fat

Where did you get this data?
And would international data cover Singapore?

Nov 10, 2020 4:20:03 PM       
Edit 1 times, last edit by abwillingham at Nov 10, 2020 4:21:03 PM
Chipper6
Re: Buffett Indicator looking fat

Where did you get this data?

1. MktCap/GDP: Gurufocus .
2. Yield: Portfolio123.
3. Corruption Index: Transparancy Int'l. It's from a few years ago because I found a table that was easier to import to Excel. The index has changed a bit over the past few years but not dramatically.
4. Value rank: Derived from current and historical MktCap/GDP and from yield. See details in attached spreadsheet. I didn't use the GuruFocus return estimates but the results are roughly similar in most cases.

And would international data cover Singapore?

Only if there is enough demand. They decided to start with the UK, presumably to appeal to the home country bias of UK investors, and because they hope to cover Europe next, which would appeal to the European investors who frequent this site.

Note that the UK is ranked near the top for value and quality.

Nov 10, 2020 8:37:12 PM       
Edit 2 times, last edit by Chipper6 at Nov 10, 2020 8:39:46 PM
abwillingham
Re: Buffett Indicator looking fat

The indicator set a new all time high on Friday.

https://www.gurufocus.com/stock-market-valuations.php

Nov 15, 2020 9:36:59 PM       
Chipper6
Re: Buffett Indicator looking fat

The U.S. market is expensive; particularly when it comes to large caps; or more specifically, large growth. This has two implications; timing and risk.

Timing:
Valuation is not effective as a short term indicator. In fact, just the opposite. When valuations are high, it's a sign that there are forces acting on the market to push it up. As long as those forces remain in effect, the market tends to continue to go up.

Risk:
However, long term those forces change and valuations eventually matter. Typically, this transformation happens during and after a crash.

The bottom line:
We shall see what the new president will do, but if stimulus round two passes, it should push the U.S market higher for at least a few months.

Nov 15, 2020 11:11:16 PM       
abwillingham
Re: Buffett Indicator looking fat

The shiller PE still has a little way before all time high so maybe we are good until it catches up.

https://www.gurufocus.com/shiller-PE.php

Nov 15, 2020 11:58:31 PM       
geov
Re: Buffett Indicator looking fat

The shiller PE still has a little way before all time high so maybe we are good until it catches up.

https://www.gurufocus.com/shiller-PE.php

Gurufocus says: Implied future annual return: 1.5%
This is a meaningless number - is this the expected return over the next 100 years or the next one year?

The market is in elevated territory - the expected 10-year real forward return is about 5% according to my forecast using the CAPE-MA35 Ratio method.

Attachment SP500-real Trend Oct-2020.png (81402 bytes) (Download count: 83)


Nov 16, 2020 8:24:37 AM       
abwillingham
Re: Buffett Indicator looking fat

Are you taking into account a strong possibility the USA will default and the dollar will be massively devalued if we don't stop printing $$ and get our collective !#&* together?

Nov 16, 2020 9:28:36 AM       
Riki37
Re: Buffett Indicator looking fat

I think there is one evident flaw with the Wilshire 5000 Total Market Full Cap Index/Gross Domestic Product ratio ( https://fred.stlouisfed.org/graph/?g=qLC ): the index is total return. Dividends should not be included, because they are a compensation for holding stocks and do not impact valuations per se. In the same vein I would argue in favor of stripping out buybacks as well. This can in part explain the difference with other countries with little to no buybacks.

Assuming a not unreasonable 3.5% distribution yield between dividends and buybacks in the last 49 years, the current value of 2.01 would have to be divided by a factor of 5,5371 [ (1+0.035)^(2020-1971) ].
Under this light, the current 0.3633 is high, but not astronomical.





You can find my calcultations here:
https://docs.google.com/spreadsheets/d/1tRSSm...K_dFsSZE/edit?usp=sharing

The higher valuation today is explained by the fact that in the last 50 years corporate profits doubled compared to the GDP, because of a higher share of GDP remunerating capital instead of labor and lower corporate tax rates. Not to mention interest rates. So, if you are saying the market is high, what you probably mean is that corporate profits after tax are high (namely the market ROE%). And I agree with you.

Riccardo
Portfolio123 Staff

Nov 16, 2020 10:47:18 AM       
Edit 4 times, last edit by Riki37 at Nov 16, 2020 11:00:35 AM
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