The ‘Buffett indicator’ signals a stock market crash is coming soon. Here’s how I would prepare for the situation.
What is the ‘Buffett indicator’?
Famous investor Warren Buffett’s favourite indicator US market valuation indicator divides the Wilshire 5000 Index by the US GDP. In other words, it compares the stock market to the country’s economic output. The economy – US and global – is under almost unprecedented pressure right now. At the same time, the US stock market has recovered.
Wilshire 5000 to GDP Ratio
If you look at the graph, you’ll notice that the indicator is much higher even than it was during the 2000 dotcom bubble. Investors obsessed with Internet commercialisation kept buying loss-making and overvalued companies. The bubble eventually burst.