Warren Buffett’s favorite market metric suggests investors are ‘playing with fire’
By Shawn Langlois Published: Oct 31, 2017 1:35 p.m. ET SHARE 101 ‘If you stick your head in the sand and pretend that this isn’t anything to be concerned about, you aren’t going to like what comes next.’ Reuters Warren Buffett participates in the newspaper tossing challenge. Warren Buffett once described his favorite market indicator as “the best single measure of where valuations stand at any given moment” and that when the metric exceeds certain levels, like it did back in 2000, “you are playing with fire.” If that’s the case, investors might want to blow out that candle. Put simply, the Buffett indicator is the total market capitalization of all U.S. stocks relative to the country’s gross domestic product. When it’s in the 70% to 80% range, it’s go time. When it moves well above 100%, it’s time to tap the brakes. The metric sits at almost 139% at the moment, which is getting awfully close to the record 145% it hit during the peak of the dot-com bubble in 2000, the only