- Used for an overall feel for the valuation of US stocks. - The best single measure of where valuations stand at any given moment. Calculation = total market capitalization of all U.S. stocks divided by the latest gross domestic product (GDP). #### Levels - Peaks during hot stock markets & bottoms during weak markets. - Before dot-com bubble burst = peaked at about 145% - Before the financial crisis = 110% ### Caveats 1. Just because the Buffett Indicator *signals that stocks are cheap doesn't mean that they won't get even cheaper. * 2. Conversely, just because the Buffett Indicator looks e*xpensive (like it does now) doesn't mean that stocks can't continue to muscle higher.* 3. Flaws that it does not account for: - new, lower corporate [tax rate](https://www.fool.com/taxes/2017/12/29/your-complete-guide-to-the-2018-tax-changes.aspx), - the generally business-friendly administration, - a prolonged period of historically low interest rates, - low unemployment, - high consumer confidence, and - soaring corporate earnings 4. Stock markets differential behaviour in a high vs low interest period #### Latest on the indicator - Never been higher at 149% > Stocks have never been valued as high as they are now in terms of market cap to GDP. > Start thinking defensively as the tides will turn. Keep Cash for when you need to deploy it for a market correction.  --- Source: [Motley Fool](https://www.fool.com/investing/2018/07/27/this-favorite-warren-buffett-metric-tells-us-a-sto.aspx)