Warren Buffett wrote an article in Fortune a while back where he showed some numbers that stated there was a bubble. He wrote it in 1999, and then another followup in 2001.

Basically, he had a chart going back 80 years that showed the total value of the stock market as a percentage of the GNP. For the greater part of the time period, the stock market hovered around 70-90% of the GNP. With a few exceptions: 1998, and 1929. In 1998, it reached 200%, in 1929, it was something less than that (160%?).

His point being at the time that he didn’t find equities appealing. In the 2001 article, he showed it still being around 130%.

He hasn’t updated us lately, so I thought I’d do a few updated calcs.

I couldn’t find the total market value anywhere, so I used the S&P 500 index as a stand-in, and I found some historical GDP instead of GNP, but they’re usually pretty close.

So:

beginning of 2001:

GDP: 9953
S&P: 1320

beginning of 2004:
GDP: 11252
S&P: 1111

for 2001, if I played with and normalized the numbers (basically moving the decimal point on the GDP) I calibrate to Warren’s numbers:

1320/995.3 = 133%

So, going forward to 2004:

1125/1111 = 101%

Warren says that 80-90% gives good odds for stock investment in general.

So, we’re not out of the woods, but getting there.