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.<\/p>\n
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%?).<\/p>\n
His point being at the time that he didn’t find equities appealing. In the 2001 article, he showed it still being around 130%.<\/p>\n
He hasn’t updated us lately, so I thought I’d do a few updated calcs.<\/p>\n
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.<\/p>\n
So:<\/p>\n
beginning of 2001:<\/p>\n
GDP: 9953
\nS&P: 1320<\/p>\n
beginning of 2004:
\nGDP: 11252
\nS&P: 1111<\/p>\n
for 2001, if I played with and normalized the numbers (basically moving the decimal point on the GDP) I calibrate to Warren’s numbers:<\/p>\n
1320\/995.3 = 133% <\/p>\n
So, going forward to 2004:<\/p>\n
1125\/1111 = 101%<\/p>\n
Warren says that 80-90% gives good odds for stock investment in general.<\/p>\n
So, we’re not out of the woods, but getting there.<\/p>\n","protected":false},"excerpt":{"rendered":"
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 … Continue reading