Buffett’s favourite index reaches milestone

In the chart below you can see Warren Buffett’s favoured valuation metric, which divides the market value of US stocks by gross national product. The orange line represents the US market, and the blue line is our attempt at valuing the Aussie market.We’ll leave a discussion of the technical difficulties we had calculating the Aussie ratio for another day, but the key point is that ratios above 100% have coincided with periods of overvaluation. You can clearly see the US tech bubble in 1999 and the strong run up in valuations until the GFC broke badly in 2008.For value investors,...

In the chart below you can see Warren Buffett’s favoured valuation metric, which divides the market value of US stocks by gross national product. The orange line represents the US market, and the blue line is our attempt at valuing the Aussie market.

Screen shot 2013-09-11 at 12.11.26 PM

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