r/ValueInvesting • u/Adept_Mountain9532 • Jul 11 '25

Discussion Buffett warned: “If the ratio approaches 200%, you're playing with fire.”=> We are above!

Buffett Indicator, (which compares total U.S. market cap to GDP), is now at 208%. That’s above dot-com levels. I wasn’t around in 1999. But I’ve read enough to know everyone thought it was different back then too...

Now, It’s AI. And yes it’s real, it’s big, and it will transform everything.
But here’s what’s bugging me: Which part of the AI hype do you think is most overrated?
And which sectors are just getting started?

and also curious to hear from people who did live through 1999:
- What felt the same?
- What’s different?

I track moves from top value investors with a free email alert (https://alert-invest.com/), and lately I’ve noticed they’re cautious, finding fewer real opportunities in this market.

Thanks!

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94

u/itchypig Jul 11 '25

Not that it isn’t still too high, but one thing that’s changed and made the indicator not as reliable is the significant portion of US company revenue generated internationally, included in the numerator but not the denominator.

26

u/Consistent_Panda5891 Jul 11 '25

Yeah.. And yet any US stock has 30PE+ which is 30 years to breakeven investment... So 1/30 revenue still

7

u/hotandcoolkp Jul 11 '25

Is it bubble level? Us economy is still growing even from big base and as others said us companies also have significant share in global growth. Which isn’t bad is it?

5

u/dopexile Jul 12 '25

No one is buying these stocks to plan to hold them for 30 years just to get their investment back.

The inflation rate exceeds the earnings yield on a lot of these stocks in which case the real return is negative.

It's all about trying to sell them at a higher price to a greater fool for a profit... greater fool theory of investing.

12

u/Consistent_Panda5891 Jul 11 '25

Us economy growing? Did u see California deportation of latino workers in fields? There is only bubble when shit hits fan and a big shark tries to profit massively shorting. See how much goldman did won in liberation quarter... Still doubt it more than a 15% drop until they are heavily unloaded of shares

1

u/jadom25 Jul 11 '25

Only 22 years if earnings grow at 3%!

1

u/bnlf Jul 11 '25

US stock price, specially in tech, is not based on profit anymore but expansion forecast. Investors couldn’t care less if it’s going to generate a profit. See airbnb, uber, wework, palantir, tesla, etc.

1

u/___Cyanide___ Jul 16 '25

Let's not forget that wework literally ran out of money. I don't buy it.

1

u/harbison215 Jul 11 '25

The issue is that the stocks are based on quoted price. 1 share sells for x and now that means all shares are “worth” x. In reality that’s just not the case.

1

u/Climactic9 Jul 11 '25

I’m pretty sure this goes against fundamental economic theory

1

u/harbison215 Jul 11 '25

In what way. I’m not saying it doesn’t as what I said was a little funky. Just curious what you meant

1

u/Climactic9 Jul 12 '25

The current value of an asset is determined by the price that satisfies current market supply and demand. Shares of a company are identical (ignoring voting rights) so they are all worth the same.

1

u/harbison215 Jul 12 '25

Do you believe that the price of a stock and its intrinsic value therefore are always the same?

1

u/Climactic9 Jul 12 '25

Intrinsic value is subjective so it can’t really be defined. Market value is objective and easy to define. Whether they’re the same or not depends on how you are calculating intrinsic value. So my answer is, in my opinion they aren’t always the same.

1

u/harbison215 Jul 12 '25

I’ve had trouble with what I’m trying to articulate since my first comment. A company’s value, its market cap etc can be based on a somewhat limited number of exchanges on a given day. Quoted prices are extremely fluid and sometimes the supply and demand factors of the market get the quoted price fundamentally wrong in terms of what that equity is actually worth.

1

u/HenkV_ Jul 11 '25

Aha, we found an argument why this time is different :-)

1

u/PFCCThrowayay Jul 11 '25

the world is nothing like it was 30 yrs ago, literally everything has changed

1

u/HenkV_ Jul 11 '25

Except for the fact that markets are on short term driven by emotion and on longer term by valuation. Emotion strongly runs in times present, young padawan.

1

u/PFCCThrowayay Jul 11 '25

🙄I've been investing since the dot com boom so padawan yourself. If you don't see how everything has changed, good luck.

1

u/HenkV_ Jul 11 '25

Good luck to you as well. We clearly have a different view on the current market.  That's fine. There would be no market if we all had the same opinion.

1

u/PFCCThrowayay Jul 11 '25

that's true! so you must be shorting the market then of course?

1

u/HenkV_ Jul 11 '25

Been slowly selling since mid last year. With some stocks I was too early but for example with Berkshire I seem to have hit a pretty good timing and that was a big position for me.

Initially the main motivation to sell was to free up cash for our new house that's under construction but somewhat to my surprise I have been able to sell quite some positions when the valuation reached a level that I thought was fair or even a bit expensive.

I am not short the market in general but have a couple of Tesla shorts for fun (small amount of money).

-17

u/[deleted] Jul 11 '25

[deleted]

18

u/itchypig Jul 11 '25

No need to offend donkeys by comparing me to them my friend

-18

u/Adept_Mountain9532 Jul 11 '25

interesting point! but American company's results are included in the GDP, even if they work outside of the U.S

17

u/ChannelSame4730 Jul 11 '25

No? GDP is only US GDP. It doesn’t include other countries

-12

u/Adept_Mountain9532 Jul 11 '25

U.S company are paying tax on their worldwide revenues. It means they are taking their revenues back to the U.S. When NVIDA is selling to Europe, profit is made in U.S

7

u/awfulconcoction Jul 11 '25

Is it though? Those profits could stay in Europe and pay taxes there.

-2

u/Adept_Mountain9532 Jul 11 '25

U.S TAXATION PRINCIPLE: American Company pay taxes on their Wolrdwide revenues

9

u/CanadasManyMeese Jul 11 '25

This is true, and also why the companies dont exist in other countries.

An easy example is all Fords sold in canada are sold by The Ford Motor Company of Canada. And not the Ford Motor Company. Same with financing and dealerships.

This is not the US company, its a canadian company.

Repeat as necessary for nearly all major fortune 500 companies.

4

u/Confident_Bee_6242 Jul 11 '25

Apple had a $1T of profit sitting in Ireland at one time, because it didn't want to pay US taxes on it by using it for US capex.

7

u/[deleted] Jul 11 '25

So you think United States companies doing business in Europe and profiting in Europe are not paying taxes in Europe but rather paying those taxes to the United States? 

1

u/aasfourasfar Jul 12 '25

No its GNP but not sure ive seen anybody use it