Why is Warren Buffet Still Sitting on $122 Billion in Cash?

Since June, the Oracle of Omaha has been keeping over 60% of his cash tucked away from any institutions. In fact, the majority of his investments have gone back into his own company, Berkshire Hathaway. Since June, he has been holding back on investing and let’s talk about why.

The Wilshire 5000 Market Cap to GDP ratio has been nicknamed the Buffet Indicator after Buffet who popularized it in his use to measure the value of the market. The indicator uses two components: the market capitalization of all U.S. equities and quarterly GDP.


Here is a visual of the math:

Buffet indicator = (Market cap)/(GDP) *100

$30 trillion/$21 trillion 1.42. 1.42 * 100= 142%

Last year we stood at a market cap around $30 trillion. GDP was $21 trillion. So we’ll take 30 and divide it by 21 to get 1.42. And then multiply by 100 to get the percent and that’s 142%. However, Buffet uses the Wilshire 5000 and GDP so the number will look different from corporate equities to GDP. This year our market cap to GDP is 140.9%, exceeding the value 136.9% during the tech bubble of 2000, and it very well surpasses the value during 2007-08 of the housing crisis.

Wilshire 5000 Version

Typically, if the ratio is 75% or lower, it’s considered undervalued. And 100% and over is overvalued. There is not much of a window there, but 75% is a generous valuation. Usually 50% and below indicates an undervalued market. So we’re standing around 141% on the buffet indicator which is obviously overvalued. And I know I keep talking about this, but the longer we stay in this bull market, the more reasons I find for it to go down. From Buffet's absence of investing, to the inverted yield curve, to China, to stock buybacks inflating their prices, and to overall debt levels in US households, I think this earnings season is the only thing driving our market right now. And the fact that we’ve reached all time highs can be appealing to an investor. But just as markets reach all time highs, and investors do not see the market coming down, is usually the common tale of how people get burned on their trades.

So that’s my two cents once again. When a billionaire investor who’s made his fortunes from investing, is not investing, I feel like that should be an indicator in and of itself. I usually follow Buffet and listen to him, but I kept trading up until late September. Now I’m starting to see less and less optimism in the market. I’m sure there are other arguments on the other side that indicate the market will continue to be green for years. But as of now, I don’t see it and I do not feel comfortable putting my money anywhere but my pocket or in shorts. My opinions may change but I will need more information to tell me otherwise.

Website that provided image: https://www.advisorperspectives.com/dshort/updates/2017/09/06/market-cap-to-gdp-an-updated-look-at-the-buffett-valuation-indicator

Latest Market Insights
September 21, 2020
Trade Setups on Falling Markets This Week

EUR/USD Bearish GBP/USD Bearish AUD/NZD Bearish XAU/USD Bullish SPX500 Bearish EU struggles to pass 1.2000s as US markets fall from overvalued prices in the stock market. The pair is back in a support zone showing that price wants to go lower. A break in that support zone (which is a common pattern we see in […]

Read More
September 20, 2020
Markets Make Lower Lows, Tesla Battery Day, What to Expect

Last week was rough for the market as the S&P and Nasdaq draw lower lows on the daily chart. The Dow Jones Industrial was the only index to look in the best shape as tech continues to fall under pressure. The main drivers for the market, which have been carrying pairs like GBPUSD and EURUSD, […]

Read More
September 19, 2020
Weekly Forex Forecast for USDCHF, GBPUSD, AUDNZD, XAUUSD (20-25 September 2020)

Weekly Forex Forecast for USDCHF, GBPUSD, AUDNZD, XAUUSD (20-25 September 2020) Hey everyone! Welcome to this weeks forex forecast for the week ending September 25th, 2020. I'm TraderBart with A1 Trading, and this week I'll be looking at USDCHF, GBPUSD, AUDNZD & XAUUSD. USD/CHF Zooming out, we can see price is travelling in a strong […]

Read More

Related Articles

August 28, 2020
Economic stimulus and the Role of Central Banks

Politics preventing new financial stimulus The economic recovery in the major global economic powers depends on several important factors. One of the most vital part, the spread of the virus and the government's answers to it. With a decrease in daily cases of COVID-19 to 50,000 in the U.S.A. Yet U.S. A remains the most […]

Read More
August 26, 2020
How to Spot a Scammer

Our team has received many reports of scammers using our content and pretending to be us. Unfortunately, these accounts are difficult to shut down as there are many that we do not know of. While we will continue to do our best to get these accounts shut down as we receive reports, we are unable to […]

Read More
August 22, 2020
Legends of Investing - The Story of Warren Buffet

Warren Buffett is one of the most idolised, investors in the world. At the time of writing , his company, Berkshire Hathaway, has a market cap of $495 billion and Buffett himself has a net worth of $79 billion. His approach to value investing, combined with his influence over the companies he invests in , […]

Read More

A1 Trading Company

A1 Trading Company is a financial services and media business founded in Atlanta, USA.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram