Key insights
- The Wilshire 5000 Total Market Cap to GDP ratio, a favorite valuation metric of Warren Buffett, is back above 200%, signaling an overvalued market similar to 1999-2000. Berkshire Hathaway's net selling and large cash position reflect this cautious outlook. This suggests potential downside risk for US equities, prompting consideration of increasing cash holdings.
Buffett wrote about this years ago. It’s just total stock market value compared to GDP. He said when it gets close to 200 percent you’re playing with fire. That’s basically where things were in 1999 and early 2000. Right now it’s back above that level again. Berkshires been selling more than buying for a while and sitting on a ton of cash. Doesn’t look like they’re seeing much worth jumping into right now. The metric is one thing but Berkshires behavior says a lot.. If nothing looks good you just wait. I’ve caught myself wanting to stay fully invested no matter what, but observing Berkshire has me thinking differently. You guys think just holding more cash right now is a good idea?