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Is Buffett indicator still relevant today with deep globalization? It does not take account of at least following factors: * Companies like BABA or SE that con

by zcbenz 5y ago

Is Buffett indicator still relevant today with deep globalization? It does not take account of at least following factors: * Companies like BABA or SE that contribute little to US GDP. * Tech giants shift profits to low-tax countries. * Income from US only makes part of global giants' income. (I know almost nothing about economy so this is novice question, instead of a statement against the effectiveness of Buffett indicator.)

winstongator 5y ago
I agree with this. Apple, a huge part of spy, does tens of billions of business outside the US. Most of the rest of the S&P 500 also. Using US GDP as a denominator is faulty when the stocks in the numerator are worldwide leaders. It’s a simplistic measure that I wouldn’t base my investments on.
kbutler 5y ago
I think this is the biggest factor - the rise of the "Buffett Indicator" implies that the stock market is increasingly valuable compared to US GDP, and thus capturing or measuring more value than just US production, but the linear expectation suggests a constant rate of globalization, with no justification.
mewpmewp2 5y ago
I'd think this and everything Buffet used to do is obviously outdated. Any simplistic indicator or metric won't be more accurate than what a current market cap for the company is as financial companies, with state of the art tools, researchers and experience can determine what is accurate with far more efficiency than Buffet or any simple metric ever could. If they realise there's inaccuracy in a market cap somewhere, and there's reason to believe that the market cap will change in some direction, they will take the profit from it until there's nothing to take and market cap will be accurate again according to their calculations. Even if in some cases they might be wrong, they will be more accurate in the long run as any usual metric due to law of large numbers. Essentially when trying to use any indicators or metrics here you are playing poker against people who have far more information about the cards compared to what you have.

by zcbenz 5y ago

winstongator 5y ago

I agree with this. Apple, a huge part of spy, does tens of billions of business outside the US. Most of the rest of the S&P 500 also. Using US GDP as a denominator is faulty when the stocks in the numerator are worldwide leaders. It’s a simplistic measure that I wouldn’t base my investments on.

kbutler 5y ago

I think this is the biggest factor - the rise of the "Buffett Indicator" implies that the stock market is increasingly valuable compared to US GDP, and thus capturing or measuring more value than just US production, but the linear expectation suggests a constant rate of globalization, with no justification.

mewpmewp2 5y ago

I'd think this and everything Buffet used to do is obviously outdated. Any simplistic indicator or metric won't be more accurate than what a current market cap for the company is as financial companies, with state of the art tools, researchers and experience can determine what is accurate with far more efficiency than Buffet or any simple metric ever could. If they realise there's inaccuracy in a market cap somewhere, and there's reason to believe that the market cap will change in some direction, they will take the profit from it until there's nothing to take and market cap will be accurate again according to their calculations. Even if in some cases they might be wrong, they will be more accurate in the long run as any usual metric due to law of large numbers. Essentially when trying to use any indicators or metrics here you are playing poker against people who have far more information about the cards compared to what you have.