4 ms·
Hm, but doesn't this indicator conflate two very different phenomena? 1. Investor valuations of the total value of all publicly traded companies. 2. The fracti
by bwestergard 2y ago
Hm, but doesn't this indicator conflate two very different phenomena?
1. Investor valuations of the total value of all publicly traded companies.
2. The fraction of the total valuation of all firms that in publicly traded.
Imagine a world where all businesses are totally static, report steady earnings, etc. One day, dozens of formerly privately held firms IPO. This indicator increases, but this doesn't not reflect any change in the valuation of the legacy firms: merely that more of the value of all enterprises is being publicly traded.
- qzw 2y agoYou certainly make a good point, but in defense of the Buffet Indicator, perhaps the tendency for private companies to go public and vice versa also depends on economic conditions. Being a public company can be a costly and burdensome proposition, so unless there's a clear increase in ROI in terms of access to capital and shareholder liquidity, there's no real incentive for a profitable private firm to go public. So if a lot of private companies are going public, then that could also be an indicator that the public markets are overheated and something is fundamentally out of balance.