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David Dierking, The Motley Fool
Mon, June 15, 2026 astatine 10:35 AM CDT 4 min read
In a 2001 Fortune magazine interview, erstwhile Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) CEO Warren Buffett talked astir the Buffett indicator. This is the ratio helium created years agone that measures full U.S. marketplace capitalization to gross home merchandise (GDP).
He noted successful that interrogation that "it is astir apt the champion azygous measurement of wherever valuations basal astatine immoderate fixed moment." Like immoderate marketplace signal, it's not foolproof, but it does springiness america a glimpse into the Buffett investing benignant and what helium looks for successful stocks.
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In this interview, Buffett explained however to construe this ratio: "For me, the connection of that illustration is this: If the percent narration falls to the 70% oregon 80% area, buying stocks is apt to enactment precise good for you. If the ratio approaches 200% -- arsenic it did successful 1999 and a portion of 2000 -- you are playing with fire."
That past portion is important, due to the fact that the Buffett indicator has been doing much than conscionable approaching the 200% area. It's been supra that level for the bulk of the 2020s. As of May 2026, this ratio sits astatine 229.7%.
What the Buffett indicator means
The 1 vantage of the Buffett indicator is that Warren Buffett himself fundamentally tells america his explanation of value. If it's astatine 70% to 80%, it's astir apt a bully buying opportunity. Around 100%, it's astir apt fine, but not an particularly charismatic introduction point.
It's astatine the 200% level wherever the information lies. Based connected this, it's not astonishing that Berkshire Hathaway was sitting connected specified a ample currency heap toward the extremity of Buffett's tenure. He famously said that the caller 9% pullback successful the S&P 500 (SNPINDEX: ^GSPC) was "nothing." Looking astatine wherever the Buffett indicator sits close now, it seems harmless to accidental that helium wasn't adjacent adjacent to considering buying.
The past of utmost Buffett indicator levels
The ratio deed an all-time high, not surprisingly, during the tech bubble, erstwhile it reached 162.6%. The consequent carnivore marketplace drew down the S&P 500 by 50%, and a caller precocious successful the Buffett indicator wasn't deed again until 2020. It's been supra 150% ever since.
Data sources: Advisor Perspectives, YCharts.
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