Glossary

The Buffett Ratio, also known as the Market Cap to GDP Ratio or the Warren Buffett Indicator, is a market valuation measure used to determine if the stock market is overvalued or undervalued.

Named after famous investor Warren Buffett, the ratio compares the total market capitalisation of all publicly traded stocks to the country's Gross Domestic Product (GDP). 📈

For example, if the total market capitalisation of a country's stock market is $20 trillion, and the country's GDP is $25 trillion, the Buffett Ratio would be 0.8 (20/25).

Fun fact: Warren Buffett has referred to the Buffett Ratio as "probably the best single measure of where valuations stand at any given moment" in an interview with Fortune Magazine in 2001. He also mentioned that it is a strong indicator of future stock market returns. 🧠🔮