"Link summarizes what The Buffett Indicator is and different ways it can be calculated."

The author doesn't show forward returns versus the Buffett indicator, but such a graph gives a reasonably good fit, with 10-year nominal returns of around 15% at the low end of the indicator scale and around 0% at the high end. The trendline of the graph of return vs indicator suggests about a 3% forward return as of today.

Just a nit-picky point regarding the article... I would not "de-trend" the Buffett ratio by assuming that it increases exponentially with time. Rather, simply plot the market cap (or S&P 500 index or Wilshire 5000 index) versus GDP (log-log) and fit a trendline to it (power law). Then plot market cap/trendline versus time to see how much the market is overvalued or undervalued at any point in time. This approach does not assume that the Buffett ratio increases exponentially with time; it simply assumes, as the data show, that market cap tends to increase as GDP increases. Just my two cents.

Berkshire Hathaway FAQ

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