Post #16052 by CapitalAlligator on the Berkshire Hathaway board

Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤

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The Calculus of Value

https://www.oaktreecapital.com/insights/memo/the-c...

What’s the bottom line of the calculus? Fundamentals appear to me to be less good overall than they were seven months ago, but at the same time, asset prices are high relative to earnings, higher than they were at the end of 2024, and at high valuations relative to history. Most bull markets are built through the addition of a “constellation of positives” on top of a well-functioning economy. Today I see elements that include the following:

the positive psychology and “wealth effect” resulting from recent gains in markets, high-end real estate, and crypto,

the belief that, for most investors, there really is no alternative to the U.S. markets, and

the excitement surrounding today’s new, new thing: AI.

These are the kinds of things that have the ability to fire investor imaginations and contribute to bull markets, and they certainly seem to be doing so now.

...

The existence of overvaluation can never be proved, and there’s no reason to think the conditions discussed above imply there’ll be a correction anytime soon. But, taken together, they tell me the stock market has moved from “elevated” to “worrisome.”

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