Hi fellow investors,
Charlie Tian here again. In my last video, I mentioned that the Buffett Indicator can be used to check whether the market is overvalued, fairly valued or undervalued, and this can also be applied globally to different markets. From this you can determine where the best place to invest your money is outside of the U.S.
GuruFocus offers the Global Market Valuation tool to find these global markets to invest in. With the same type of calculation as the Buffett Indicator, you can determine the approximate return of global markets on average per year. The countries are separated between developed and developing countries.
The developing countries tend to have a much higher return than the developed countries. Russia and China both show the potential for a much higher return than other countries in the developing category. Singapore, Spain and the United Kingdom show higher numbers in the developed category.
If we look into the U.K., for example, the Buffet Indicator is expecting a return of 12.3% each year over the next eight years. This is a much better return than the U.S. market, so you would be much better off investing in the U.K. market.
The calculation is done by using the GDP of the U.K. over the last 50 years and the Total Market Cap of the U.K. market. You can see in the data provided that the U.K. market has gone down at the beginning of 2020, but using the ratio of the two numbers you can determine the Buffett Indicator for the U.K.
In 2000, the ratio was around 200% while today it is sitting around 74%, so it is much lower than it was 20 years ago. From this we can project how much the market will return per year over the next eight years. Based upon the data, you can see that the U.K. market will be returning above 10% per year while the U.S. is only showing returns around 1.6%.
When comparing the projected returns and the actual returns of the U.K. market, you can see that the two were actually really close to each other. This shows the effectiveness of this model over the last 40 years. It is likely to continue working well for the next eight years if the U.K. GDP continues to grow at a similar rate to what it has in the past.
The U.K. market seems to be a much better place to invest than in the U.S. Using the Buffett Indicator on a global scale allows you to determine what market is worth investing in and where you will find higher returns. I encourage you to study the Buffett Indicator and the Global Market Valuation pages carefully and I wish you investing success.
If you have any questions, please feel free to leave them in the comments section and I will address them whenever I can.
Good luck investing,
Charlie Tian
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