On Thursday, a day where U.S. markets reached a new high, Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 145.6%, approximately 2% from its all-time high of 148.5%. Based on this market valuation level, the implied U.S. market return over the next eight years is -2.3% assuming a reversion to the mean level of 80%.
Dow blasts higher on tariff rollback announcement
The Dow Jones Industrial Average closed at 27,674.80, up 182.24 points from Wednesday’s close of 27,492.63. Apple Inc. (AAPL, Financial), Berkshire’s top holding, traded up approximately 1.3% from the previous close of $256.47.
U.S. markets hit new highs early this week as investors continue believing that President Trump will sign phase one of the trade deal with China. Despite this, the market rally paused on Wednesday on reports that the signing of the trade deal might be postponed to December as the U.S. and China seek alternative locations following the cancellation of the APEC Summit in Chile, which was supposed to take place in mid-November.
News that China and the U.S. agreed to eliminate existing tariffs propelled markets further on Thursday, rekindling the early rally. Stocks that contributed to the new rally include Apple, Caterpillar Inc. (CAT, Financial) and Boeing Co. (BA, Financial).
Buffett’s market indicator nears all-time high
Unfortunately, as markets set new all-time highs, market valuations become more overvalued. On Thursday, the ratio of total market cap to gross domestic product stood at 145.6%. Any Buffett indicator value above 115% suggests significant overvaluation.
Based on current market valuation levels, the implied market return is -2.3% per year assuming a reversion to the mean of 80%. However, if the implied market return reverts to an optimistic level of 120%, the implied market return is 2.6% per year.
Value screeners identify opportunities
GuruFocus tracks several value investing strategies, including teachings from Benjamin Graham, Peter Lynch and the Oracle of Omaha himself. Table 1 lists the value screener record as of Thursday.
| Screener | USA | Asia | Europe | Canada | UK /Ireland | Oceania | Latin America | Africa | India |
| Graham Net-Net | 129 | 500 | 187 | 41 | 42 | 10 | 6 | 13 | 60 |
| Undervalued Predictable | 40 | 84 | 111 | 7 | 46 | 5 | 39 | 3 | 18 |
| Buffett-Munger | 22 | 98 | 57 | 3 | 28 | 0 | 20 | 3 | 45 |
| Historical Low PS | 13 | 138 | 53 | 1 | 18 | 0 | 22 | 7 | 38 |
| Historical Low PB | 56 | 136 | 60 | 1 | 31 | 2 | 30 | 8 | 48 |
| Peter Lynch Screen | 24 | 53 | 30 | 0 | 13 | 0 | 5 | 4 | 24 |
| High Dividend Yield | 56 | 39 | 125 | 7 | 16 | 4 | 17 | 12 | 16 |
Table 1
Disclosure: No positions.
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