On Cyber Monday, the first trading day of December, Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 149.4%, approximately 0.9% from the March 2000 record high of 148.5%. Based on this valuation level, the implied market return over the next eight years is -2.6% per year assuming a reversion to the mean level of 80% and 2.2% per year assuming a reversion to a more-optimistic level of 120%.
Dow slumps on weaker-than-expected November manufacturing data
The Dow Jones Industrial Average traded at an intraday low of 27,804.04, down 247.37 points from the Black Friday close of 28,051.41. Apple Inc. (AAPL, Financial), the top holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial), traded at an intraday low of $263.45, down 1.42% from the previous close of $267.25.
Even though the U.S. stock market had a slight Black Friday cooldown, the three broad market indexes had their largest gain since June on the heels of investor optimism regarding phase one of the U.S.-China trade deal. However, investor optimism turned sour following President Trump signing into law a bill that requires the U.S. State Department to “certify annually that Hong Kong has sufficient autonomy to retain special U.S. trading consideration.”
Stock market losses continued on Cyber Monday on the heels of weaker-than-expected manufacturing data for November. The Institute of Supply Management said the November purchasing manager’s index stood at 48.1%, down from the October reading of 48.3%.
Buffett’s Berkshire backs out of Tech Data deal, raising questions regarding market valuations
On Black Friday, Tech Data Corp. (TECD, Financial) announced it agreed to allow an affiliate fund of Apollo Global Management Inc. (APO, Financial) to acquire all shares of the Clearwater, Florida-based hardware company for $145 per share in cash, up from the previous offer of $130 per share and Berkshire’s offer of $140 per share. Buffett’s conglomerate backed out of the bidding war: The “Oracle of Omaha” said in his latest annual letter that prices are “sky-high for businesses possessing decent long-term prospects.”
Buffett’s market indicator, which equals the Wilshire 5000 Full-cap Price Index divided by the U.S. gross domestic product, stood at 149.4%, approximately 34% above the significant overvaluation level of 115%.
Value screeners continue identifying opportunities
Despite the significantly overvalued market, stocks are still making GuruFocus’ value screens like the Undervalued-Predictable Screen and Buffett-Munger Screener, two value screens that have outperformed the stock market in at least the past few years according to our model portfolios page. Table 1 shows the value screener record as of Black Friday.
| Screener | USA | Asia | Europe | Canada | U.K. / Ireland | Oceania | Latin America | Africa | India |
| Ben Graham Net-Net | 108 | 473 | 180 | 39 | 39 | 11 | 6 | 9 | 160 |
| Undervalued-Predictable | 38 | 85 | 98 | 7 | 49 | 7 | 32 | 2 | 12 |
| Buffett-Munger | 24 | 98 | 69 | 3 | 32 | 1 | 24 | 3 | 41 |
| Historical Low Price-Sales | 40 | 146 | 50 | 1 | 17 | 0 | 17 | 7 | 38 |
| Historical Low Price-Book | 55 | 152 | 70 | 1 | 34 | 2 | 30 | 7 | 60 |
| Peter Lynch Screen | 25 | 49 | 24 | 0 | 12 | 0 | 4 | 3 | 21 |
| 52-week Lows | 923 | 4306 | 1488 | 109 | 529 | 66 | 336 | 141 | 1151 |
| Dividend Stocks | 51 | 39 | 118 | 4 | 17 | 4 | 19 | 12 | 17 |
Table 1
Disclosure: No positions.
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