The latest reading on Warren Buffett’s favorite valuation metric shows a bit of a decline, but still elevated levels. The latest reading of 105% is still consistent with a market that is overvalued and unattractive from a pure value standpoint.  In the past, Buffett has said that he prefers to see this metric at 70%-80% before buying equities:

“For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%–as it did in 1999 and a part of 2000– you are playing with fire.”

Clearly, we’re far from a level where equities are highly attractive according to this indicator.

chart

See here for more on this metric.

 

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Original source at: Money Game | http://feedproxy.google.com/~r/TheMoneyGame/~3/Ft4g2qYpDX4/a-quick-update-on-warren-buffetts-favorite-market-valuation-metric-2011-6

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