The Buffett indicator is a valuation multiple used to judge whether the aggregate stock market is expensive or cheap at a given point in time. Its modern form divides the total market capitalization of the Wilshire 5000 index by United States gross domestic product and expresses the result as a percentage, so that a market worth 40 trillion dollars against a 20 trillion dollar economy would read 200 percent. Investor Warren Buffett proposed the measure in a December 2001 Fortune magazine essay, calling it probably the single best measure of where valuations stand at any given moment, and suggested that readings around 70 to 80 percent mark favorable buying opportunities while readings approaching 200 percent signal excessive risk. Because it relies on GDP rather than potentially manipulated corporate profit figures, it is used by financial professionals as a broad, simple check on whether stock markets are overvalued or undervalued. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/
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1. Wikipedia: Buffett indicator
Lead paragraph, first sentence defining the indicator
The Buffett indicator (or the Buffett metric, or the Market capitalization-to-GDP ratio) is a valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in time.
Lead section, sentence on the modern form
its modern form compares the capitalization of the US Wilshire 5000 index to US GDP.
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