It’s time for one final check in with the investing GOAT’s favorite stock market indicator before he rides off into the sunset.
Berkshire Hathaway (BRK-B) CEO Warren Buffett, 95, will hand over the reins to his hand-picked successor Greg Abel on Wednesday.
The official passing of the torch caps a storied career for Buffett, which included buying a major US railroad (Burlington Northern), striking up a friendship with Microsoft (MSFT) co-founder Bill Gates, and offering up scores of pithy comments in annual shareholder letters.
“Berkshire’s culture is pretty simple,” Howard Buffett told me in a 2024 episode of Yahoo Finance’s Opening Bid Unfiltered podcast (listen below). “You do what you say you’re going to do, and you do it when you say you’re going to do it. You’re honest about it. You make mistakes and you accept responsibility for those mistakes.”
Howard is in line to succeed his father as Berkshire chairman.
Through it all, Buffett championed the art of value investing, as taught to him by mentor Benjamin Graham. The philosophy is rooted in an unwillingness to overpay for investments.
The “Buffett Indicator” takes the Wilshire 5000 Index (viewed as the total stock market) and divides it by the annual US GDP. It rose to fame following a 2001 Fortune Magazine article written by Buffett and longtime Fortune writer and Buffett insider Carol Loomis.
“The ratio has certain limitations in telling you what you need to know,” Buffett explained in the article. “Still, it is probably the best single measure of where valuations stand at any given moment.”
The indicator is at valuation levels never seen before, fueled by the artificial intelligence boom. It suggests that stocks are long overdue for a healthy pullback in early 2026.
Picking apart the numbers, the Buffett Indicator stands at about 221.4% — up a sharp 22% from April 30, per data from GuruFocus. The indicator has never been at a higher level dating back to the earliest data from GuruFocus in 1970.
The S&P 500 (^GSPC) has shot up nearly 17% on the year amid major optimism surrounding the earnings potential of AI-related companies and the effect the technology will have on profits. Analysts in turn have scrambled to upwardly revise their profit forecasts on companies, supporting higher stock prices.
For his part, Buffett has bet on the AI future by maintaining stock investments in Apple (AAPL), Amazon (AMZN), and more recently, Alphabet (GOOGL).
Wherever the stock market goes from here, one thing can’t be questioned: Buffett’s impact on investing.