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Asset Values & Bubble talk - Warren Buffett's view


The world's greatest investor, Warren Buffett believes that over time, it shouldn't be possible to build wealth faster than the growth of business or the economy. That is, slow and steady is the way to invest, and that’s why as a starting point it we look at economic growth.

The chart below shows publicly traded securities as a percentage of the country’s “business” (GNP).

What you can see is that assets have been inflated so much that they are now 5.6x US GDP (economic growth), and this is well over the usual measure that sees any number over 2x as over valued. The chart illustrates how low rates and central bank asset purchases are artificially inflating investments.

Low rates continue to support low yield investments like technology stocks. The top 5 companies on the S&P500 are now Facebook, Apple, Amazon, Netflix and Microsoft,and their valuations have them represent 25% of the market cap of the 500 largest companies in the world. Just 5 companies!

Whether these valuations are correct or not is up to markets and Central Bankers to decide...

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