Here is a 10-year look at the Wilshire 5000 Index as a percentage of total GNP (Not GDP that many erroneously use – big difference). Warren stated in the above article: “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. As you can see, the ratio was recently 133%.“
I start this chart where Warren left off at the 133% ratio. If someone using this chart as a reference (I don’t advocate using charts for your stock picking metrics and don’t worry, I’m not turning into a chartist), that person using a Margin of Safety could have placed some very nice bets starting in January of 2009 such as many value investors did.
[I will expand on this in the near future to backdate the ratio to previous years when I have finished collecting all the relevant data.]
Excellent graph Jim!
- Where are you getting the data?
- Are you sure Buffett uses the Wilshire instead of other indices?
Thanks Plan. I am not 100% certain but in his article he mentions: “As you can see, the ratio was recently 133%.” He wrote the article October of 2000. When I compared the GNP to the Wilshire 5000, on October of 2000 the ratio was exactly 133%. I’ve compared other indexes as well as put effort forth to gather every stock known to man and lump that together. The only data that produced exactly a 133% ratio was the Wilshire 5000. Now, I will say, the Wilshire has been out since the late 70’s and in Buffett’s original article (this is a reprint) he showed a graph dating back to the 1930’s. So, I believe he used 2 different indexing measurements and changed to the Wilshire 5000 when it came out in the late 70’s. Since it was a perfect match, logic tells me he must have been using that index in the year 2000.
The data has been a struggle to get so far. The Wilshire data I got from yahoo. Yahoo gives the closing price of the index for the last 10 years. For the GNP, I’m getting that data from the St. Louis Federal Reserve Bank. Website: http://research.stlouisfed.org/
They have a massive amount of fantastic data.
As always, thanks for your comments. They are always much welcomed.
Interesting stuff Jim.
Look forward to how this progresses.