Wilshire 5000 and the GDP
A while ago I ran across a discussion about whether (or not) the market was overpriced.
>I've seen those discussions. Everybuddy is aways talking about whether ...
Yeah, anyway, there are a jillion numbers one can generate to attempt an answer to this question.
Here we talked about whether the P/E ratio for "the market" was "reasonable/fair", considering its relationship to 10-year bond rates.
Elsewhere we talked about calculating a variety of other ratios in order to ...
>What's your point?
We can generate yet another ratio: (Wilshire 5000 Index) / GDP
>What about the coloured dots?
Apparently it's a ratio that Warren Buffett likes to look at (tho' he uses Total Market Cap instead of the Wilshire Index).
We'll use the Wilshire 5000 Index as a proxy for the market cap of the entire U.S. market.
It does, after all, go up and down with the total market capitalization ...
>For 5000 stocks, eh?
Well, 5000 stocks when the Wilshire was first introduced in 1974 (I think). Now it's over 7000 stocks (I think).
Anyway, if the Wilshire 5000 is at 11,000 it implies a
total market cap of about $11,000 billion.
The ratio (Wilshire 5000 Index) / GDP is shown (for the period Oct/90 - Jul/03) here
The green dot is at 138%, in March 2000 (when the Wilshire 5K was at a maximum).
>And the red dot?
>I give up.
Hint: Today is Feb 2, 2004.
>But where can I find the GDP and ...?
and Wilshire 5000
>Okay, so what Ratio does ol' Buffett, like?
How about 80%?
See also: WIL5 vs Mkt Cap