In a 2001 Fortune magazine article, Warren Buffett commented that the ratio of stock market capitalization to GDP is “probably the single best measure of where valuations stand at any given moment.”
The present ratio of MarketCap/GDP is about 1.2, which translates to nominal total returns (including dividends) in the S&P 500 of about 2% annually over the coming 12 years. Unfortunately, this just reflects objective evidence that has remained reliable over a century of market cycles.
Individual investors can fight back against these abysmal returns in two ways:
- Individual stock selection: see the HWWP Portfolio Page
- Value-weighted Asset Allocation: see Optimal Asset Allocation
Source for Graphic: Hussman Funds – Weekly Market Comment: Run-Of-The-Mill Outcomes vs. Worst-Case Scenarios