Warren Buffett On The S&P 500 Intrinsic Value
Todd Sullivan | Oct 18, 2013 02:49AM ET
Warren Buffett was extensively interviewed on CNBC yesterday morning. Here is the link to these interviews: CNBC Interview Warren Buffett-Buy Stocks Today
He announced he had just purchased a UK vending machine company for $1.1bil, had spent more than $20bil on acquisitions in 2013 and expected to spend many billions more.
His advice and his own investment decisions are not dependent on when the resolution to the current government shutdown and debt discussions occur. He does not and never has timed short term market events. He does however use the major market corrections as buying opportunities and he remains a buyer today. Buffett and other Value Investors have this same historical pattern which I translated into a market valuation benchmark which I call the SP500 Intrinsic Value Index. The SP500 (SPY) remains below this index today by ~10%. I show the historical relationship between this benchmark and the SP500 in the chart below.
Remaining bullish on stocks because of attractive valuations is justified in my opinion. We are not alone in this thinking with Warren Buffett and other successful Value Investors thinking the same. No Value Investor uses short term events to time market purchases. It is the larger valuation scheme which is most important and we remain at those levels with LgCap stocks today. I could have named the SP500 Intrinsic Value Index as the “Buffett Index” as it does track the investment thinking of Warren Buffett and other well known Value Investor’s investment activities.
But I didn’t, because this benchmark is not based on Value Investor behavior, it is a benchmark based on economic valuation to which I was eventually lead by Buffett and others having developed an understanding of their thinking after extensive reading and study of their investment activity. This is the benchmark which my research indicates Buffett and other Value Investors inherently track even though none of them has explicitly said so.
It is by reverse-engineering the investment activity and commentary of a number of very good Value Investors, correlating what they said and what they actually did during particular periods of changing market sentiment that one can develop a market benchmark like the SP500 Intrinsic Value Index.
The SP500 Intrinsic Value Index is strictly a fundamental index based on US Real GDP trends adjusted to Core Inflation used to capitalize the long term SP500 Earnings Trend. It is a fairly simple index which when compared to the investment commentary and activity of noted Value Investors offers the fundamental explanation by which one understands the investment reasoning of Buffett and others for making an investment at particular points in the investment cycle. Good Value Investors have investment time frames of 10yrs+. They can buy when they believe the market is providing opportunity and sell at higher levels with the same perspective.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.