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Valuation as a Warning Signal
Valuation, as indicated by the Stock to Flow analysis, suggests the stock market is overvalued, signifying a potential future painful correction. Although valuation is not a timing tool, starting a correction from an overvalued position can result in significant losses. This indicator serves as a warning to investors that despite current gains, a severe correction may be on the horizon. Notably, Warren Buffett, a proponent of the Buffett indicator, has defensively positioned himself by holding a substantial amount of treasury bills.