Carol J. Loomis and Doris Burke of Fortune magazine quotes Warren Buffett as defining the metric, ``If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."Adds the Ms. Loomis and Ms. Burke, ``Well, that's where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham's statement about the stock market: "In the short run it's a voting machine, but in the long run it's a weighing machine."
Of course, this is just one of Mr. Buffett's many valuation metrics. But for purposes of simplification and publicity, he could be suggesting this as it is easily understandable by the public.
Mr. Buffett doesn’t really TIME the markets in terms of momentum, but appears to TIME the market in terms of valuations. And perhaps he could be right despite the colossal economic problems the US maybe facing today. The important difference lies in the time horizon.
Nonetheless while a US bullmarket maybe a distant future, except when the Obama-Bernanke team decides to utterly destroy the US dollar, the likelihood is that stock picking will be the distinguishing mark between Mr. Buffett’s stream of ‘alphas’ and the market’s ‘beta’.
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