The Market’s High Water Mark

by

The market had been riding high for a while. Seventeen years of mostly sunshine, if you could call a near-collapse in ’08 and a pandemic wobble sunshine. The Dow, the S&P, the Nasdaq – they’d all been climbing, fueled by optimism and something resembling greed. Last year was no exception – a twenty percent jump for some. Artificial intelligence was the new religion, and everyone expected a miracle. It smelled like trouble.

The closing bell on December 31st hadn’t changed a thing. The Dow, the S&P, the Nasdaq – they’d all gotten a little fatter. But numbers don’t tell the whole story. They rarely do. They just tell you what happened, not how it happened, or what’s waiting around the corner.

The Old Man’s Yardstick

Warren Buffett. The name carries weight. The man understands money, not as a game, but as a measure of things. He built an empire on finding value where others saw only risk. He’s seen booms and busts, and he’s got a way of looking at things that cuts through the noise. He recently stepped down, but the lessons remain.

He wasn’t interested in fancy algorithms or hot tips. He wanted to know if he was getting a good deal. Simple. Brutally simple. But in a world obsessed with complexity, simplicity is a dangerous weapon. It exposes the truth.

The problem with “value” is that it’s subjective. What looks cheap to one man looks expensive to another. It’s like looking at a painting – everyone sees something different. That’s why Buffett had his yardstick, a way to measure the market as a whole.

He called it the market cap-to-GDP ratio. It’s a simple calculation: add up the value of all publicly traded companies, divide it by the country’s gross domestic product. The lower the number, the better. It’s a way of asking: are stocks worth more than everything the country produces? Seems like a fair question.

Warren Buffett Indicator hits an all-time high of 224%, the most expensive stock market valuation in history 🚨🚨 pic.twitter.com/BgIiOkFlfl

Barchart (@Barchart) January 11, 2026

Back in 1970, the ratio averaged around 87%. Reasonable. But as of January 11, 2026, it hit 224.35%. A fifty-eight percent premium. The market was bloated. It was like a man who’d eaten one too many steaks.

It wasn’t a prediction, not exactly. Buffett never claimed to be a fortune teller. But the ratio had a way of foreshadowing trouble. When it got this high, a correction was usually on the way. History doesn’t repeat itself, but it often rhymes.

Patience and a Long View

Buffett wasn’t just looking for cheap stocks. He was looking for the long game. He understood that the market had its cycles, its ups and downs. He wasn’t trying to time the market, because timing the market is a fool’s errand.

He knew recessions were inevitable. Short, painful, but inevitable. The average recession lasts about ten months. Economic expansions? Five years. That’s a disparity worth paying attention to. It’s like knowing the odds in a poker game.

The same goes for bull and bear markets. A study by Bespoke Investment Group showed that bear markets typically last around nine and a half months. Bull markets? Over three years. The numbers don’t lie. They just tell a story.

It’s official. A new bull market is confirmed.

The S&P 500 is now up 20% from its 10/12/22 closing low. The prior bear market saw the index fall 25.4% over 282 days.

Read more at https://t.co/H4p1RcpfIn. pic.twitter.com/tnRz1wdonp

Bespoke (@bespokeinvest) June 8, 2023

So, the Buffett indicator is flashing red. Stocks are expensive. A correction is likely. But the market, statistically, is a wealth-creating machine. It’s a slow grind, but it works. Buffett understood that patience and a long view are the keys to success. He wasn’t interested in getting rich quick. He was interested in building something that would last.

The market’s high water mark. It’s a beautiful sight, but it’s also a warning. Don’t get carried away. Remember the lessons of the past. And always, always, know your value.

Read More

2026-01-18 12:12