The Warren Buffett indicator says the stock market looks expensive. Here’s what to do
Despite some high-profile shares falling recently, the stock market is still close to record highs. But that doesnât mean investors should stop looking for buying opportunities.
In situations like these, figuring out which companies to invest in becomes more important than ever. Not every stock is the same and in some cases, it could be an unusually good time to buy.
The Warren Buffett indicator
Warren Buffett once suggested a way of assessing how expensive the stock market is. It involves comparing the price of a countryâs publicly traded companies with its gross domestic product.
Since then, that metric has become known as the Buffett indicator. And itâs at historically high levels right now in the case of US equities.
Source: Longtermtrends
Worse yet, stock market crashes have usually been preceded by the Buffett indicator hitting new highs. And thatâs something investors should pay attention to.
If itâs a good enough metric for Buffett, then itâs probably good enough for the rest of us. But that doesnât mean the thing to do is put off investing and leave it for another day.
Finding stocks to buy
In a stock market crash, itâs easy to find shares trading at attractive prices. When valuations are higher, it takes more work but there are virtually always opportunities to be found somewhere.
What goes for the index as a whole doesnât apply to every individual stock. Spurs might be a terrible team at the moment, but that doesnât mean we havenât got some good players in there.
Whether itâs the FTSE 100, the S&P 500, or the global stock market, there are stocks that have performed badly recently. And I think some of those are well worth attention right now.
Investors need to be careful â sometimes a falling share price can be a sign the underlying business is in trouble. But other times, itâs a short-term opportunity to try and take advantage of.
A FTSE 250 favourite
As the stock market focuses on artificial intelligence (AI), it seems like an odd time to be thinking about Greggs (LSE:GRG). But the FTSE 250 bakery chain is exactly the kind of thing I have in mind.
The stock is trading at a price-to-earnings (P/E) ratio of 11, which is unusually low. And there are a few reasons why, but one is the danger that anti-obesity drugs could potentially weigh on demand.
Even if GLP-1 medication is here to stay, Iâm not convinced itâs a long-term threat to Greggs. The company might have to change and adapt, but I donât think this should be a major problem.
Fundamentally, Greggs is about using its scale to provide customer value. And whatever diets look like in the future, thatâs something I donât expect to lose its appeal with consumers.
Foolish investing
The Buffett indicator is something that investors should pay attention to. But long-term investing isn’t about making heroic calls about the future direction of the stock market.
It’s about finding opportunities to buy shares when they offer unusually good value. And even 12% off its 52-week lows, I think Greggs is an example that’s worth considering.
The post The Warren Buffett indicator says the stock market looks expensive. Here’s what to do appeared first on The Motley Fool UK.
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More reading
- Could Greggs shares stage an amazing recovery in 2026?
- Oops, Greggs shares get rolled and battered again!
- Here’s why the Greggs share price slumped 5% in the FTSE 250 today
- Under £17 now, hereâs why I think Greggs shares are a steal anywhere below £31
- Look what a plummeting Greggs share price has done to £5,000 invested a year ago!
Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
