“This time is different,” the rally cry of investors who spot an irrevocably changed market every few years, is in ample supply these days. Interest rates have reached a permanent low. U.S. stocks have reached a permanent high. FAANG stocks will rule markets for all time. Value investing is dead.
Let’s start with Buffett’s favourite stock market barometer, the market capitalization-to-GDP ratio. As its name suggests, it measures the total value of the stock market as a percentage of GDP. In simple terms, a lower ratio is bullish and a higher one is bearish. As a result, the financial sector has been one of the cheapest sectors by most measures for years. It’s still the most represented sector in many value indexes, including a 21 per cent allocation in the S&P 500 Value Index and 23 per cent in the Russell 1000 Value Index. That’s apparently not enough for Buffett, whose allocation to the sector is double that.
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