 With the recent negative news of rising inflation and the Federal Reserve decided to raise another round of interest rates, the market reacted violently, dropping as much as 6% in one week. I know it's very scary to invest during this uncertain time. And you must be wondering, will the market drop further from here, or is it the best time to enter right now to profit from the chip? Well, when it comes to investing, it's all about risk control. Because if you can reduce the risk and take care of the downside, the upside will take care of itself. That's why in today's video, I'm going to share with you one indicator that can calculate the risk level of the market. In fact, this indicator was proposed by the greatest investor, Warren Buffett himself. So if you can enter the market at the low risk level, and ride through the crisis together with Warren Buffett, that's where the profits lie. Oh Kylie, this is Chloe, and welcome back to my channel. We're all in one place for you to learn about stocks, investing, SOS options. If it's the first time of you coming to my channel, remember to hit the subscribe button as well as the notification bell so that you will not miss out on any of my future investment updates. An early thumbs up is also appreciated because it will tell you to algorithm that you find this video helpful, and it will help to push out to more people to inspire them to start investing safely. With the recent market volatility, so many investors are super confused and they don't know what to do. In this time of confusion, it's best to consult the greatest investor, Warren Buffett, for his advice. And Warren Buffett once proposed this indicator, saying that it's probably the best single measure where valuation stands at any given moment. And this indicator is none other than the Buffett indicator. So what is this indicator and how can you interpret it? This is what this video is about. But before that, I want to give a special thanks to MooMoo SG for sponsoring this video. They are also giving away a free 5-day investment course to help you to kickstart your investment journey step by step. If you are interested, just click on the link in my YouTube description box to register. With that, let's get back to the video. The Buffett indicator is a valuation method that used to assess how cheap or expensive the stock market is. Warren Buffett first proposed it back in 2001. The result of this calculation is a percentage of the GDP that represents the stock market value. Typically, a result of more than 100% means that the market is overvalued, while a value of 50% means that it's undervalued. And Warren Buffett once said, if the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. However, if the ratio approaches 200%, you are playing with fire. And indeed, the Buffett indicator successfully predicted the 2000.com bubble, as well as the most recent bear market that we are experiencing right now, where the indicator exceeded 200%. But before you get too pessimistic, let's look at the bright side. You can also use this indicator and start buying when it's cheap. As you can see, if the indicator drops to below 50%, that means the market is super undervalued. And back in 2008 financial crisis, the market dropped to all-time low, sending the indicator to close to 50%. If you started investing back then, your return would be a whopping 400% just by buying the S&P 500. So the question is, what is the indicator percentage right now? With all these drops, have we reached to a low risk level? The answer is 159%. What? You must be thinking, with all the drops, the market is still overvalued? Does it mean that from now on, the market is going to drop even more? The truth is, nobody can ever time the bottom. Not even Mr. Warren Buffett himself. But before coming to a conclusion that 159% is expensive, let's look at some more data points. If you observe the chart closely, the Buffett indicator has not been below 100% since 2013. Even in the recent 2020 COVID crash, when the market experienced a sharp drop, the indicator still lied above 100%. And if you stop investing because the indicator is more than 100%, you will have missed out 162% gain for the past 10 years. So what's causing this weird phenomenon in this indicator? No indicator is perfect, and there are some criticism against this Buffett indicator. And if you understand the counter argument, you will be able to make better investment decisions. Firstly, this indicator does not consider the stock value relative to alternative investment vehicles, such as bonds. Here is Economic Lesson 101. Generally, when the interest rates are high, the bond yields are higher. That's why more investors will be attracted to buy bonds rather than stocks. And vice versa, when the interest rate is low, more investors will be attracted to buy stocks because the bond yields will be lower. Over the past 50 years, the interest rate has an average of 6%. And during the 2000.com bubble, the interest rate was actually very lucrative. Investors could have chosen to put their money with the government bonds, which could give them about 6% return. But they still invested in the stock market recklessly, thinking that the prices would keep on going up. And as the result, the bubble burst. Whereas today, the bond yield interest is still relatively low. Despite all these interest rates high, the recent 10-year treasury yield is still less than 4%. Thus, it makes sense for investors to put their money in the stock market. And that could be the reason why the stock market has been staying abnormally high due to the low interest rate environment. Reason number 2. The stock market valuation reflects international activities while the GTP does not. Let's use Apple as an example. Though GDP does include national exports, it does not include something like sales Apple made in China. However, Apple's China sales is definitely priced in the stock price and therefore driving a higher buffer indicator value. As globalization has expanded steadily over the past 50 years, and that's why over the years, the percentage benchmark for the buffer indicator has also been shifting up to accommodate to the changes. And today, 159% is considered fair value. And of course, if you want to be super safe, you can also choose to wait until the indicator dropped below 100%. However, in my opinion, many great businesses have fallen to a pretty undervalued level. Instead of trying to time the market and wondering where will the bottom come, why not start investing bit by bit since the market is already pretty cheap. And if the market does go down even further and reaches below 100% of the buffer indicator by more, just like what Warren Buffett has been doing in every financial crisis to grow his wealth. And if you are new and wondering which brokerage to get started, you can consider Moomoo SG because Moomoo believe a lot in investment education. They are even giving away a 5-day jam-packed investment learning camp completely for free to teach you everything that you need to get started your investment journey. This course is suitable for beginners. Every single day, you will learn something new from setting your investment goal to how to pick your first stock, to when to buy, and how to choose an entry and exit point for competitive return. And if you have any questions during your learning, you can even ask the teacher assistants to clarify your doubts immediately. If you are new to investing, this course could help you to improve your investment confidence and prepare you into the investment market. Want to register the course for free? All you have to do is to click on the link below. After clicking the link, all you have to do is to click on the register button, fill up your information and click sign up and you will receive a telegram group link, click the enter button and you will join the 5-day learning camp. Complete all the modules to kickstart your investment journey and have a better understanding of the market. Lastly, do note that all the views to express in this video are based on my own independent research. Please do not take it as an investment advice or abide or sell recommendations. Always make sure you do your due diligence before making any form of investment decisions. With that, I will see you in the next video. Mata ne!