This Stock Market Indicator Favored by Warren Buffett Just Set a New Record, and It Could Signal a Huge Move in Stocks.

Warren Buffett is widely considered one of the greatest investors of all time

The data indicates that data indicates that secret to his success isn't trying to time the market. "We try to price, rather than time, purchases," Buffett wrote in 1994 letter to Berkshire Hathaway holders (something worth watching)

Additionally, That means Buffett will buy if, and only if, an equity offers great value relative to the

Furthermore, And if the market wants to pay a premium for a stock, he's happy to sell it to them

That ensures Buffett remains mostly on the sidelines when stocks start getting expensive (which is quite significant)

Nevertheless, There are many tools to determine if a trades at a price above or below its intrinsic value

Additionally, But right now, one market indicator, dubbed the Buffett Indicator, is flashing a big red warning sign that the entire market may be overvalued

Image source: The Motley Fool, amid market uncertainty

It's the total market value of all publicly-traded securities as a percentage of gross national duct, given the current landscape

Nevertheless, Today, it's known as the Buffett Indicator

Conversely, But it's not the first time the indicator has climbed past its dot-com-era peak

Buffett certainly appears to think stocks are getting expensive

Over the last year, he's even stopped repurchasing s of Berkshire Hathaway, suggesting he finds his own company's stock price above its intrinsic value

At the same time, But before investors panic and sell everything, there are a few important details to know

Moreover, Why the Buffett Indicator keeps climbing There are several explanations for why market valuations have climbed higher relative to GNP over the last 25 years: Interest rates: Buffett explains the power of interest rates in that 2001 Fortune article. "The tiniest change in rates changes the value of every financial asset," he wrote

For most of the last 15 years, we've had extremely low interest rates (remarkable data)

Moreover, That said, interest rates have been higher in recent years, but the long-term interest rates remain historically low, in light of current trends

With low interest rates, investors are willing to accept lower returns from stocks, pushing valuations higher, given current economic conditions

Growing adoption of : The percentage of households holding stocks peaked at 38 (which is quite significant), considering recent developments

With more Americans putting some of their savings into stocks, total market cap can climb faster than gross national duct, considering recent developments

Growing foreign investment in U, in today's market environment

Equities: The stock market has become global, and U

Stocks have seen huge amounts of capital poured into them by foreign investors

Conversely, With more foreign investors piling money into U

On the other hand, Stocks, the market cap should increase faster than U, amid market uncertainty

However, the last two factors have moved in the wrong direction recently

Total American households holding equities dropped in the first quarter

Furthermore, Additionally, it appears many foreign investors are pulling money out of U

Securities ing President Trump's planned tariffs announcement

That should give investors some pause when looking at the current market

Is the stock market to crash (fascinating analysis)

The evidence shows Buffett Indicator is simply a measure of where valuations stand at the moment

On the other hand, However, It doesn't necessarily predict an impending crash

As mentioned, there are all s of reasons for valuations to climb higher

Still, the elevated Buffett Indicator suggests a decline in stock values is more ly than on average

On the other hand, Buffett is more than willing to sit on the sidelines when nothing looks attractive

If you can maintain patience in times when every stock is increasing in value, you'll have plenty of opportunities to buy when stock prices come back down -- whether that's a year from now or five years from now

In the meantime, though, there are some areas of the market that look more attractive than others

However, One more reason the Buffett Indicator has climbed over the last decade is the dominance of a handful of megacap companies

Smaller stocks trade at a relatively low valuation

In fact, small-cap stocks ved to be a great investment amid the peak of the dot-com bubble

Moreover, Meanwhile, Data by YCharts

Conversely, Taking the time to find great value stocks amid small- and medium-sized companies could be one of the best ways to guard against high valuations in this market and ensure you preserve capital in case of a downturn

Meanwhile, Adam Levy has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Berkshire Hathaway

The Motley Fool has a disclosure policy (quite telling).