Buffett Indicator is the percentage of the total market cap relative to the US GDP. According to Warren Buffett, such an indicator is probably the best single measure of where valuations stand at any given moment.
How does the Buffett Indicator work?
In 2001, Warren Buffett said 75% to 90% are reasonable; over 120% suggests the stock market is overvalued.
As of Aug 28 2021, the Total Market Index is at US$ 46.88 trillion, about 206% of the US GDP, signaling the market is heavily overvalued.
Did Buffett Indicator work well?
Let's see the historical chart of the Buffett Indicator. The ratio reached 140% in 2000, portending the dot-com bubble which eventually burst. The NASDAQ fell by 75% from March 2000 to October 2002.
The ratio also reached 155% in Feb 2020, followed by the pandemic crash that caused the S&P500 Index to drop from 3393 to 2192, a 35% correction. However, stock market quickly bounced, doubling from the dip.
And when the ratio breaks 200%, we are witnessing history undoubtedly.
Will this time be different? 
With interest rates at historic lows, there is a voice in the market that "this time is different". 
Cathie Wood said: GDP statistics evolved during the Industrial Age and do not seem to be keeping up with the digital age. Thanks to productivity, real GDP growth probably is higher and inflation lower than reported, suggesting that the quality of earnings has increased significantly.
Overall, if the stock market is a game, you have to stay in the game before you beat the game. The Buffett Indicator can be a tool to relocate where we are in the stock market. It's never too late to do our due diligence and control the risk to gain a long-term return. 
Do you think the Buffett Indicator is useful? Should we pay close attention or just ignore it? What should we do in response to such an indicator? 
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