S&P 500 Intrinsic Value Index AKA Buffett Index Update


Warren Buffett was extensively interviewed on CNBC yesterday morning. Here is the link to these interviews: Warren Buffett CNBC Interviews Wed Oct 16, 2013 If you have the time to listen, I strongly recommend that you do so. His historical perspective and investment performance remain outstanding and his advice has always proven prescient.


In one video segment he recommended that investors buy stocks during the current market turmoil: CNBC Interview Warren Buffett-Buy Stocks Today He announced he had just purchased for $1.1bil a UK vending  machine  company, had spent more than $20bil on acquisitions in 2013 and expected to spend many billions more.

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His advice and his own investment decisions are not dependent on when the resolution to the current government shutdown and debt discussions occur. He does not and never has timed short term market events. He does however use the major market corrections as buying opportunities and he remains a buyer today. Buffett and other Value Investors have this same historical pattern which I translated into a market valuation benchmark which I call the SP500 Intrinsic Value Index. The SP500 (.INX) remains below this index today by ~10%. I show the historical relationship between this benchmark and the SP500 in the chart below.

screenshot 189 624x346 Warren Buffett & The S&P 500 Intrinsic Value

Remaining bullish on stocks because of attractive valuations is justified in my opinion. We are not alone in this thinking with Warren Buffett and other successful Value Investors thinking the same. No Value Investor uses short term events to time market purchases. It is the larger valuation scheme which is most important and we remain at those levels with LgCap stocks today.

I could have named the S&P 500 (.INX) Intrinsic Value Index as the “Buffett Index” as it does track the investment thinking of Warren Buffett and other well known Value Investor’s investment activities.


But I didn’t, because this benchmark is not based on Value Investor behavior, it is a benchmark based on economic valuation to which I was eventually lead by Buffett and others having developed an understanding of their thinking after extensive reading and study of their investment activity. This is the benchmark which my research indicates Buffett and other Value Investors inherently track even though none of them has explicitly said so.


It is by reverse-engineering the investment activity and commentary of a number of very good Value Investors, correlating what they said and what they actually did during particular periods of changing market sentiment that one can develop a market benchmark like the SP500 Intrinsic Value Index.


The SP500 Intrinsic Value Index is strictly a fundamental index based on US Real GDP trends adjusted to Core Inflation used to capitalize the long term SP500 Earnings Trend. It is a fairly simple index which when compared to the investment commentary and activity of noted Value Investors offers the fundamental explanation by which one understands the investment reasoning of Buffett and others for making an investment at particular points in the investment cycle. Good Value Investors have investment time frames of 10yrs+. They can buy when they believe the market is providing opportunity and sell at higher levels with the same perspective.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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