The Buffett Indicator

The Buffett Indicator

November 10, 2020 – Please, please, please, PLEASE understand the stock market is not without risk.

The stock market has had a phenomenal run over the course of the past decade. Fortunes have been made, lost for a bit, then made again.

If you’re among those who have benefited from this prolonged bull run, CONGRATULATIONS! You beat the house in Vegas.

Alas, human nature is such that prolonged stock market success often lulls investors into a false sense of security. They remain solidly invested even when certain indicators suggest it may be wise to pull back.

And just like the gambler who can’t walk away from the table when they’re ahead, bad times may lie ahead.

Now is one of those times. It’s actually been here for the better part of a year.

The Buffett Indicator

Warren Buffett has few peers when it comes to investing success. Using a combination of skill, common sense, patience, and a shrewdness which belies his folksy nature, Buffett has amassed a personal fortune and personifies wealth building acumen.

Because his words carry so much weight, the Buffett Indicator, which has historically pinpointed when stocks may be overvalued and could come crashing down, is something everyone with market exposure should pay close attention to and can be simplified as follows:

Market Capitalization/Quarterly GDP

The higher the Buffett Indicator number, the greater the risk.

Comparing Historical Buffett Indicators

According to this graph from DQYDJ.com, the Buffett Indicator hit 2.227 during Q2 2020. That’s really high! Throw in a global pandemic and stimulus spending over the past ten months and the market would seem even more precarious.

For the same reason athletic teams review film of games already played, sometimes backward glances can help shed light on how to prepare for the future. For perspective and to see what may lie ahead, let’s pick a few select periods starting when the nonagenarian Buffett was a spry 30-something year old investor:

Quarter Year – Buffett Indicator – DJIA – Years until DJIA returned

Q4 1968 – 1.022 – 6,529 – 25 years

Q1 2000 – 1.886 – 15,526 – 6.9 years

Q2 2007 – 1.524 – 16,747 – 6 years

Q1 2020 – 2.160 – 29,276 – ???

IF the market does tank, are you comfortable waiting six, seven, or even twenty-five years until the markets return to their pre-crash levels? That’s a lot of cash you’ll be burning.

Remember the Roaring Twenties? Of course, you don’t. Unless you’re 105 or older! That decade was one of exponential economic growth and widespread prosperity. It was an amazing time for many. Until it wasn’t. Once the bubble popped, the Great Depression arrived sending stock values plummeting along with the economy which took more than twenty-five years to recover from!

Your Safest Bet

So, if you are in or near retirement and are still fully invested in the market, do yourself a huge favor and GET OUT NOW! At least partially. You don’t need to completely eliminate your market exposure, but converting some of your portfolio into a stream of safe, secure, tax-advantaged cash flows will go a long way toward preserving what you’ve earned and protecting yourself from potentially catastrophic loss.

If you are about to receive money from a personal injury settlement, here’s another little bit of Warren Buffett wisdom worth sharing. Structured settlements remain the safest, surest choice for anyone ready to settle their insurance claim. Some options even include stock market-driven upside potential without the downside risk.

Structured Settlements: Taxable Damages

Sixth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Taxable Damages

May 21, 2019 – If you’re a regular follower of our educational content, you already know there are few subjects we’re more passionate about than structured settlements for claims and lawsuits involving taxable damages.

We’ve studied it, researched it, created analytical tools to help clients make more informed decisions about it, presented MCLE classes to attorneys about it, written articles for national and regional periodicals about it, and complained to Congress about it.

In short, if you need help on this topic, you’ve come to the right place.

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Structured Settlements: Policy Limits

Fifth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Policy Limits

May 17, 2019 – People and businesses buy liability insurance to protect against personal or corporate financial loss when lawsuits are brought against them.

Resolving lawsuits can be problematic enough under the best of circumstances. But when accidents are severe enough and/or the liability limits too low to adequately compensate the plaintiff for their loss, the challenge is magnified.

Structured settlements can play a vital role in those situations where the accepted value of the case exceeds the policy limits.

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Structured Settlements: Post-Verdict Negotiations

Fourth in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered.

Today’s Installment: Post-Verdict Negotiations

May 15, 2019 When personal injury lawsuits are adjudicated, it’s a safe bet that one side or the other will be displeased with the end result. Usually it’s just a matter of degrees of disappointment.

Once the jury renders its decision – whether a defense verdict, one of the “runaway” variety in favor of the plaintiff, or somewhere in between – litigation participants have few choices about what happens next regardless of which side of the v. they stand.

They can accept the verdict, appeal it, or seek to compromise the decision.

In all but a few rare instances, a structured settlement can be a powerful, if underused, tool at this phase. Yet surprisingly, many claims professionals and attorneys (plaintiff and defense) alike incorrectly assume that a structured settlement is not possible once a verdict is rendered.

While it is true that a final judgment with no appealable issues triggers constructive receipt and therefore cannot be structured, in most cases structured settlements are not only possible but quite useful following a trial.

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Structured Settlements: Catastrophic Injuries

Third in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered

Today’s Installment: Catastrophic Injuries

May 10, 2019 – While structured settlements are useful in resolving a wide variety of liability disputes, those involving catastrophic injuries are especially well-suited to this method of claims resolution.

When an accident leaves a person tragically impaired requiring health care and living assistance extending well into the future, there are several reasons a structured settlement should always be the first choice when negotiating and finalizing these lawsuits or claims.

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Structured Settlements: Fatalities

Second in a series of blog posts dedicated to helping clients decide when a structured settlement should be considered

Today’s Installment: Fatalities

May 7, 2019 – “Death is a crisis that all families encounter, and it is recognized as the most stressful life event families face . . .”

The preceding quote was excerpted from Chapter 4, “Death, Dying, and Grief in Families” (Murray, Toth & Clinkenbeard, 2005), of Families & Change: Coping with Stressful Events and Transitions, a best-selling text of compilation scholarly research on a topic most of us would sooner avoid.

No death can be minimized, but the unexpected, sudden death of a loved one leaves families feeling especially violated as they struggle for comfort that is too slow in arriving and acceptance of a new reality they never asked for.

The ensuing grief takes a significant emotional toll on psyches and many families fracture to the point of permanent dysfunction as a result.

When survivors file insurance claims and wrongful death lawsuits due to negligence alleged to have caused a fatality, they experience a new set of stressors inherent in the litigation process which can prolong their suffering and worsen their already-fragile sense of being.

And that’s just the emotional toll.

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Finn Financial Group