Buffett: 'Everything in valuation gets back to interest rates'

Warren Buffett discusses stock market valuation in an April interview with Yahoo Finance's Andy Serwer. He explains how the most important variable in measuring value is interest rates.

ANDY SERWER: I mean, it surprised me when you said you didn't think the market was overvalued relative to historical ratios.

WARREN BUFFETT: Well, you've got to crank in interest rates, because everything in valuation gets back to interest rates. And if you take the US treasury bill now, which is, we'll call it 80 basis points, [INAUDIBLE] maturity, that means that the US treasury bills are selling at 125 times earnings. Now, if your alternative is to buy something at 125 times earnings, or a good business whose earnings will probably increase at 15 or 18 times earnings, you've got to measure it against the risk. It isn't really a risk-free instrument, but the standard rate.

And in 1982, the rates got up 15 percent or thereabouts. And that makes a lot of difference. I mean, you've got a choice with money. What do you do with it? In Europe, if you put it in the bank, you will be charged for having it there. It's better to keep it under your mattress. So you've got a choice every day in what you do. And I think equities are cheaper than fixed-dollar investments.

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[lorikpajaziti]

simple but yet nobody bothers to listen. Thank you for your knowledge mr. buffet

[hugosalinasaliaga]

Someone please help me understand. How is the US Treasury Bill 80 basis points (as of Feb 2019)?

[ni]

Very bad sound quality. What a shame as wisdom offered by the gentleman is priceless.

[livefreeordie]

80 basis point? What treasury bill is he refering to? Is this an old clip?

[ricardodelacrvz]

he said the gold era for value investing was dead oh men I think he greatly underestimated the fact that the golden era for fixed dollar investments is officially dead for the next 15 years or forever based on the flow of information as of 2021. americans can still take a chance at enslaving european here because of financial illeteracy. just spoke to my bank advisor here in france who didnt evem knew what the sp500 was about.

[lassali]

I love warren but he's probably got like 5 years left in him. Let this man go get some rest.

[slovokia]

So since the US government won’t be able to pay market interest rates on its debt in the future, the federal reserve will keep interest rates very low -> presto assets are incredibly valuable since their income streams are discounted with artificially low rates. That is until the whole thing blows up.

[Clixlol]

You can`t ask someone with billions in the market if it`s overvalued if they say yes they sign their own funeral. Should be common knowledge