Be Greedy When Others Are Fearful

[Russell Brazil]

Be Greedy When Others Are Fearful – A Lesson From The Financial Crisis

“Be fearful when others are greedy; be greedy when others are fearful.” – Warren Buffett

There is a lot of fear in the market place right now. There was a lot of fear in the market from 2007 to 2010. On August 9th 2007 BNP Paribas, the largest bank in France froze withdrawals from two of it’s money market funds. Imagine what that must have been like. At that time, the general public viewed money market funds as no different from any other bank account. Suddenly, and without notice, you as a banking consumer could not use, take out, or spend your own money. This is what most of us point back to as the very start of the financial crisis.

From 2007 to the bottom of 2009, the DOW went from a high of 14,164.53, interestingly enough 2 months after the PNB Paribas disaster, in October 2007 to a low of 6,594.44 on March 5th 2009. A loss of 53% over the course of a year and a half. If you think the roughly 30% drop you’ve experienced in the last few weeks is bad, then you probably were too young to be investing 13 years ago.

Time of fear though present opportunities for the disciplined investor. I don’t think we have hit a bottom yet, and I am not trying to. It took 19 months from the start of the financial crisis before the stock market hit it’s bottom. It took a full 24 months for housing to find a bottom from it’s peak. By the way, I think if you are waiting for some collapse in housing prices, you are likely dreaming. Now that doesn’t mean they can fall in certain markets, ones that are more prone to a boom/bust cycle; but a retreat in housing prices is simply not a very common occurrence on a national scale. But with the memory of the housing collapse still fresh, recency bias blinds us.

I made most of my wealth from 2008 to 2011 by purchasing distressed assets. Those assets were both stocks and real estate. I see opportunity again. I do not think we are near the bottom yet, but I have already started to buy again. I haven't made a stock purchase in the last year until this past week. Im going to continue to dollar cost average as things continue to go