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

[Mary L.]

I agree be greedy when others are fearful.  Like @Russell Brazil said, the real estate didn’t bottom until a few years later from the peak of 2006 to 2010, and Real Estate would not crash overnight, it takes time to bottom out.   It is too early to be greedy in the real estate now.  I would Not be greedy yet until at least 18 months plus later, especially in my volatile Las Vegas market.  On the other hand, stock market have a shorter time to crash and recover compare to real estate, I agree with Russell Brazil, that it may be a good time to jump in to the stock market little by little (not all in), to dollar cost average the stock market by “CASH” only, not with any margin or other form borrowing.  Margin or any borrowing will kill you in case the bottom is still far away from today stock market. 

Back in 2008 stock market crash, I jumped in and was greedy when Dow Jones fell 30% from about 14000 to 98000.  After I used up all my Cash on the stock market, my biggest mistake was, I was too greedy that started using Margin in my stock account, then Dow Jones crashed another 30% from 9800 to 6600, I was forced to sell many stocks as a loss due to Margin Call.  I lost a lot money in 2008 stock crisis.  I told myself that I would never use Margin again.