INVESTING WITH CLARITY™ BLOG
"Greed is Good"
January 20, 2012 8:57:00 AM
Greed is good, greed is right, greed works.
These are the famous words uttered by Gordon Gekko in the popular movie, Wall Street.
Is greed good? Is it right? Does greed work?
However, I mean yes only in the context of what Warren Buffett has uttered about greed: Be greedy when others are fearful and fearful when others are greedy.
By this, Buffett meant that prime buying opportunities may exist when others are fearful to invest (like after a market downturn).
Conversely, we should be cautious when many others are piling into a hot market
(like with tech stocks in the 1990s or bonds in recent years).
Remember, it is during corrections when investors get the chance to continue to buy into the companies they want to own through the great benefit of dollar-cost-averaging.
Ultimately, what matters most in investing in a company is not how they perform tomorrow, or over any single day, week or month, but rather what it does over time.
Investing in companies is meant for the long-term, for investors with long-term needs. Thus, that's why we view market downturns as profound buying opportunities, since they provide the potential for significant gains over the long-term.
In light of the market and economic uncertainty over the last several years, investors have continued to move out of equities into bonds. This process has continued to reduce equity valuations while interest rates got to levels no one expected. Isn't it time to get greedy?
Time will tell. However, owning businesses (and not trading the stock market) is a process which must be conducted over time!
A famous writer once wrote: The years teach much which the days never know. As investors, we should monitor the markets, but not get hung up on what happens on a daily basis. Rather, we should be encouraged that time and again, the markets have historically rewarded those with the aptitude and attitude to invest wisely and patiently, over long periods of time.
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