Being greedy when others are fearful

One of my life philosophies is that if very successful and smart people say things, one should pay careful attention.  This blog, for example, resulted from just such a situation.

I look at the markets today and I see and smell fear.  Never mind that much of the fear is generated by skewed, distortionary indices like the Dow; never mind that the media deliberately worsen it by anthropomorphizing and exaggerating the market.*  Never mind that it’s all based on taking advantage of a fundamentally innumerate public’s emotions.  I can’t change any of that.  I can, however, profit from it.

(*Think I’m exaggerating, myself? Riddle me this, Robin.  When I first started losing money buying stocks because I thought I was smarter than other people, in 1987, the useless, worthless, despised Dow was around 2000.  A 100-point triple-digit loss would be 5% at least–a really bad market day by nearly any measure.  Fast forward to our modern day of Dow 10000+.  A triple-digit loss of 100 today is 1%–essentially the expected daily fluctuation.  And yet today, even today, a triple-digit day (by itself a meaningless threshold anyway, just a number) gets big reactions, reactions like it used to get in the early 1990s.  Why?  This is stupid. If you get taken in by it, or even influenced by it, you harm yourself. And when the media characterizes the market as ‘struggling to hold gains’, you surely can see how stupid that is. The market does not care what it did five minutes ago. It does not struggle. It is not a person.)

Anyway.  My own philosophy on investing is fairly simple:  patient and ruthless.  I don’t use investing as a social responsibility tool.  I would buy Wal-Mart in a heartbeat if I thought I could make good money.  Owning their stock does not help them because the initial offering is already subscribed; if you sell it, someone else will own it.  Plus, if you want to use it as a social responsibility tool, buy up a ton of shares and then vote them against the board of directors, and start shareholder movements that annoy management. That actually affects them.

So when I see a big selloff after a week or two of selloff, I’m not nervous.  I never look at the market without asking myself what I would do if this were the day–the day it plunged 20% followed by another 10% tomorrow.  Having seen that in life, when I see the markets go south, I start doing like Buffett says:  others are fearful, so be greedy.  I am bargain hunting.  I want to buy solid income investments at bargain prices, gaining high yields.  Why do I like income? Very, very simple.  I don’t have to worry about when to sell the investment.  I just collect my money and thank them.  The important thing is to buy so cheaply that your own yield is ridiculously higher than what most people will get.

Waiting, watching and checking cash balances.  C’mere, high yields.  I won’t hurt ya.  We’ll be friends for a long time.  I won’t freak out and sell you in a panic like most people.  It’ll be great for both of us.  Stability, steadiness, profit.

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