A Lesson from Warren Buffett on Buying Fear Revisited

Last year in February, I wrote a blog post entitled "A lesson from Warren Buffett on buying fear." The S&P 500 was down 5% from its high and the negative headlines focused on slowing global growth and worries about the Fed tapering. If you had bought on that day, you would be up over 20% on your investment!

Last October, I referenced fear again when CNN Money's Fear and Greed Index hit 0, which was the first time it was that low since 2011. It was just two days from the market's interim bottom and if you had bought on that day, you would be up over 10%!

warren buffet buying fearBuying fear is a worthwhile strategy. Don't just take it from me, listen to Warren Buffett.

Warren's famous rule is:

Be fearful when others are greedy, and be greedy when others are fearful.

This seems to be a simple rule but even Buffett admits that it is easier said than done. "There is no comparison between fear and greed. Fear is instant, pervasive and intense. Greed is slower. Fear hits."

An interesting investor sentiment indicator is called the Fear and Greed Index from CNN Money. During a bull market cycle, buying in times of fear make for great buying opportunities. Right now it is once again registering Extreme Fear. Here is a chart since 2012:


In Conclusion

Over the last month, the media has been infatuated with the negative headline risks of Greece and China. At Runnymede, we aren't overly concerned about either of them. Today the S&P is off just 3% its highs but with the fear in the market, it appears that Mr. Market is giving you another interesting buying opportunity. On the negative side, the bull market is running on tired legs and is the 2nd longest bull market since the end of WWII. But with central bankers still running the printing presses hot, there still appears to be upside in this market.

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Are you buying into this decline or locking in your profits from last year? Please leave your comments below.

photo credit: Fortune Live Media via photopin cc
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About the Author: Chris Wang

Chris Wang


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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