Words from the Oracle of Omaha,
“In fact, in my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now,” he told Charlie Rose in a PBS interview that aired as the Senate voted on a $700 billion bailout package.
On another ocassion he said:
“Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Worldwide there seems to be fear in almost every market. We can’t anticipate if this fear will continue or when it will depart. However, we know that fear makes people behave irrationaly, causing them to undervalue almost everything. In the current markets, you could buy a stock and see it tank 20%-40% in a week as the fear increases… make sure you’ve done your analysis well.
Whenever there are great companies available at a discount to their intrinsic value, it’s time to buy. Over time price will definitely catch up with value. This time factor, can be a long time, sometimes years… And if what the fearful are saying that this is a recession of magnitude, then the time could be a long time.
The amount of fear and the problems which the current global markets face are definitely large ones. A friend of mine said a very interesting thing, “it’s certain that the markets are presenting a good buying opportunity, however, there are going to be many opportunities to buy”. The explanation for this is, what is a discount today might be an even greater discount tomorrow. When prices sink they usually go down faster than they come up. So take your time, be extremely choosy, and buy when you get a substantial discount to intrinsic value.
Lastly, nothing is more important than a good “Margin of Safety“, especially since investment is more art than science.