Fearful / Greedy
“Be fearful when others are greedy, and greedy when others are fearful.” -Warren Buffett
Life is full of advice that is factually accurate but not very helpful. “Don’t get hit by a bus,” for example. There’s wisdom and common sense there!
It’s just not helpful or useful information. Most people who get hit by buses don’t plan on it happening when they step out into the street.
The investing equivalent of accurate but unhelpful advice is “Buy low, sell high.” This is the goal of investing, not the strategy. No one sets out to accomplish the opposite, yet that’s precisely where many people end up.
Which brings us to Warren Buffet’s profound advice: to be fearful when others are greedy, and greedy when others are fearful.
On the surface this might sound a lot like “Buy low, sell high,” but there’s much more to it. It also applies to more than just investing, and is even more helpful than “Don’t get hit by a bus.”
When others are GREEDY—look out! Easy does it. Things are not always what they appear.
When others are FEARFUL—jump in, don’t hesitate. Opportunities spring up in times of trial. Pandemics, recessions, bear markets: chaos has a habit of shaking up the status quo.
Still, as helpful as Buffett’s advice can be, living it out is easier said than done. It takes practice and self-discipline, two activities that are themselves somewhat contrarian.
Why Is It So Hard?
Flipping the fearful / greedy dynamic is hard precisely because it means doing the opposite of what others are doing. If it were easy, everyone would do it! (But then, you’d need to reverse things all over again since everyone was doing it…)
With a perfect record in the fearful / greedy department:
- You would have bought Bitcoin when it was 10 cents, thus not worrying too much when it later falls to $21,000
- You would have bought Tesla stock when Elon Musk was just a genius, then sold right before he became an aspirational dictator
- You’d know when to ride it out and when to walk away
You would have done any number of things! As I said, it’s not just about financial investing. But this winning scenario happens rarely, if ever, for a simple reason: most people simply aren’t able to resist the allure of the crowd.
They buy when things are hyped, providing exit liquidity to early investors. They mistake the peak for the beginning of a new cycle.
Then, when the price drops—or craters, like we’ve been seeing recently with many financial markets—they panic and sell.
This is not a winning strategy in investing or life in general.
Know When to HODL ‘Em (Timing Matters)
Another problem: to be greedy when others are fearful, you have to refrain from jumping in too early. If you go all-in too soon, you have no way to add to your position when conditions become even more favorable.
That’s a big part of what’s happening lately: those who kept buying as prices declined don’t have much to spend after the crash. Without enough buyers, there’s little reason to expect a quick turnaround.
As always, the decisions you make now will affect the options available to you in the future.
Whether you’re into financial investing or not, keeping Warren Buffett’s advice in mind can be helpful—but it requires constant analysis and gut checks.
Now is clearly the time when others are fearful. What does this suggest? What is the way for you to be greedy?
Answers will vary, but know this: opportunities are waiting to be discovered.
It might be harder than last year, when almost any tech stock or token you selected had a good chance of doubling in value. But there’s no doubt that lots of people are fearful, so start with that as a clue.
If you look away from the crowd and into the future, what will you find?