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“Be fearful when others are greedy, and be greedy only when others are fearful,” is, as modern investment maxims say, about as canon as it gets. Even by the standards of Warren Buffett – whose public utterances are parsed by millions of acolytes, like decrees from above – it is one of the undisputed greatest hits.
Mid-period (pre-Buffett-backed) Apple put it more succinctly, with its ‘think different’ rule. For investors, the implication is the same: If you really want to make money in the stock market and protect yourself from the worst excesses, you can’t do the same as everyone else.
But what exactly are we talking about here? A closer look at the Buffett oeuvre reveals that his aim was broad. In his 1986 letter to shareholdershe referred to fear and greed as two types of “super-contagious diseases,” with an epidemic quality that spreads across a market. That incurable human tendency towards extremes and busyness. An aspect that, as the S&P 500’s forward earnings ratio reaches levels not yet seen this century, is scaring Buffett (and in a fortress of cash).
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