Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

Warren Buffett

The smartest financial guy in the world, Warren Buffett, has a saying that goes something like this: you should be fearful when others are greedy and be greedy when others are fearful. What Warren means is that if everyone is jumping on the bandwagon you should hesitate because in most cases when something looks too good to be true, it usually is. And when people aren’t jumping on the bandwagon you should take a closer look at it because the reward of doing so could be extremely high.

Right now everyone seems to be fearful, so I would like to share with you a few ways I am trying to be greedy (which will hopefully make me rich).

Stock Market

During the last few months the stock market took a big dip. Just about every stock is down which has caused people to become fearful about playing in the stock market. I don’t know if the stock market is at its lowest and truthfully I don’t really care. I just know that within the next 5 years it should be doing better than it is now and because of this I am being greedy when it comes to playing the stock market.

Compared to most people I have very little knowledge about the stock market. But one thing I do know is that companies that the government has bailed out are very unlikely to go bankrupt… especially ones like AIG who received 150 billion dollars. Due to this I have been buying stocks like AIG because I feel I will make a substantial return on my investment within the next 5 years.

Buying Companies

A lot of business owners are in debt right now, and as you know, cash is king during a recession. So when a business owner is looking to get rid of his profitable business because he is personally in debt, you can squeeze him to get a very favorable deal for yourself.

What I have been doing in the last few months is hitting up popular websites and asking them if they are interested in selling. In most cases website owners aren’t selling, but every once in a while you will find a website owner who is willing to sell at a great price because he is personally strapped for money due to some rare circumstances.

Angel Investing

Venture capitalists and angel investors aren’t investing much money right now. Good companies who are in need of money are offering more equity in their company than they usually do. Because of this you could potentially get better returns from investing during this recession than most people have seen for decades.

These are the main 3 ways I am currently being greedy. Anyone else want to share how they are being greedy?

Disclaimer: I am not an investment professional, this is just my opinion. Invest your money at your own risk.

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Comments

  1. Warren Buffett :

    “The smartest financial guy in the world, Warren Buffett” has a company you can invest in (by simply buying its stock – BRKB ) and then you can get the same returns he does, or you can listen to Neil, who “very little knowledge about the stock market”.

    If it is a tough call, just ask yourself: WWWD?

    What Would Warren Do?

    • Warren would invest in BRKB. Or at least I would if the stock was lower… ;-)

    • As the great Lionel Richie said, hindsight is 20/20 vision. Me? I bough 10000 BRKA shares in 1972, but I was driving my special Delorean.

    • I think Warren would not invest in his own stock now. It’s not boring anymore. He favors Benjamin Grahams’ approach of buying undervalued, ignored and boring companies sitting on a large amount of assets. And btw, the quote about being greedy when others are fearful, sounds like a Graham quote, Warren’s mentor.

      Also, buying AIG stock before/after receiving $150 billion in govt aid is not a good thing. Its a very bad thing, that $150 billion errodes stock holder’s returns. The more govt money, the less more watered down the common stock becomes.

  2. I have been greedily dumping all of my extra money into main stream companies that had their stock price drop significantly.

    • Consider looking at companies like Honda (HMC) and Bank of America (BAC). I am a big believer that both of those companies will do well in the next few years.

      *Play at your own risks ;-)

      • Actually, I was looking at citigroup – but I sold it already. It went to 5, and then into the 3s. I broke down and sold it in the 6s. Unfortunately, it went into the 8s.

        I also put a decent amount in GE. They’re still seemingly committed to a nice dividend and once they work out GE Capital – they’ll be set.

      • BAC has been savvy this entire time, picking up other companies on the cheap. I bought some last week, I think they’re going to leave this tumultuous as the big winners.

        • Same here. I think it is a great long term stock.

        • You know, I hate bank of america. Quite simply because I hate their customer service. Just do a search on Twitter about it and you’ll see a ton of people hate it.

          • Not sure if I understand Derek correctly, but it is not clear to me that poor customer service is going to deter a sufficient number of current customers from continuing to bank with BofA, especially given the record of some other banks. If you are suggesting that one vote with one’s wallet against poor customer service, then by all means it is not a good idea to have BofA in your portfolio. If you are trying to make some money, then I think the other points made here about BofA are valid in terms of contemplating the direction of its stock price. (I’m a case in point. I have complained numerous times to BofA as a customer both in CA and in MA and yet I’ve banked with BofA or their predecessors for 10 years. There are various reasons I have for continuing to bank with them and since I have banked with them for so long they usually end up offering me good customer service at the local branch and make all kinds of deals to make up for the nonsense I have experienced in other cases. That being said, I understand and can appreciate both viewpoints presented here.

            • I think it comes down to how much money you have at Bank of America. If you have enough money they will give you great customer service. (But that probably goes for any bank)

          • I personally haven’t had any problems with them. They are great about waiving fees…

            • I’ve worked there in the past and our branch was all about customer service. Neil’s right, if you have a ton of money there, you’ll get taken care of.

              Yes, very good about waiving fees.

  3. I hear you on this one, Neil! Also, right now a lot of people are cutting down on their budgets for marketing and promotion, but I think it is a good time to make sure you keep your brand/product/music/what not out there so that when people are ready, they’ll come to you first. There are so many free tools of which you can take advantage, if you invest the time to use them (especially if cash is short). Also, if someone is out there seeking funding (as I am) and feeling grim about the prospects (as I sometimes do), one thing I try to do is to remind myself that there are people like you out there who are not as fearful and who might be willing to take a chance. If I don’t try, then I won’t have the slightest chance of finding that angel investor …. : )

  4. some of my suppliers who have a low inventory turnover rate and high operating expenses, the credit crunch has hurt them, so they’re scrambling to turn their inventory back into cash, they’ll give us a good deal to move that inventory out their door, thus increasing my margins.

  5. Great post Neil. It’s weird to say but I have been dreaming of a time like this my whole life. When I was little I used to dream about stocks tanking and buying a bunch and waiting ’til they went back up. I only wish I had a little more cash on hand right now to take full advantage.

    Fortunately for people like you and I, most people have a really backwards way of thinking. They invest when the market is high and panic/sell when it’s low. It’s common sense, I am not sure why majority of people don’t get this. Buy low, sell high! I was smart enough to figure this out when I was 10.

    I’m also trying to buy a bunch of websites right now. Not only am I finding that you can get really awesome deals right now, but the more sites I buy, the more I realize that some website owners don’t have a clue what they’re doing. I’ve had a couple instances where just doing some simple SEO has doubled traffic in like 1-2 months. That’s just one small example. So not only do I pick up a site at a great price, but I instantly double it’s value.

    On the flip side, I am just about to raise some angel for one of my companies. I’ll probably end up giving away a little more of the company than I want, I know that, but its a means to an end… and there’s a nice big pot of gold waiting at that end.

    Good post brotha!

    • Thanks Cameron. You make a good point in which you shouldn’t just look for acquisitions based on their current state, also look for acquisitions that you can easily improve upon.

      Best of luck with your ventures!

  6. Like I always say, “Your pain is my gain” – It speaks for itself when people buy businesses that make money, but the owner is in trouble and needs to sell.

  7. I knew there was a reason I thought you were so smart Neil… http://twitter.com/chiropractic/statuses/965545431

    In my one business we bought all new equipment this month, reason one because it was Dec. and the other because the manufacturers were so in need they bent over backwards to make us happy.

    Like Cameron, I’ve got my eye on some sites (and bought two killer ones this month) for 2009. Excited!

  8. Warren is the man, but did anyone read the article about him cutting off his grand-daughter for going behind his back?

    Personally, I have my own small company but my main bread and butter is real estate and stock market. Its too cheap right now

    Another way I get into business so to speak is buy equity into start ups. Some people have the idea but lack the resources. I can step in and offer money for a stake and then either go in alone or with a few other guys. Its not million dollar deals yet…but small steps indeed.

    btw, how do you sell domains? I have some lying around that I would not mind fishing a price for.

  9. I agree with you but problem with 3 ways is that when you have not enoght money (thousand of dallars) you are out of game :(

  10. I have actually used this time to leverage large media companies who have big advertising connections to create partnerships so I could get a very high CPM deal paying around $4 CPM so it has helped optimize my websites and then when everything starts coming back I will be in a high position to get a big buyout of the website or to create more revenue than my competitors.

  11. Find blue chip stocks that have solid dividend yields that have been beat up but don’t have cash flow issues, they are most likely to keep paying out dividends and ridiculously high yields to their stock price.

    Mr. market is having a sale!

  12. I really like the Proshares ETFs for diversity and market exposure. Small caps are your best area for growth potential. UWM is a 2x long the Russell 2000 which should do well during a market recovery.

    Current price for the UWM is in the $19’s.

    It’s opposite, which is 2x short the Russell 2000 is TWM… currently trading in the 90’s. You get the potential.

    Of course, who knows when the market will recover :)

    • I would be careful about buying and holding some of those ETFs, they’re designed for day traders, especially the Ultras (where it’s 2x or 3x some index). Why would it matter who they’re designed for? Well, they will usually not actually be 2x or 3x the index (either long or short), but close enough for a daytrader; those differences can hurt you in the long run since you bear the risk but don’t reap the full rewards.

    • Thanks for sharing. I personally like QQQQ.

      • I prefer the one with four Q’s :)

        SSO and SDS are good too, they’re the 2x long and short S&P. UYG and SKF are the 2x long and short financials, which has been fun the last few months.

        My favorite in terms of name is DIG and DUG, 2x long and short Oil/Gas.

  13. Neil, do you invest in foreign stock markets…the Indian markets were skyrocketing ridiculously high recently, although now they have suffered big losses.

  14. Investing in what you know is a good philosophy for sure, however you would do well also to find people you trust, and invest in what they know.. :)

    Broaden your horizons, just don’t jump on something because some guy knows a guy, who’s sister’s uncle’s father’s cable guy has a tip.. :)

  15. It’s more common to see an aggressive investor become successful vs one that is conservative.

    • I think conservative investors will be successful as well, but they may not be as rich. With lower risks come lower returns.

      As for the risky investors there are a lot that lose money as well. The problem is, we just don’t hear about them as much. We tend to talk about successful people and we seem to forget about the ones who fail.

  16. I am very interested in the idea of investments. Before we invest on money on any business, we should be wise about it. This a serious matter

  17. Vakfıkebir :

    Like I always say, “Your pain is my gain” – It speaks for itself when people buy businesses that make money, but the owner is in trouble and needs to sell.

  18. Like I always say, “Your pain is my gain” – It speaks for itself when people buy businesses that make money, but the owner is in trouble and needs to sell.

  19. Excellent post and advice Neil! I think now’s definitely a time which can make many people a lot wealthier down the road..The problem seems to be that it’s also a time many are still struggling to get by and don’t have that “play money” to invest. That’s the Catch 22 I guess..but opportunities abound…

    As for stocks, I’ve had my eye on several..Wachovia could also bounce back just like AIG. There’s some low priced techs such as Ciena, Skyworks and Telabs, and AMEX is another I keep my eye on. I agree with the theory of buying blue-chips with high dividends also, a typically safe and very profitable play. REIT’s are also worth looking into as they pay high dividends and can really rack up extra shares if you do dividend reinvistment plans with them.

  20. To continue with work with honesty, punctualilty, sincerity…
    – The best greed

  21. This is a good post..”Be Fearful When Others Are Greedy and Greedy When Others Are Fearful…”

    Its 4am, and this last read give me something to go to bed thinking about…

  22. Happy holidays to you too. and a belated Christmas wishes..

  23. There is definately a ton of opportunity to be had in the stock market, while the prices are still low.

    You just need to know how to invest, and whether the stocks in question are worth the ROI. ;)

  24. Jacques Seoman :

    Geez guys, all I want to say is that the stock markets are at their most volatile right now, and there is increasing talk that we’ve only seen the tip of the iceberg, and that there are many more bailouts imminent…right now I’ll invest in Gold and Commodities, and not much else. Paper is very unsafe right now!

  25. Hey Neil,

    How much do you invest into the stock market?

  26. Well these sound like good ideas but with out proper finances yourself you are probably not going to be able to invest where you really want to. Some people might just say this is a situation where the rich get richer, but with big money comes big risk, and rewards so stop complaining and go make some money.

    Thanks
    Custom Silicone Bracelets

  27. Now is a great time to buy companies, your right.. Domains also! I’ve been stealing some great aged domains lately for next to nothing

  28. The title of this blog post is one of the smartest titles i ‘ve ever heard. I was always on the oppossite side when people where telling me not to do something because nobody else is doing it. They were asking me: do you think that everybody else is stupid? And i was always answering: Maybe, who knows. It’s always maths, if you invest 1$ you might lose 1$, but under extreme cicumstances you might win 10$

  29. still buying businesses Neil?

  30. Neil. This is a great quote….. I have been using it for a while now and when people use the economy and their reason for not doing business. It works like a charm.

  31. I am thinking to buy Satyam shares which are at down prices, would love to make long term investment without fear because i know the company is brand and gov. of india is going to announce Bail out package for the organization.

  32. So funny, but so true. This is what’s happening with the real estate market. Many people are jumping out, and right now you can buy houses cheaper and sell them at just below normal market rates…lol

  33. Sitting on cash at current interest rates is foolish. It is better to invest for the future and when bargains are available, one should invest. I think that you have got the right idea.

  34. This is a very sound advise. That’s why I am always very skeptical when every Tom, Dick and Harry are running up and buying stocks in certain companies. According to Robert Kiyosaki, the awesome author of Rich Dad Poor Dad, when the good deals become public knowledge, they are no longer good deals. So, it’s indeed true to be fearful when others are greedy and to be greedy when others are fearful. Thanks for sharing this, Neil.

  35. Nice post :) I personally thnk, If you have enough money bank of america will give you great customer service.
    Bt the reality is that the rich usually think money is the best greed…..

    • If you have that kind of money, you better not leave it all in one bank.

      The problem with rich people is that they tend to want more money and that is all they care about. Or at least some rich people are like that.

      • I agree with you. I know its important to make money, but rich people are forgetting to create, to give a new value to world, to leave this world a little better.. To help others.. (I realize that when they donate their 10% annual profit they are donating much more money then I am, but for example. Buffet, richest person still lives in his “old” house, not having his jet, not having yacht.. You see where I am looking..

  36. we all know this ways to be rich faster but don’t you see that this ways need that i became already rich or at least have a good capital to invest in ?

  37. Mr. Buffet also stated that he’s fine with putting all of his eggs in one basket as long as that bucket is a good one; as he have all his assets in Berkshire Hathaway. LOL Read Rudyard Kipling’s poem.

  38. Doing everything differently can offer you huge opportunities – after all there’ll be a lot less competition. But there’s always a reason for people to avoid something and if you’re doing something noone else does you’re taking quite a big risk.

  39. I think Mr. Warren Buffet have a great knowledge about stock market. I saw his interview on CNBC tv before 2 years. He bought his first share at age 11 and he now regrets that he started too late! He bought a small farm at age 14 with savings from delivering newspapers. He still lives in the same small 3 bedroom house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.

    Thanks for great info about Warren Buffet

    Himanshu

  40. cash-loans-uk :

    Warren demonstrates that if you are rational, intelligent and not averse to risks you can be successful in very adverse situations as well. His story is definitely that of grit, intelligent guesses and making the right decisions at the right time.

  41. I think Warren Buffet is a inspiration to a lot of business owners, especially stock brokers due to his long standing success. To spend 20 minutes with this guy and learn what he knows in this game is a wealth of information, but for some reason I think it’s a little more simpler than that. You might be on to something Neil.

  42. I have been looking into real estate. There are so many people willing to sell low just to get rid of their houses. You can get a steel right now if you buy in a key area, then you can rent it! Have the renters pay the mortgage plus some them, hold onto it.

  43. I read about his philosophy and also saw the same in a property tycoon (I forget the name). He said he was having a field day right now as everyone is selling so cheap so he can pick up amazing portfolios for the fraction of the previous selling price.

  44. Well right now I am not really being greedy in the stock market, I am smart enough to know, that right now I don’t know enough to invest wisely in the stock market. But… I do like Warren Buffet’s quote, and my dad has said to me something similar… That it’s a fine balance between Greed and Fear, and those who can find that balance, are those who will excel… and sometimes you just get lucky, hehe.

    Till then,

    Jean

    • If you don’t have the knowledge, I suggest you QUICKLY run to figure out a way. If you don’t you’ll miss out on an opportunity you won’t have for another 10 years or so.

      • You are definitely right in the end Neil, now is the time to invest more than ever, I would say a couple of months ago was even better, since the markets were even lower. But for me right now.. paying for college, pretty much depleted my money, hehe. I am going to start my third year in Finance (my major) this fall semester, starting on August 24th and it will be my first class in Money & Banking, as well as Corporate Finance, so hopefully I will learn enough to be able to invest with the little to no money that I have right now, hehe.

        Till then,

        Jean

  45. Im not a fan of warren buffet the fact he didnt support ron paul at all im disgusted. This guy is most likely in with obama that is why he has so much money. I doubt this guy is as smart as they say because if he was why would he support obama when obama wont end the federal reserve bank.

  46. I personally thnk, If you have enough money bank of america will give you great customer service.

  47. it is full of buisnes that seem to be too good to be true, most of the time they are, one should look where people is not looking, thats a great advice, simple but true .

  48. I like your post Neil, and thanks for sharing some very sound advice.

  49. I love the approach Warren has taken, it speaks to the idea of setting yourself apart from the rest and positioning yourself for the effects of group think. Keep thinking everyone.

  50. I’m also trying to buy a bunch of websites right now. Not only am I finding that you can get really awesome deals right now, but the more sites I buy, the more I realize that some website owners don’t have a clue what they’re doing.

  51. Thanks Neil for sharing this sound advise by Warren Buffet.

    You will unlikely go wrong following this advise. I have followed his advise for more than a decade and it worked brilliantly every time.
    I have provide different perspective on the same topic but from a human behavioural side on my web site (http://http://topinvestmentwisdom.com).

    Parag

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