Fearful When Others are Greedy

Fearful When Others are Greedy

May 25, 2021

Experts and amateurs alike have been warning of the market’s inevitable crash for over a decade now. Economists and advisors for years have cautioned, and rightly so, that the bull market will come to an end. However, no one could have predicted it to survive for as long as it has. Many pronounced its death in late March of 2020 when COVID-19 struck our nation and ravaged the markets. Of course, they too were wrong and the market soared to new highs with an enthusiasm that carried into 2021.

                The longer the markets stay strong, the more invincible they seem and the more enthusiastic* the average investor becomes (could also read reckless*). One only needs to look at the past decade or so of returns to see why this is.

In the last 10 years alone, the S&P 500 has averaged over 14% in annual growth with only one major hiccup, the aforementioned coronavirus pandemic. It should come as no surprise then that indexed ETFs (funds that track the market indices like the S&P 500) saw inflows of $3.8 trillion over the past decade[i]. After all, the market is seeing great returns, why wouldn’t you want to cash in on that?

                Online trading apps have also seen a surge in new users especially with so many Americans at home last year with stimulus money in their pockets. Robinhood, the now infamous trading app, started in 2014[ii] and rose to national prominence during the height of the pandemic in 2020. Bolstered by public interest and enthusiasm, Robinhood reached an impressive 13 million users[iii].

                The financial markets are not the only place where we are seeing this kind of enthusiasm. The real estate market has also seen incredible growth. In the fourth quarter of 2019, housing prices for the top 37 wealthiest countries in the world rose an average of almost 7% which is the fastest year-over-year growth in the past 20 years[iv]. In the U.S. alone, housing prices have rose almost 73% over the past decade while long-term interest rates have been nearly cut in half.

It is in times like these that I am reminded of the famous quote from Warren Buffett, “be fearful when others are greedy. Be greedy when others are fearful.” Personally, I would prefer to describe the rational investor as “disciplined” rather than “fearful” or “greedy” but the saying holds up. It can be easy to be swept up in the shear exuberance of the moment and pour your hard-earned savings into the latest and greatest crypto currency or that new home that you really cannot afford. However, you must resist temptation! The choices that you make now will have a major impact on your finances moving forward. Others much smarter than I have tried and failed to predict the demise of the market so I won’t give my prediction (although with higher inflation and the potential for rising rates, my bet is sooner rather than later[i]). I will, however, give you a few tips to help navigate this tumultuous time and avoid the “Big Mistake” (buying high and selling low).


Disciplined Investing

                Building a financial plan and investment portfolio is an intensely personal endeavor. It should reflect your core values and beliefs about money and how you live your life. The last thing that you want to do is to abandon that plan when things look uncertain! You built that plan for a reason and if you give it up now you will look back and regret it. Stay the course now and you will come out on the other side better for it.


Avoid Overconfidence

                Overconfidence in new asset classes and the strength of the market has been a major catalyst for the growth of online investing platforms and individual investing in general. Many people have recently started investing for the first time due to the excitement of new fads and ideas. The temptation to drift away from your investment strategy is a strong one especially when your friends are reporting sky-high gains and “get rich quick” stories. While the potential for short-term success is alluring, long term disappointment is probably more likely. Don’t be distracted by what’s new and flashy. At risk of sounding like a broken record, stay the course!


Seize Opportunities

                “Be greedy when others are fearful” or better yet, “be disciplined when others are fearful”! Being a disciplined investor does not mean that we cannot take advantage of the opportunities that the market gives us. Last March, the market gave us a huge opportunity to invest cash that our clients had on the sidelines. Many of them saw returns that will help propel them towards their retirement goals! Careful planning now can put you in a great position to seize the moment when the bull market does finally come to a close.


I can’t leave this post without giving you a song of the week! Today’s song is a new one that I am really enjoying right now. I hope that you enjoy it as much as I do!




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. Investing in stocks involves risk, including possible loss of principal.

[i] https://www.morningstar.com/insights/2020/01/29/fund-flows-recap

[ii] https://www.fastcompany.com/company/robinhood

[iii] https://www.cnbc.com/2020/10/07/how-robinhood-and-covid-introduced-millions-to-the-stock-market.html

[iv] https://www.cnn.com/2021/05/13/business/global-real-estate-prices/index.html