"Be Greedy When Others Are Fearful"

“Be Greedy When Others are Fearful” - Warren Buffett

The famous saying by legendary investor Warren Buffett in full is, “Be fearful when others are greedy, and be greedy only when others are fearful.”

But how do you know when a market is fearful??

A key indication of US? stock market volatility is what is known as The Vix. It’s catchy sounding name, worthy of a movie title, is a real-time index that is seen by professional investors as a gauge of market sentiment. The higher the index, the greater the volatility, and the higher the? fear among market investors. Call it the Fear Index if you will. It’s a very accurate gauge of fear as investors actually trade the index.

Banish Fear (of) Markets - Issue 9/2022 - Market Period 28 Feb to 4 March 2022

From the 5 year chart of The Vix Index, you can see it peaked when markets panicked about Covid-19 in March 2020, when it reached 65.54. The only other time it was higher than this was during the Lehman Brothers collapse in Oct 2008, when The Vix hit 79.13.? But you can also see from the red arrow line that the fear index has been on an upward trend since then.

This week, the index reached 31.98, even higher than the day after Russia invaded Ukraine.? reflecting the worsening of the war and the financial and economic retaliation against Russia.

Last week, the S&P 500 dropped 0.79%, Nasdaq was down 1.7%, relatively mild movements given the Vix index is on an uptrend. Unfortunately, my portfolio as a whole dropped by a whopping 7.2% in one week, given my exposure to payment networks like Visa, Square, Wise, Square and Paypal.? As part of the financial retaliation against the Russian invasion, Visa and Mastercard both removed themselves as payment networks in Russia, and I sense that professional investors did not wait to assess the impact - they ”shot first and will ask questions later”, a very typical response to any uncertainty.

One company in my Not-For-Faint-Hearted (NFFH) portfolio got a pummeling last week. Grab got walloped 37% after releasing its financial results, it’s stock price went US$5.80 the day before to US$3.28 on Thursday, The reason for that is that it exceeded analyst expectations at the wrong end. Analysts expecting a US$645 million loss for the last quarter of 2021 got sticker shock when Grab responded with a loss of US$1.06 billion. But I think the worse news is that its revenue actually shrank 44% from the same quarter last year.

Investors did not wait to digest Grab’s more detailed explanations. As mentioned before, investors are expecting perfection from tech companies, and Grab’s performance was far from that.? And it got punished.

For next week, I foresee the markets being very jittery about the Ukraine-Russia war, and how it could aggravate the current supply-chain problems, trigger record oil prices, stoke more inflation, or cause more companies to pull out of Russia.

Notwithstanding that even seasoned investors have displayed market fear, I hope this Banish Fear (of) Markets newsletter will encourage you to be more comfortable about investing even during times of fear. Do you want to know what Warren Buffett performed from investing on this “be greedy when others are fearful" principle??

His investment company Berkshire Hathaway averaged 20% per annum since 1965. That’s equivalent to doubling his investors money every 3 or 4 years.

Happy investing!

Malek Ali?- Founder,?BFM 89.9 - The Business Station. CFP professional.

Disclaimer:

This column is to help people who fear investing to experience the investment rationale of a long term investor in global stock markets. It is for informational purposes only and not intended as advice or recommendation to buy any stocks. Please consult a licensed professional adviser before making any investment decisions.