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Being Greedy When Others are Fearful

Investing Insights

If a recession were to occur this year, would you be surprised?

My guess is no, unless you’ve been living under a rock.  The media continues to force-feed the recession narrative, making most believe a recession is inevitable.  

Let’s put it this way: a recession wouldn't surprise the stock market.  

What if we avoid a recession? 

Likely good news for stocks.  And while many think avoiding a recession is not probable, I believe it's certainly possible.    

How might you ask?  Well, stocks & bonds are both currently on pace for a solid year.  Economic data is surprising to the upside, most recently with China showing positive data.  Couple that with a strong US consumer and low unemployment, and the idea of avoiding recession absolutely becomes possible.  Wall Street is a place where the most obvious outcomes often don't materialize.  And a recession seems to be already baked into the equation...  


“Be fearful when others are greedy, and greedy when others are fearful.”

-Warren Buffet


This is one of my favorite investment quotes; such a great reminder for BOTH bull & bear markets.  Being contrarian tends to work during market tops and bottoms.   Today, our focus needs to be on the back end of the quote; “be greedy when others are fearful”.

How Fearful is the Average Investor?  

Data suggests as fearful as ever…let’s look:

Flight to Safety: A report from Goldman Sachs highlights the massive move from risky assets (stocks) to safer assets (money markets).  These moves tend to happen after selloffs & before rebounds.  Most investors have zero confidence in the stock market, and they’re taking risk off the table (a.k.a. selling low!).

Nervous Traders- Another survey of institutional investors conducted by JP Morgan reveals that 95% of those polled expect stocks to be lower by year end.  Takes me back to psychology class & learning about recency bias (the tendency to overemphasize the importance of recent experiences when estimating future events).    

 

And finally, CNBC’s All-American Survey revealed 69% of those surveyed hold “negative views about the economy now and in the future”, which is the highest level of pessimism in the poll’s history (17 years).  How many said now is a good time to invest in stocks?  Only 24%, which is the lowest percentage ever recorded.  So, yeah...there's plenty of fear out there.  Challenge yourself to be greedy!

Thanks for reading!  Tune out the noise, trust the process, and always be compounding. 


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Sources: https://www.carsongroup.com/insights/blog/is-anyone-bullish-part-2/