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Fear and greed

Scott Jagow Nov 18, 2009

A year ago, Warren Buffett wrote this: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” So, where are we now? In a fearful stage or a greedy stage?

In that editorial, Buffett encouraged people to buy stocks and to buy American. This was October, 2008. Turns out that was a bad piece of advice since the market bottomed in March, but Buffett warned us:

“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now.”

He just felt it was time to buy because others were fearful. A year later, he must think fear is still the dominant emotion since his company just snatched up BNSF railroad.

It feels like fear and greed might be passing each other on the continuum. You can see greed making a comeback, on Wall Street and elsewhere. For example, Buffett’s purchase has investors piling into shipping stocks, with little to go on, says the Wall Street Journal:

Consider the headwinds: A pickup in demand depends on the Western consumer, and a supply glut could overwhelm a weak recovery.

The shippers are making a dent in this by canceling orders and scrapping old ships, but the oversupply is substantial: 11% of the global shipping fleet is idle, HSBC says, compared with 3% typically, and outstanding orders for new ships, booked in the heady days of global trade, could increase capacity by as much as 40%.

In other words, shipping rates will stay depressed, losses will mount, and the value of the companies’ assets–the ships themselves–will continue to decline.

Buffett’s thinking long-term, no doubt, but he can afford to. For many companies, the fear of the short-term is very powerful. Barnes and Noble just adopted a “poison pill” because it’s afraid of a hostile takeover by billionaire Ron Burkle. A hostile takeover in this environment? Of a bookstore, no less?

Well, why not? There’s still enough fear out there to keep the iron hot.

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