"Be Greedy When Others Are Fearful" Warren Buffett (Patreon)

Warren Buffett once said it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”  This statement is somewhat of a contrarian view on stock markets and relates directly to the price of an asset: when others are greedy, prices typically boil over, and one should be cautious lest they overpay for an asset that subsequently leads to anemic returns. When others are fearful, it may present a good value investment opportunity. 

FEAR IS GOOD: Historically, fear has been good to long-term investors who’ve embraced it as we’ve seen above-average forward returns following bearish sentiment extremes. We observe the opposite after periods of extreme greed (high percentage of bullish investors), where forward returns are well below average. This is not to say that stocks can’t go lower (they most certainly can), but that the risk/reward is much better today than it was at the start of the year.

Thanks, Sanjay for the cool chart.