“A simple rule dictates my buying: Be fearful when others are greedy and be greedy when others are fearful.”
— Warren Buffett, Berkshire Hathaway CEO, has shared this advice before and offered it to readers of The New York Times in an Op-ed piece today (see cnnmoney.com for an overview). Buffett reasons that in fearful times, people are reluctant to invest their cash in the stock market. But cash, he notes, is a “terrible” long term asset that pays basically nothing–and will depreciate in value as government action to shore up the economy likely leads to higher inflation. Equities, meanwhile, will almost certainly outperform cash long-term since many companies are healthy and will return to posting profits after a few tough quarters.
As for the part about being fearful when others are greedy, well, we’ve already seen how that plays out. –Jessica Shambora