You’ve probably heard the famous Warren Buffett mantra about fear and greed…
“Be fearful when others are greedy and greedy when others are fearful.”
It’s clearly worked for Buffett. Today, the CEO of conglomerate Berkshire Hathaway – and probably the most famous investor of all time – has a net worth of $100 billion or so.
So assuming we want to mimic the Oracle of Omaha’s investing strategy, we need to know Mr. Market’s current mood…
It’s fear. Definitely fear.
The CNN Fear & Greed Index is sitting at 24, just over the line into “extreme fear” territory. Only a month ago, the Index was at 54, which is considered neutral.
And the CBOE Volatility Index (VIX) – which more or less measures the market’s anxiety level or blood pressure or both – remains elevated at around 23. It was below 18 just two weeks ago.
As of Monday morning, the S&P 500 Index was down 1.7% for the day and the tech-heavy Nasdaq Composite was off 2.5%. That’s a very bad Monday morning, indeed!
But according to Buffett, this is also the ideal time to be greedy. As an old boss of mine used to say every time the market swooned, “Stocks are on sale!”
Indeed, there are ample reasons to be optimistic right now…
Let the Good Times Roll
Stocks have been pushed lower in recent weeks by investor anxiety about rising inflation (and how the Federal Reserve will react to it), concerns about the slow-moving implosion of a giant Chinese property developer called Evergrande Group, and a growing energy shortage in Europe.
The good news is all of those may be short-term or transitory concerns.
But that’s not all. I’ve got three better reasons smart investors should be optimistic about the future.
- COVID-19 case numbers are dropping like a rock. According to The New York Times, COVID-19 is in retreat. New cases have fallen by more than a third over the last month in the U.S. and by more than 30% worldwide. If you consider that The New York Times rarely passes up a chance to find the gloomiest angle on a story, this is even better news than it sounds. Plus, drugmaker Merck (NYSE: MRK) is apparently well on its way to developing an effective oral medicine to treat COVID-19 viral infections.
- S. companies are abnormally healthy at the moment. Companies in the S&P 500 Index reported 91% earnings growth in the second quarter, according to FactSet. That’s the highest year-over-year growth since 2009. And the good times look like they’ll continue to roll. Analysts increased their earnings estimates for the third quarter (we’ll get more details about these soon) by 2.9%. For comparison, analysts normally cut their earnings estimates as earnings season approaches.
- Finally, there is the Fed. It has a dual mandate to help the economy produce jobs while also keeping inflation under control. Yet since the 1970s – an era of runaway inflation – the Fed has generally been more worried about inflation than employment. A well-worn saying has it that the Fed’s job is to take away the punch bowl just as the party gets going. It’s cliché but largely true, as these central bankers have been willing to sacrifice jobs and growth to tame inflation -but perhaps not anymore. The Fed is certainly watching inflation like a hawk, but it has stated that it’s now willing to let it run a bit hotter this time around in order to create more jobs.
Put those three factors together, and the stretched valuations of U.S. stocks suddenly don’t seem so absurd. And perhaps this bull market even has room to run.
So ask yourself this: WWBD? What would Buffett do?
And if you think my case for optimism holds water, you’re going to want to know what IU Einstein and Trends Expert Matthew Carr is up to.
Matthew is extremely bullish on growth stocks. He’s got something he believes could change your portfolio – and it’s trading for less than $10.
Why haven’t you heard of it? It’s simple… No one’s paying attention. But Matthew is. Just click here to learn more.
Invest wisely with Investment U,
Matt
About Matt Benjamin
Matt has worked as an editorial consultant to the International Monetary Fund, the World Bank, the Economist Intelligence Unit and other global macro-institutions. He wrote about markets and economics for U.S. News & World Report, Bloomberg News and Investor’s Business Daily, among other publications. He also worked for several years as head of political economy for a Financial Times-owned macroeconomic consulting firm, advising hedge funds around the world. Matt’s claim to fame is that he’s interviewed two U.S. presidents and has spoken with five Federal Reserve Chairs from Paul Volcker through Jerome Powell. Matt also served as The Oxford Club’s Editorial Director for two years.
