"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett
During the last decade the stock market rose over 300 percent. During the good times investors got greedy. In the latter part of the bull market, valuations became stretched. Investors kept buying stocks. If you had asked investors what would eventually end the bull market, a global pandemic would not have made the list.
In the early part of 2020, we have just experienced the fastest bear market in history. Investors are dumping stocks, withdrawing cash, and looking for any place of safety. The markets hate uncertainty and the COVID-19 outbreak is one of the most uncertain times our generation has seen.
Are there any signs of hope? When we pull through this our lives and our jobs will certainly be different. But there are green shoots on the horizon.
Buybacks will dramatically slow. Businesses have spent billions of dollars in the last decade buying back their own stock. More often than not they buy at prices that do not make sense for shareholders. If we work to curtail buybacks the money can be used to fund real growth, not just accounting growth. If growth isn't promising shareholders can demand companies create rainy day funds, increase employee benefits, or return more money in the form of dividends.
Remote working will become a reality. Already businesses are adjusting to video meetings from home. Workers will become more productive in this new normal. No more time wasted commuting. The meetings that consume our day will lessen allowing us to accomplish real work. Businesses will save money on office leases and reduced corporate travel. Infrastructure spending will increase to rollout more reliable internet, 5G services, and more.
Students will pursue meaningful careers. We could see thousands of high schoolers and college students experiencing this choose to do good in the world. Maybe instead of pursuing a career in finance they look towards science, healthcare, technology, and social work.
Should I Buy Stocks Now in 2020?
Nobody knows how this plays out in the short-term. We can't say with certainty how long COVID-19 will last. We don't know how many more selloffs we will experience during this bear market. It is foolish to guess where the S&P will be three months from now.
Opportunities in fear. If we ask whether investors currently are greedy or fearful, it's pretty easy to see extreme fear. Investors need to look past the immediate future. When we beat this virus, do you think the market will be higher or lower in five years? My guess is higher. We will live in a new world for sure. The way companies do business will change. We could have a lot more government debt as it acts to help families today. Industries will change or disappear.
But if we are optimistic about our future, if we trust we will find a cure and get through this, wouldn't it be a good time to start being greedy when others are fearful?