“Be greedy when others are fearful”

Interesting read from the Economist – I know I am becoming a fanatic! – Hung, drawn and first-quartered. It may not be their most enlighten or thought challenging article; it simply is a good overview of the current market & the Reader’s comment will be very interesting to follow!

After a painful period, investors face a stark choice

OWNERS of risky assets suffered agonies in the first three months of the year. Almost without exception, stockmarkets lost ground while the price of corporate debt fell sharply (or to put it another way, spreads widened). Only those who bought the unlikely combination of government bonds and commodities will be looking fondly at their portfolios.

For dollar-based investors, it did not matter much what kind of equities they owned. The MSCI World index was down 9.5%, the American market 9.9%, Europe 9.2% and emerging markets 11.3%. The supposedly uncorrelated Tokyo market (it has tended to go down when others went up) decided to become correlated again at the least helpful moment, dropping 7.7% in dollar terms. And even those numbers are flattered by the decline of the greenback; in local currency, Japan was down 17.8% and Europe 16.2%.

“Be greedy when others are fearful” is one of Warren Buffett’s aphorisms and it is possible that this is one of those times. After all, most people are convinced that the American economy is in recession, and sentiment is depressed. The demise of Bear Stearns could mark the bottom of the crisis, and the cavalry are finally on their way: the Federal Reserve and the American Treasury are supplying both a monetary and a fiscal stimulus.

Read more by following this link.