In this episode, I’m explaining what Warren Buffett means when he said, “You want to be greedy when others are fearful. You want to be fearful when others are greedy.”

In the simplest terms, he is saying you want to zig when others zag.

At face value, this quote tells us to buy when others sell and sell when others buy. But, there is a problem with this interpretation. It’s too basic.

For example, when a stock is near its 52 week high, people begin to get fearful and they start selling. Is this a good time to buy? What about when a stock is near its 52 week low and people begin to feel greedy? Is this a good time to sell? If we take the quote at face value like these two examples suggest, then it’s a fast way to decrease your net worth.

Buffett’s quote is taken out of context and we have to assume it's to make someone sound important.

When we look at the context of this quote, he was talking to institutional investors, not retail investors like you or your financial advisor. He was talking about the occasional outbreaks of fear and greed that cross long timescales like 10-20 years. He was talking about investing related to trendlines, which is often beyond that average retail investor.

If someone references this Buffett quote and you're not an institutional investor, it is in your best interest to go the other way.

Contact me at informedcanadianinvestor@gmail.com