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NEW YORK, NY – OCTOBER 15: A trader works on the floor of the New York Stock Exchange (NYSE) on … [+]
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If you buy into Warren Buffet’s famous maxim “ be greedy when others are fearful,” then now is the time to act.
The investing legend’s idea is that when everyone else is dumping securities like they are going out of fashion then you should be buying.
Of course, that is emotionally hard to do. But now might seem to be a reason able time to at least consider buying up stocks and bonds that are far cheaper than they were a few months ago.
How do we know it’s a good time to do so?
So far this year, the SPDR S&P 500 (SPY
PY
SPY
Meanwhile, yields on the 10-year U.S. Treasury note have jumped to 2.7% recently up from around 1.5% at the beginning of the year. Bond prices move inversely with yields which means those 10-years notes are now worth a lot less than they were a few weeks ago.
There has also been a significant reaction among individual investors. We know this because investors in mutual funds, which are primarily individuals, have cashed in $244 billion of their holdings in the four months through April, according to new data from the Investment Company Institute. They pulled their investments from all long-term categories including stock funds, bond funds and hybrid (stock and bond) funds.
That’s almost one quarter of a trillion dollars, and compares to inflows of $75 billion in the same period last year.
Such a mammoth level of selling sure looks like fear to me.
Could it get worse? Yes. The fear could be a lot worse and the market could go down more. The truth is if we knew when the selling would stop we’d all be billionaires.
What we do know is that when fear is this high it is at the very least worth considering putting cash to work in the markets. Professional investors might say take a nibble — or buy a small amount of stocks and bonds at opportune moments with the idea of holding them for a long time.
