“Once bitten, twice, shy,” the old saying goes. This adage is borne out by the fact that Berkshire Hathaway has made some investment coups worth billions of dollars since last year and its stock price is still down substantially from its high a couple of years ago. The point is that after the market meltdown a lot of wary investors are still scared and missing out on one golden investment opportunity after another. Each investment opportunity is something that will only exist in the wake of financial disasters.
Before the market meltdown it was “artificially” high, driven by derivatives and a sense of desperation on the part of aging boomers trying to recoup years of overspending with stock market magic. Then came the meltdown and with so many folks over leveraged the market went “artificially” low. As such a market starts to recoup there is market investment opportunity after market investment opportunity for those with cash who have done their homework. Here is where the wary investor tends to lose out, “once bitten, twice shy.”
I called the market “artificially” high or low. When one looks at the market in the long term perspective and one is not desperate for cash then there is a forward looking value to things and therein lays market opportunity. The market is never really too high or too low. It reflects the current value of the stocks it contains which, given forward looking value may an investment opportunity. Warren Buffet is legendary for his long term success. When the markets were still questionable a year ago he picked well and his fund has profited. However, the wary investor factor is still there. The same folks who held on to their stocks too long as the market plunged are now afraid to reenter and will miss the market opportunity as the recession mends.
We cannot all be Warren Buffets. For one thing most of us have other, daytime, jobs to attend to and do not have a big staff to do our legwork. But, we do not need to follow the whole market and we can be aware of forward looking value and buy when the signals are right instead of being a wary investor and waiting until a stock has recovered all of its pre recession value before getting back into the market.
If you held a portfolio of strong stocks all of the way through the recession then you were already invested at the low point in the market. Nevertheless, as you add to your holdings now a little market timing will not hurt when the signals are strong, such as with the over selling at the bottom the market months ago.
The wary investor is not necessarily the prudent investor or the wise investor although they may fool themselves into thinking so. There is a tendency to get sucked into market psychology and see every penny stock as an investment opportunity. Then there is the tendency to discount every positive sign and prediction out of fear so that one believes there is never an investment opportunity and there will never be an investment opportunity again.