Be Greedy When Others Are Fearful

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."  --Warren Buffett, October 2008

This quote about investing in stocks may be many years old, but it applies like new based on the last 10 days of stock market trading.

A downturn in the investment marketplace creates a natural fear for even the most experienced investor.  When something is cutting away at our net worth, we want to stop it as soon as possible.  We want to do something.

Here’s the problem:  Leaving the markets in that environment is generally a bad idea, because it’s done out of fear.  People make the biggest investment mistakes when they’re fearful.  It’s even more powerful than greed, and there's proof.

Daniel Kahneman is a research psychologist, but he won the 2002 Nobel prize in economics for his work in an area now referred to as behavioral economics.  His research reveals that the response to a price drop generates a much stronger emotion than a response to an equal price gain.  In short, he found that most people fear loss much more than they enjoy success, and this makes fear a powerful enemy of an otherwise level-headed investor.

If we feel the urge to reduce our stock or bond allocation during a market downturn, our challenge is to recognize Kahneman’s observation.  We need to remember that we picked our asset allocation target during a period when we weren't emotional, and did it for good reason.  We must also remember that short-term market movements are of little-to-no consequence if we have a long-term investment horizon.

That said, we should do something during a big market correction -- but not leave the market.  Rather, we should rebalance to our pre-chosen allocation target, effectively buying more stocks or bonds at a time when we may fear it most.  Then later, when those markets inevitably recover, we should try to enjoy our success more!

Fitbit(e) Me

Some consumer product fads are harmless.  Pet rocks.  Rubik’s cubes.  Bottled water.  Wait, check that, I’m being told that bottled water is still a multi-billion dollar industry…..go figure.

Regardless, I’ve been waiting in the weeds to complain about a new product fad that began as harmless, but has morphed into an annoying pastime for some.  It involves the Fitbit.

For the un-indoctrinated, a Fitbit is a wearable product (basically like a wristwatch) that uses sensors and wireless technology to calculate how much a person moves in a prescribed time.  While there are plenty of competitors (such as the Apple Watch), Fitbit has developed tremendous brand-awareness and loyalty, and has a big lead in this space.

There’s nothing wrong with the Fitbit, nor with the consumer ‘need’ that the Fitbit tries to address for people.  That is, give them motivation to live a more active lifestyle.  If monitoring the number of steps taken daily, along with distance and time does that for people, that’s great.  Fitter human beings benefit not only that person, but society in general.

The problem is not the Fitbit.  The problem is Fitbit users who consistently believe they must tell everyone else how much they’ve moved.  I’m beginning to think the Fitbit user manual carries a warning message claiming the Fitbit will self-destruct if the wearer doesn’t immediately announce their daily (or more frequent) fitness results to those within shouting distance.

Hey Fitbit users:  The rest of us are happy that a consumer product has made you more fitness-aware.  We just don’t want to hear about it every damn time you’re around us.  You might want to assume that some of us are doing a lot more than you are to stay fit, we simply aren’t publicizing it.  Also, I would caution Fitbit users to remember the importance of diet in overall health – but please, you don’t have to tell the rest of us your daily fresh vegetable or yogurt intake, either.

By definition, fads come and go, and that’s especially true with fitness and diet crazes.  Only time will tell whether the Fitbit is a fad.  In the meantime, let’s at least agree not to talk about it.

The Real Mad Men

Not so long ago, I wrote about how much I enjoyed reading non-fiction books by Dave Barry.  He published a new humor book recently, titled Live Right and Find Happiness (Although Beer is Much Faster).  I got the book for Father's Day, and just finished it.

While it was another laugh out loud collection of essays, I was particularly interested in a section where Barry got semi-serious.  In a chapter titled The Real Mad Men, he wrote about how the parents of the Baby Boom generation lived their lives and raised their children differently from us modern parents.

He makes fun of how much today's parents coddle their children and worry about things, compared to how their parents rolled with the punches.  He makes the predictable comparisons in areas like sports ["If a kid played a sport, they might go to the games, but they didn't complain to the coach.....or make fools of themselves by getting into fights with other parents or screaming at the referee.  It just wasn't that big a deal to them.  It was kids paying games."] and education ["They found out how their child was doing when the child brought home a report card.....if the grades were bad, they didn't march into the school and complain that the school had failed their child.....they told their child to shape up, and they maybe even gave their child a smack on the back of the head."].

But at the end of the chapter, he makes this summary that should be required reading for most of today's parents:  "I'm not saying my parents' generation didn't give a crap.  I'm saying they gave a crap mainly about big things, like providing food and shelter.  Whereas we modern parents.....never stop parenting, making sure [kids] get whatever they want, removing obstacles from their path, solving their problems and worrying about what else will go wrong, so we can fix it for them.  Yes, we've gotten really, really good at parenting, we Boomers.  This is fortunate, because for some inexplicable reason a lot of our kids seem to have trouble getting a foothold in adult life, which is why so many of them are sill living with us at age thirty-seven."

"They're lucky they have us around."