How to be greedy when others are fearful


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Three steps you can take khổng lồ follow Warren Buffett's advice & achieve extraordinary long-term results.

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I recently wrote about Warren Buffett"s advice on how investors should respond lớn a super-contagious disease. You might think the super-contagious disease the billionaire business legend referred lớn was the coronavirus disease COVID-19. Instead, Buffett"s advice, written to Berkshire Hathaway (BRK.A 2.49%) (BRK.B 2.15%) shareholders back in 1987, related to two other epidemics that he said occur from time to time in the stock market -- fear & greed.

Buffett"s observation about these two "super-contagious disease" spurred one of his most famous statements of all time: "We simply attempt lớn be fearful when others are greedy và to be greedy only when others are fearful." This quote from the Oracle of Omaha is repeated often, or at least part of it is. But saying something is a lot easier than doing it.

With the stock market crashing, fear is definitely running rampant. Here are three steps you can take to be greedy while nearly everyone else is being fearful.


Image source: Getty Images.

1. See the market crash for what it is -- an opportunity

Perhaps the most important thing you can bởi vì right now is to see things are they really are. Sure, the market is tanking. But it"s really an opportunity for investors who have some cash to deploy.

Keep in mind what Buffett said during the darkest days of the financial crisis that began in 2008 & extended into 2009, "It"s been an ideal period for investors: A climate of fear is their best friend." In retrospect, his words turned out khổng lồ be 100% correct. Investors who bought in late 2008 & early 2009 và held on for a few years made fortunes.

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You might be tempted khổng lồ hoard any cash you have with all of the uncertainty related to the coronavirus outbreak. That"s a fearful stance, though. Buffett has noted in the past that "the best chance lớn deploy capital is when things are going down." 

A good case in point is Vertex Pharmaceuticals (VRTX -2.50%). The biotech stock has fallen nearly 9% off its highs. Unsurprisingly, Vertex hasn"t seen any effects from coronavirus disease COVID-19 on any part of its business. Its supply chain is robust & hasn"t been disrupted in any way. Vertex is a better bargain now than it was just a week ago -- & its growth prospects haven"t changed a bit. That"s a buying opportunity.

2. Look for quality

Once you see the current stock market climate as an opportunity, start looking for unique stocks. As Buffett once said, "Whether we"re talking about socks or stocks, I lượt thích buying chất lượng merchandise when it is marked down."

It might be tempting khổng lồ buy shares of only the most beaten-down stocks. Don"t. Remember the following advice from the legendary investor: "The stock market is a no-called-strike game. You don"t have lớn swing at everything -- you can wait for your pitch."

What are the kinds of pitches to swing at right now? Again, my recommendation is to follow Buffett"s approach khổng lồ "buy companies with strong histories of profitability & with a dominant business franchise."

One of the đứng top stocks that comes lớn my mind is Intuitive Surgical (ISRG 2.80%). The robotic surgical systems maker is highly profitable & has been for a long time. Its revenue và earnings continue to grow by strong double-digit percentages. Intuitive is the clear leader in the robotic surgical systems market.

Shares of Intuitive Surgical have fallen more than 17% below their highs from early February. Perhaps a few patients might delay elective surgeries because of concerns about getting COVID-19, but the long-term aging trends continue to be a huge tailwind for Intuitive Surgical. It"s a unique stock that has taken an unwarranted drubbing.

3. Think long term

No matter what you do, think long term. Buffett was exactly right when he said, "If you aren"t willing lớn own a stock for 10 years, don"t even think about owning it for 10 minutes."

In October 2008, Buffett wrote an editorial in The new york Times. If you"ve forgotten, that was the month the stock market began a steep decline that eventually led lớn the S&P 500 index falling by 20%. In his editorial, Buffett wrote, "In the 20th century, the United States endured two world wars and other traumatic và expensive military conflicts; the Depression; a dozen or so recessions và financial panics; oil shocks; a flu epidemic; & the resignation of a disgraced president. Yet the Dow rose from 66 khổng lồ 11,497."

He echoed that sentiment in his 2017 letter to lớn Berkshire Hathaway shareholders, stating, "For 240 years it"s been a terrible mistake to lớn bet against America, và now is no time lớn start." Buffett"s view was right in 2008. It was right in 2017. And it"s still right in 2020.

By the way, thinking long term can even mean looking at stocks that have benefited from the COVID-19 scare in a different way. Gilead Sciences (GILD -0.94%), for example, has moved higher thanks lớn its antiviral drug remdesivir, which has shown promise in treating COVID-19. But an even more important reason khổng lồ buy Gilead stock is the opportunities for the company"s pipeline candidates, especially immunology drug filgotinib và long-acting HIV drug GS-6207.

Extraordinary advice

Buffett has dished out so much incredible advice through the years that I"ve only touched the surface with the quotes I"ve mentioned. I"ll leave you with one more profound piece of wisdom from the legendary investor: "It is not necessary to bởi extraordinary things to lớn get extraordinary results."

Being greedy when others are fearful doesn"t take an extraordinary effort. All you have to vày is follow the three steps outlined above khổng lồ achieve extraordinary results over the long run. 

Keith Speights owns shares of Gilead Sciences, Intuitive Surgical, & Vertex Pharmaceuticals. The Motley owns shares of and recommends Berkshire Hathaway (B shares), Gilead Sciences, và Intuitive Surgical. The Motley recommends Vertex Pharmaceuticals và recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley has a disclosure policy.

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