My day job is editing and stock analysis here at The Motley Fool. And while doing my daily work, I see enough Warren Buffett quotes and praise to satisfy anyone. I'm sure you do, too. The one quote we both probably see the most is this one: "Be fearful when others are greedy, and greedy when others are fearful."
Well, today, I have a request for all you Warren fans out there (and the Fool, while a big fan of Mr. Buffett and his quotations, is hardly the only one indulging itself): Can we just stop with that one for a while?
Which should I be? Fearful or greedy?
Right now, the market is up some 62% from its March low. But that is still 31% below its 2007 high. So tell me. Is now the time to be fearful because stocks are still overvalued and the rally won't last? Or is it time to be greedy because things are still a long ways from the frothy peak?
Greedy, because gold is priced too high which leads some to suspect that the dollar is going to come crashing down? Fearful because earnings at banks like Citigroup (NYSE: C ) or manufacturers like Caterpillar (NYSE: CAT ) are not "real," but rather come from some accounting allowances or cost cutting? Health care is hated, so I should be greedy, right? Commodity stocks like fertilizer producer PotashCorp (NYSE: POT ) have been beaten down, too, but the world's still gotta eat. But wasn't that the story that drove them to ridiculous highs last year? And if I buy, is that being fearful or greedy?
I'm so confused … aren't you?
Let's review the tape
Last winter, sure, the world was ending and everyone was as fearful as any Buffett worshiper could hope for. For those who believed that it wouldn't turn out as bad as predicted, and so far it really hasn't, stock prices were very tempting. For instance, I bought shares in Intuitive Surgical, betting that people still needed prostate surgery and hospitals would continue to use this company's robotic surgeons. And, hey! People continued to get prostate surgery using this company's robotic surgeons. Procedures climbed, along with my stock.
And those who expected banks to come through the turmoil more or less intact, like Wells Fargo (NYSE: WFC ) or Goldman Sachs (NYSE: GS ) , have been handsomely rewarded. But what should we be doing today?
Inhale, 1, 2, 3, exhale, 1, 2, 3
Professor Siegel, of the Wharton School of Business, has long argued that stocks are the place for money if we want that money to grow faster than any other asset class, including precious metals, cash, or bonds. Yes, there are times when one or the other will beat stocks, but picking those times out is difficult at best.
Besides, I don't trust my timing ability to "get into" gold when it's at $700 an ounce and "out" when it reaches $1,000. After all, I'm the guy who "shorted" most of the legacy airlines -- you know, UAL, Delta, US Airways, those guys -- in our CAPS online stock-picking simulation just in time to watch their prices soar as the price of oil started to come down in the summer of 2008. My rating went from 80+ (out of 100) to less than 20 in about two weeks! (Thankfully, it's since climbed back above 95.)
So rather than trying -- and failing -- to ride the trend of the day, responding to perceived greed and fear, why don't we keep on doing what has worked so well? Look for companies that have a strong competitive advantage, such as Coca-Cola (NYSE: KO ) or Pepsi. These companies' name brands are known around the world, and people still buy their soft drinks and snack foods even when times turn tough.
Then, cap it with a long-term view, letting your winners run and pull your portfolio along with them. Altria (NYSE: MO ) , the American cigarette maker, made those who bought and held on for years, very rich.
That's what David Gardner, co-advisor at Motley Fool Stock Advisor and Fool co-founder does. He ignores the Oracle of Omaha's overhyped pearl of wisdom about fear and greed -- but like Buffett, he's always looking for those companies that have a strong competitive advantage that can be held for years. Companies such as Marvel Entertainment. He first advised subscribers to buy this company over seven years ago and then proceeded to hold on, actually recommending it three more times. After Disney announced its purchase, the four positions in Marvel had become winners for Stock Advisor subscribers to the tune of 1,356%, 805%, 261%, and 70%.
To find out what company he's latched onto this month, along with his five Best Buy Now stocks, sign up for a free 30-day trial. There's no obligation.
Jim Mueller spends too much time on the Stock Advisor discussion boards, where he loves to discuss investing and individual stocks. He owns shares of Coke, Pepsi, and Intuitive Surgical, but no others mentioned above. Intuitive Surgical is a Rule Breakers recommendation. Walt Disney and Marvel Entertainment are Stock Advisor selections. Walt Disney and Coca-Cola are Inside Value selections. Coca-Cola and PepsiCo are Income Investor selections. The Fool's disclosure policy is neither fearful nor greedy, but it's also not as famous as Warren Buffett ... yet.