“Be fearful when others are greedy, and greedy only when others are fearful.”

November 23, 2007 at 10:13 pm | Posted in economy, finance | Leave a comment

“Be fearful when others are greedy, and greedy only when others are fearful.”

There is certainly no shortage of fear surrounding financials as writedowns stemming from the imploding US mortgage market have infected banks and insurers. The ranks of victims are also growing, after Freddie Mac, the US mortgage giant, posted a $2bn loss for the third quarter.

As Buffett has said: “Only when the tide goes out do you discover who’s been swimming naked.” At the moment, it appears that the tide for financials is still in the process of receding. That leaves investors with plenty of time before they splash in the shallows, let alone strap on a scuba tank and dive for bargain

n the past five years, risk-taking and the appetite for derivatives and financial rocket science have soared. But given the complexity and lack of disclosure of derivatives and various off-balance sheet assets held by banks, can any investor feel comfortable adhering to the Sage of Omaha’s advice: “Never invest in a business you cannot understand”?


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