Back To Basics - Stock Operator vs. Warren

The world's richest investor and his famous line: "Be fearful when others are greedy, and be greedy when others are fearful." – Warren Buffett

The market right now is the epitome of what Buffett describes in this quote. For anyone who follows Buffett or the literature that is written about his philosophy could reason that "Mr. Market" is acting irrationally and offering many companies at cheaper with no regard for the underlying fundamentals. It is time to load up and buy the greatest companies now that they are selling far below fair value! So start buying! Right?

Confusing times in financial markets lately with the themes of corporate credit, the leveraging of risky mortgages, liquidity injections, and open-market fed operations. There are very few people who can really grasp these concepts and understand the broad implications of them. I am not one of those people and you probably are fooling yourself if you think you are. What I can understand is price. In my last post I advocated a short/neutral position until the trend reversed. Nothing has changed except for the loss of 2.1% of the value in the overall market. There is only money to be lost until the tape begins to turn green.

This is as fundamental to the analysis of the markets as Buffett's quote except Warren never tells investors how a market turns from fundamentally supported greed to a bear market. When does "fear" really set in? How do you sense fear in the markets? My next post will look into periods and reference technical indicators that show investors fear.