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Hewison Insights
Australian sharemarket

Is it time to be greedy or fearful?

Glenn Fairbairn
Director/Private Client Adviser
3 Dec 2010

Hardly a day goes by where we are not presented with a commentators view on the global economy. With all their PhD’s and post nominal’s you would think that these so called experts have a crystal ball and can accurately foresee the future. The mere fact is that no one knows what the economic outcome will be in the short term. 

It is this uncertainty that has resulted in highly volatile sharemarkets across the globe. On release of positive economic data share markets have risen sharply, only to retreat again on first sign of a prolonged slowdown. This phenomenon proves that there are two main factors that drive markets in the short term: fear and greed.

It is greed that drives the sharemarket to unsustainable and irrational heights as investors are tempted to chase the next hot stock, sector or asset class. Whilst on the other hand, fear of losses increases the desire to sell of out risky assets (shares and property) and shift to less risky assets such as cash and fixed interest.

As investors, it is the following quote form Warren Buffett that we should constantly revisit during times of uncertainty and times of optimism.

Occasional outbreaks of those two super-contagious diseases; fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

– Warren Buffett, 2001.

Following on from the above words of wisdom, the key to sound investment strategy is patience, with a keen eye for the undervalued potential of quality long term investments. It is “time in the market” not “timing the market” that will deliver strong investment returns over the long term.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.