The Best Opportunities Arise In Times of Difficulty

Warren Buffett’s prowess as a contrarian investor is well known and well admired, but for most of us it is difficult to act with the same courage of conviction as the Oracle of Omaha. His motto?

“We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.”
- Warren Buffett

To be sure there is no lack of fear these days. Fear is what causes the markets to plunge 800 points the day after the government announces a $700 Billion bailout. Fear is what has caused American investors to pull so much money out of the market even as prices dropped to pre-2000 levels – locking in their losses. Fear is why so many people I know have blithely announced they’re “done with the market,” even as they watch their runway to retirement extend well beyond the visible horizon. It’s understandable. The size of the financial debacle is incomprehensible for most of us (though not necessarily unexpected.)

The problem is, as Warren tells us, now is the time for greed. Ok, not the unbridled, no-ethics kind of greed that got us here in the first place. I’m talking about the opportunity to make high quality investments at a great price. The world is on sale – now is the time to buy.You still need to be thoughtful about your investment dollars but the opportunities are endless. There are, however, a few key things to keep in mind even today.

1. Investment horizon:  Make sure your investment objective fits your time horizon.  For most of us our horizon should be relatively long – at least a few years if not longer.  Let’s face it, you’re not a day trader.  Find good, solid assets that will yield for the future, not for a new car next month.  If you have an IRA or a Roth, fund it to the max and grow your wealth tax free.
2. Diversify:  You need to hold a variety of assets and asset types in your portfolio.  Stock and bond mutual funds are fine, but look beyond these categories as well.  My favorite diversification asset (of course!) is still real estate, and there are many ways for the average investor to profit from real estate, even in an IRA or other retirement account.
3. Protect your principal:  Ok, I did say it’s time to be a little greedy, but not to be foolish.  Even in today’s “everything is on sale” environment you still need to make sure your investment capital is protected and you understand the risks you’re taking.

This is a great time wade in to a variety of investment opportunities.  It’s not clear we’ve hit absolute bottom yet – there may be further to fall – but there are some great assets out there and now is the time to accumulate a little for yourself.

PS. For those of you who don’t know or remember who Gordon Gekko is, check this out.  (Then go rent the movie!)