This title is a line from the famous investor Warren Buffet. It is his absolute rule for buying, and he has the patience of a polar bear.
If you read any media source on the internet today, the only disagreement about precious metals, raw material and emerging markets is how much lower they will slump and how they are not likely to recover for many more years. Belief that there has been a permanent unfavorable transformation often occurs near all important bottoms. And, on the flip side, the perception of an everlastingly improved situation is the characteristic mood near any market top.
Whenever any asset is in a true bull market, you’ll be bombarded with a flurry of analysts telling you after each pullback why new historic lows are likely in the near future. Likewise, in a true bear market, which has already begun for most high-yielding assets, you’ll be reminded repeatedly why the long-term trend remains higher. It takes time for sentiment to catch up with reality – usually several months and sometimes more if we have experienced a particularly notable extreme in either direction.
Media coverage is often chosen based upon how viewers will resonate emotionally, rather than which story is financially more compelling. The following two articles are examples of extreme negative sentiment in the media toward emerging markets. This in itself, in our mind, signals the current reality of a market bottom.
- In India, Toilet Paper Becomes More Valuable Than the Rupee, Aug 28, 2013
- America Leads the Way as Emerging Nations Like China Fade, Aug 12, 2013
In a similar vein of extreme sentiment, the two articles that follow highlight the media’s perception that the U.S. equity market and high-yielding assets are going to continue climbing higher. Yet we find leading indicators suggest otherwise.
The reality is that one has to do the opposite of what the media is preaching even though emotionally is it is very hard to have that discipline. It’s great to buy anything which is a true bargain, but it’s even better to purchase something which is perceived by a majority of investors as being hopeless.