Fear and greed in one index

To buck the trend, when markets are hot or cold, is a tough thing to do. However, it can deliver solid returns.

- Schalk Louw

Warren Buffett remains one of the most famous investors out there, so it’s no coincidence that his sayings are equally famous. One of my favourite Buffett sayings has to do with two key emotions in the investment world: “Two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable ... We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

The genius Albert Einstein said that compound interest is the eighth wonder of the world. “He who understands it, earns it ... he who doesn’t ... pays it.” Now, I would never dare to disagree with a man of his calibre, but I would like to add that if compound interest is the eighth wonder of the world, then the “herd effect” must be the ninth. The herd effect is without a doubt one of the strongest forces out there, not only when it comes to consumer goods, but even stronger in the investment realm.