The actual quote is from Warren Buffett’s 1986 letter to Berkshire Hathaway shareholders:
What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. … Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The Oracle of Omaha is arguably one of the most successful investors of all time. His investing principles have withstood the test of time. When I think about being fearful, I picture running around like a headless chicken. So, I like to remind myself and you all to be cautious during periods of greed.
We are in a period of market greed right now, even if you haven’t noticed it. Last week, the CNN Fear & Greed Index moved into Extreme Greed territory. And it seems to be holding that level into this week.
I still don’t know where the optimism is coming from.
Investor Sentiment Matters More Than You Think
Earnings season starts this week, mostly with companies whose fiscal quarter ended May 31. The “official” start of the earnings season is marked by earnings from JPMorgan Chase (JPM), Wells Fargo & Co. (WFC), and Citigroup © who will all report next Tuesday.
Historically, these bank earnings have set the tone for expectations for the rest of the quarter. With extreme greed already priced into the market, any news-driven negative sentiment could amplify stock price movements.
According to the latest FactSet Earnings Insight, “For Q2 2025, the estimated earnings growth rate for the S&P 500 is 5%. If 5% is the actual growth rate for the quarter, it will mark the lowest earnings growth reported by the index since Q4 2023.”
That doesn’t seem like anything to pop champagne about.
I even checked to see if any sectors of the market were overperforming, which would point me in the right direction. No clear patterns there.
The optimism must then be coming from somewhere in the macro-economic news, right? All I see is natural disasters and more tariff related uncertainty, which will certainly be mentioned on earnings calls.
The Actionable Advice
The fear and greed advice is the most often quoted from Buffett’s shareholder letters. However, there are plenty of other hidden nuggets from Buffett. Here’s one of my favorites:
Unfortunately, however, stocks can’t outperform businesses indefinitely. Bull markets can obscure mathematical laws, but they cannot repeal them.
Investor sentiment can move markets temporarily, but at some point, math will catch up. We just don’t know when that will happen.
This week, make sure to take a good look at your portfolio. If you have big gains on companies you’re not confident about, use today’s greed as a motivator to sell. Lock in those gains and be ready to redeploy that money when sentiment settles.
And keep your watchlist up to date. One thing is certain about all earnings seasons: we will see greater movement in the markets as more data is released. That fuels investor sentiment, which creates more movement, which further fuels investor sentiment… it’s a self-reinforcing loop.
In our current market climate, we could see minor negative news compound into a big market move. This creates a pocket of fear, and that’s the time to act greedy and lock in a great entry price. Be prepared with the companies you’d love to have in your portfolio and the share price you’re willing to pay.
None of this will work if we aren’t prepared to act or let our emotions carry us away with the overarching market sentiment. No matter what the market does, there are opportunities if you have a plan and stick with it.
Don’t forget that tomorrow at 2pm EST I’ll be hosting a live event where I go through all the basics of my two-pronged dividend investing strategy. I’ll have tips for building long-term wealth and unlocking above-average yields for your passive income streams. We have over 165 RSVPs so far, and you guys have submitted tons of great questions for me to cover.
You can join the event in our Dividend Digest online community via web browser, or through the Mauldin Economics app in your device’s app store. Hope to see you there.
For more income, now and in the future,
Kelly Green
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