Trim Tabs reports an extraordinary panic selloff by the masses in September, driven by fear. Banks are collapsing left and right. The public is outraged by their ostrich-like elected leaders in the House and Senate and pressure the Congress into aborting a terribly framed corporate welfare/bailout bill. Market volatility, as measured by Average True range %, is at historically high levels. Buffett himself says he has never seen as much fear in the market in his adult lifetime (which shows how well calibrated is his market sense). Soros is floating white papers for alternate rescue plans to sympathetic members of Congress.
Certainly these are extraordinary times. And yet it is precisely at this time that Buffett’s true genius for decision-making under staress comes to the fore. He carefully weighs and mesures with his unerring eye for risk adjusted value, and makes an excellent play to buy an interest in the Goldman Sachs brand under truly favorable conditions.
Now today he makes a play to add a sizeable chunk of GE, another great brand, to his portfolio.
He was able to do this because of the large cash position he had carefully developed over the past several years when he frankly observed that there werent many, if any, good values out there. He even was venturing into China and emerging markets in search of value. We probably won’t read much about the downside of those poorly timed moves, but this looks like an important policy statement from Uncle Warren about the relative state of the US markets.
Rothschild made his fortune by buying when there is blood in the streets, and everywhere you look on Wall Street, and in many places in mainstreet, the blood is on full display.
As the great Dr Steenbarger observes at Trader’s Feed:
This distinction between the “gambler” and the “entrepreneur” helps explain why the capacity for risk-taking is associated both with great blowups and with great career success among traders and portfolio managers. Depression is negatively associated with risk-taking, because depressed individuals can neither muster the drive to gamble nor the optimism to generate and back one’s own ideas. Discipline and risk management are important components of trading success, but if the entrepreneurial hypothesis is correct, the ultimate source of success among market participants is the ability to see what others don’t and act decisively upon those perceptions.