In the Wolf of Wall Street movie, financier Gordon Gecko remarked that “greed is good”. Now I feel that, in most cases in life, greed isn’t good at all. It can lead to countless problems if left unchecked.
Yet at the same time, billionaire investor Warren Buffet told us to be “greedy when others are fearful”. Here’s what he meant and why I agree with him when it comes to investing in the FTSE 100 this year!
Understanding Buffett’s words
Buffett was talking in reference to the stock market. People are fearful when the market is falling. This can lead to some selling their shares out of fear, rather then having a particularly rational reason for doing so. This can push stocks below a long-term fair value. At this point, Buffett cites the need to be greedy in buying up cheap stocks.
The opposite is also true. For example, I remember back in early 2019 when the FTSE 100 seemed to only go up day after day. I’m not claiming to have forecast the all-time high in May 2019 and the subsequent sell-off, but I certainly felt that the rally wasn’t sustainable for much longer. In effect, I was fearful when others were greedy.
Being early to the party
The FTSE 100 is up 0.66% over the past year. Despite a flat year, some individual stocks have fallen significantly. This includes companies from the housing, financial services and consumer discretionary sectors.
There’s the potential for the market to head lower in the first few months of the year, given the bleak economic outlook. However, I struggle to see a market crash simply because we’re all aware of how dull the outlook is. Unless we get more bad news, I think stocks that have underperformed in 2022 will struggle to keep moving lower.
For those fearful of 2023, they won’t be in the buying mood anytime soon and will likely sit on their hands and their cash. This is one example where I will be greedy. Buying now allows me to be early to the party. Sure, I probably won’t perfectly buy at the low point. But as and when we get an economic recovery and the market rallies, I’ll be able to reap the largest benefits.
Buying beaten-down growth names
The other angle I’m going to apply my strategy this year is with growth stocks. I’m not going to claim that I’m super optimistic for big tech and other sectors that have growth stocks in them. But I do feel that versus the long-term fair value, there are some undervalued companies out there.
Given that this area is high risk, I need to be careful. So my plan is to pick a group of my favourite options and allocate a small amount of money to each one. This way, if I’m wrong it won’t break the bank. Yet even if one outperforms next year, I stand to make a tangible return.
A couple I have my eye on in the FTSE 100 are the International Consolidated Airlines Group and AVEVA Group.
