Oracle of Omaha’s More Modern Advice

We may not listen to such advice at the heat of the moment – in fact by definition we do not on average – but we’ve all been told that it’s wise to go against the crowd during extremes in stock market sentiment. Whether it is through old chestnuts such as Baron de Rothschild’s “buy to the sound of cannons, sell to the sound of trumpets” or the Oracle of Omaha’s more modern advice to “be fearful when others are greedy and greedy when others are fearful”, avoiding the madness of crowds is hardly a novel idea.

The most extreme set of negative conditions on his spectrum are dubbed “hazardous ovoboby,” short for “overvalued, overbought, overbullish conditions, coupled with upward pressure on yields.” The January 2007 peak came several days before a sharp market plunge and the initial brush fires of the subprime crisis that would soon engulf the markets.

Dr [John Hussman]’s ‘ovoboby’ conditions prevailed just before a veritable rogue’s gallery of market swoons such as April 1965, January 1973, August 1987 and March 2000, plus a handful of false alarms. Not all the criteria exist today but he is cautious nonetheless . – Financial Times

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