"Be fearful when others are greedy, and be greedy when others are fearful."
— Warren Buffett
Well, there is no doubt that fear is running rampant through the streets. This will provide a great opportunity for entrepreneurs to take advantage of market inefficiencies not seen for decades. Those that intelligently manage the downside, will be well positioned for significant future upside. We call this asymmetrical risk. The key is to respect the global forces impacting our economy without letting it paralyze you. I like Friedman's distinction between risk-taking and recklessness. The former is rewarded highly and later punished severely.
Thomas Friedman had an interesting recent op-ed that Whitney Tilson recently commented on.
The hardest thing about analyzing the Bush administration is this: Some
things are true even if George Bush believes them.
Therefore, sifting through all his steps and missteps, at home and abroad,
and trying to sort out what is crazy and what might actually be true — even
though George Bush believes it — presents an enormous challenge, particularly
amid this economic crisis.
I felt that very strongly when listening to President Bush and Treasury
Secretary Hank Paulson announce that the government was going to become a
significant shareholder in the country’s major banks. Both Bush and Paulson
were visibly reluctant to be taking this step. It would be easy to scoff at
them and say: “What do you expect from a couple of capitalists who hate any
kind of government intervention in the market?”
But we should reflect on their reluctance. There may be an important
message in their grimaces. The government had to
step in and shore up the balance sheets of our major banks. But the question I
am asking myself, and I think Paulson and Bush were asking themselves, is
this: “What will this government intervention do to the risk-taking that is at
the heart of capitalism?”
There is a fine line between risk-taking and recklessness. Risk-taking
drives innovation; recklessness drives over a cliff. In recent years, we had
way too much of the latter. We are paying a huge price for that, and we need a
correction. But how do we do that without becoming so risk-averse that
start-ups and emerging economies can’t get capital because banks with the
government as a shareholder become exceedingly
Now is one of the worst time to become risk-averse…just be intelligent about it.