Time of Greed

“It’s Too Expensive to Be Defensive” is the headline in today’s Breakout on Yahoo Finance.

Insurance is a wonderful thing — especially when you need it. But it’s definitely not free. In fact, the cost of protecting your assets in the stock market has become really expensive, which is why some investment pros are of the mind that the cost of protection just isn’t worth it anymore.

The cost of insurance for stocks is put options. With volatility low, that cost remains quite reasonable. However, the author is of course referring to the opportunity cost of not investing, instead of the costing of insuring the downside of an invested portfolio. That cost had certainly been very high for the past few months.

“It’s too expensive to be defensive.” But too expensive for whom?

Does it mean not investing or under investing will be costly in terms of clients’ portfolios? Or does it mean the asset manager will lose his job because he is under-performing? Here lies the conundrum for professional fund managers. Not investing is simply not an option.

I am certain that most investors have heard the famous quote from Warren Buffett, “Be greedy when others are fearful. Be fearful when others are greedy.” It seems we have once again entered the time of greed. It proves once again how hard it is to actually implement the wisdom of the the most famous investor. Judging by the speeches of his recently concluded annual meeting, the doctor is also having a tough time heeding his own advice.