The world’s most successful investor once said that the secret of becoming rich was to be greedy when others are fearful and very fearful when others are greedy. Does this apply now to the boom in Arabia where many are throwing caution to the wind?
It is very hard not to be impressed by the third Middle East oil boom. Stock markets have surged to new heights, massive new projects are announced daily and real estate prices have mushroomed alongside rents. Of course, this can be bad news for those struggling to make ends meet on lower incomes with inflation on the climb.
But for business there has seldom been a better time, certainly not since the 1970s. On the other hand, for investors – whose good times come early in any economic cycle – Warren Buffett’s words of wisdom do come to mind.
This is a man who can be judged by his deeds and not just by his words. His record as an investor is one of spectacular success, often with investments in quite hum-drum businesses that have grown tremendously over time.
Interestingly Warren Buffet ignored the Tech stock boom of the late 1990s, and also missed the crash. But he has been far more active in accumulating energy assets in recent years.
Indeed, he has virtually ignored the US stock market and has concentrated on large energy sector assets – such as pipelines and a stake in PetroChina, US private equity and anti-dollar currency and precious metal investments.
There is no sign of Warren Buffett bailing out of any of these investments. In fact when the US dollar rallied earlier this year, he made a statement refusing to change his dollar-negative position. Gold’s rally to a 17-year high of almost $460 an ounce must therefore be music to his ears.
Warren Buffett has never been much of a real estate investor but his appreciation of the mentality of the investment crowd is probably the best of the best. So should the herd of investors now converging on Arabia be very fearful rather than greedy?
That large numbers of greedy investors are now present in the region is beyond doubt. The stock markets show 50-100% plus growth this year. Real estate projects have become so big that project launches in the UAE last week exceeded $20 billion. Money is just piling into more and more optimistic projects.
On Warren Buffett’s logic this is the time to stay out of the market rather than become sucked into the maelstrom of greed, and a time to be very fearful of making commitments.
Certainly the upside looks rather limited compared to where markets have come from but few will be listening. There are after all very few Warren Buffetts.
(Source : ameinfo