Warren Buffett has said "Be greedy when others are fearful and fearful when others are greedy" . Is there all there is to it?

Sometimes you should be greedy when others are fearful and fearful when others are greedy.

There are also times when you should be greedy when others are greedy and fearful when others are fearful.

These two conditions occur rarely. Most of the time what other's think is not relevant. They should be shut out and you must think for yourself.

Value and Growth are connected at the hip.

There is no value without growth and no growth without value.

Warren Buffett

The job of the investor, unfortunately, is much harder, he or she has to find a stock that has it's economics and growth intact at a price that is reasonable.

Background:
There is an ongoing discussion about those who look for stocks with high growth and those who look for stocks that are deeply discounted. A growth stock without sound economics will eventually burn out and as luck would have it just after you buy it. Similarly, a deeply discounted stock is usually discounted for a reason.

If you do all the right things, will you get outstanding results?

Not necessarily.

Although competence and hard work are necessary, luck is essential

You will probably, however, not get a bad result.

Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock market folly that prevail during your investing career

Warren Buffet, preface to the fourth edition of the Intelligent Investor

I might add to Buffet's quote the fact that you have to be able to take advantage of a market folly.

What to pay attention to?

"What I pay attention to is earning power. Coca-Cola has no tangible common equity. But they've got huge earning power. And Wells ... you can't take away Wells' customer base. It grows quarter by quarter. And what you make money off of is customers. And you make money on customers by having a helluva spread on assets and not doing anything really dumb. And that's what they do"


Warren Buffett - talking about Wells Fargo, CNN Money interview

Warren Buffett has called derivatives "weapons of mass financial destruction" but then he went and wrote a whole bunch of derivative contracts. Is he being disingenuous?

On the surface the answer is yes. If you look at it from the point of view of the 'margin of safety', the concept Buffett learned from Benjamin Graham, the answer is no.

The derivative positions are "put options" on at least three world wide Indexes. This means that for an up front fee, Berkshire will pay out a very large sum of money, many years from now on a particular day, if the indexes are below a specific value on that day. That specific value is called a strike value. Unlike the derivative contracts written by AIG there is no requirement to post a collateral if the "mark to market" value varies which almost surely it will. Collateral in finance means a security or guarantee (usually an asset) pledged for the repayment of a loan. In this case it's cash. The term "mark to market" means the contract is given a value daily even thou the contract matures many years from now. Having to payout a collateral pushed AIG into bankruptcy.

Furthermore, to completely lose all the money, all three indexes would have to go to zero. It just won't happen.

All these factors : 1. the lack of collateral required 2. the time to maturity 3. multiple indexes 4. the choice of indexes 5. the up front fee all constitute a "margin of safety".There is one other "margin of safety" not so obvious and that is of a manager that has both the experience and good judgment backed by a sound mental framework for decision making.

Perhaps the analogy is the use of explosives. If used without skill, experience and good judgment, it could blow up in your face. But used with skill and only in selected situations such as demolition it is the only solution.