Greed and Fear

"We are never going to get rid of greed. We are never going to get rid of fear," so said Warren Buffett yesterday at the Columbia Business School.

I believe one of Buffett's most under-recognized and under-appreciated strengths is his extraordinary ability to understand human behavior, especially in time of crisis. A striking example (including the prophetic "rhyme with 1929 prediction" made in May, 2007) follows:

"I mean it's just the scope of human beings to do crazy things, self-destructive things, things as a mob they do. You saw it on October 19, 1987...You saw Long-Term Capital Management. You've seen all kinds of things. There will be other things in the future. They will all have similar factors. The human factor will be at the bottom of them. They won't be exactly the same. But it's like Mark Twain said, "You know history doesn't repeat itself, but it rhymes." We will see some things that rhyme with 1929 or whatever else it may be.

Well I've seen all kinds of people with 160 IQ's with intense interest in the subject, lots of experience in the investment world. I've seen them self-destruct. And you have to have a certain amount of natural flow of juices just to be excited about the game and those participating. And the trick of course is to keep control of those juices. And most people, even smart people, have trouble getting caught up in the game and thinking I'll just dance one more dance like Cinderella at five minutes till twelve or something like that because they think they are smarter than the rest of the public.....Or they don't protect themselves against something that will come totally from right field. Long Term Capital Management is a good example of that."
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Warren Buffett, "An Exclusive Conversation with Warren Buffett," Interview with Charlie Rose, (May 10, 2007).