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  • Helen Raleigh

Recent market selloffs may present a good buying opportunity

The coronavirus that originated in China has now spread to more than 60 countries. To date, the outbreak is responsible for 110,000 confirmed cases and more than 4,000 deaths worldwide. As the fear of the coronavirus grows, nervous investors have been dumping stocks indiscriminately and seeking refuge in traditional safe havens such as bonds, gold or cash. If you have any money invested in the stock markets, whether through your retirement plans or a taxable account, you probably are wondering if you should just sell all your investments now and hide in a pile of cash (it will be a smaller pile).

Consider this before making any emotional decisions: Warren Buffett, the Oracle of Omaha and one of the greatest investors who ever lived famously said "be fearful when others are greedy; be greedy when others are fearful." One of the cardinal sins of average investors is the herd mentality. Like a sheep, many investors buy or sell assets not based on any sound analysis but only because they think everyone else is doing the same and they don't want to miss the opportunity. They often end up "buying high and selling low," which is the opposite of a sound investment strategy.

Buffett reminds us that it pays to be a contrarian when it comes to investing in stock markets because the price you pay for an asset and the real value you get will determine your return on investment. That's why you want to "buy low and sell high." When others are greedy and think the good times will never end, assets tend to be overvalued. If you join the crowd right then, you will likely overpay for an asset and the high price you paid will lead to lackluster returns. So when everyone else is greedy and thinks the party will go on forever, it pays to be cautious and wait.

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