Freefall Frenzy

Ryan Heshmati

May 20, 2022


American markets have seen steep declines in recent months. Household names like Netflix, are down 75% in just six months. The bloodbath begs an important question: is now the time to buy? Warren Buffett is famous for saying investors should, “be fearful when others are greedy, and greedy when others are fearful.” The markets, however, have seen greed dominate stocks in a very steep ride up, making the possibility of a prolonged reversal more concerning


As a result of increasing inflation, up to 8.3% in April, markets have been feeling intensifying downward pressure. According to the Commerce Department, GDP shrank at a rate of 1.4% in the first quarter of the year. This news further pushed investors to sell. Additionally, for quite a while now, many experts have been sounding the alarm on valuations. Micheal Burry, the famous fund manager who predicted the Great Recession, has previously raised concerns about passive investing’s impact on asset prices. 

The Numbers:

In the last six months growth stocks have taken the toughest hits. Examples include PayPal losing a jaw dropping 63%, Adobe losing 42%, and Tesla 29%. The Nasdaq 100 index, as a whole, has taken a 28% hit. In an inflationary environment, growth/tech stocks are falling out of style in favor of value plays. In contrast to most of the market, the Coca-Cola Company has seen shares rise thirteen percent in the last six months. Another example would be Berkshire Hathaway, which is up nearly nine percent in the last half a year. On aggregate, while the Vanguard 500 Index Fund has fallen about 16%, the Vanguard Value Index Fund has dropped less than 5% in that same time period.


If one subscribes to Buffett’s philosophy, then now appears to be an excellent buying opportunity. However if it was as simple as “buy low, sell high,” everybody would be a billionaire. Timing the market is an extremely difficult task, even hedge funds and active fund managers, in most cases, fail to beat it. Even if today’s prices are lower than six months ago, it is important to keep in mind they can always go lower. An example of a could-be “buy low, sell lower” would be an investor buying Netflix’s stock after it came off of its $700 high to $360 in late January. If this action were taken, the shares would be worth about 48% less today (Using 05/14/2022 price). 


In an unpredictable, unstable world, buying stocks could prove to be very rewarding long term, but it is imperative to have a long term horizon. Nobody knows where stocks are headed next, and anyone who claims so, is likely to be full of it.