In One Chart: If you buy into Warren Buffett’s advice to be ‘fearful when others are greedy,’ then get ready to be full of fear

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Christmas has come early for investors, with stocks again taking out record highs on Thursday as indexes continue to climb toward the end of the year. At last check, the Dow DJIA, +0.36% was up triple digits, while both the S&P SPX, +0.39% and Nasdaq COMP, +0.53% were firmly in the red.

Clearly, the buyers have the upper hand lately, but are the bulls being smart… or just greedy? According to this chart from Jesse Felder of the Felder Report blog, it’s looking like the latter.

The chart highlights the Rydex Ratio, which is a measure of Rydex traders’ assets in bear funds and money market funds relative to their assets in bull funds and sector funds. Felder describes it as, much like margin debt, “a real money indicator rather than just a survey of investor opinion.”

‘Be fearful when others are greedy. Be greedy when others are fearful.’

Warren Buffett

The chart, which inverts the Rydex Ratio and puts it up against the S&P, shows that investors are at historic levels of bullishness. As Felder points out, even during the peak of the dot-com bubble, these traders weren’t as “aggressively position” — or greedy — as they are right now.

“From both a short-term and long-term perspective, it’s pretty clear investors have become greedy and to a fairly rare degree,” Felder said, adding that, with a nod to Berkshire Hathaway’s BRK.A, +0.08% Warren Buffett, it might be wise to “be fearful” when it comes to your portfolio.

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