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"I will tell you how to become rich. … Be fearful when others are greedy. Be greedy when others are fearful."
-- Warren Buffett

What makes Buffett's quote especially relevant today is the following bit of information:

A recent New York Times article pointed out that bearish sentiment, as measured by the Conference Board, has hit an all-time high. Fully 55% of the people questioned in July expect the stock market to decline over the next 12 months.

Why is this important today? Because each time the bearish sentiment has exceeded 35% over the past 21 years, the market has confounded that sentiment by gaining ground over the following year, at an average pace of 20.5%.

Month
Bearish Sentiment (% of People Questioned)
Following 12-Month Rise in S&P 500 Index

Nov. 1987
39%
19%

Oct. 1990
48%
29%

Dec. 1991
36%
4%

April 1994
36%
14%

Oct. 1998
36%
24%

Mar 2003
47%
33%

July 2008
55%
??


Source: The New York Times.

I love pessimism
Of course, past performance is no guarantee of future return, but take another look at that quote above. And then read this one, also from Warren Buffett, from his 1990 letter to shareholders:

The most common cause of low prices is pessimism -- sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

Were you one of those who checked the table above when I told you the date of that quote? The man knows what he's talking about.

As an example, in October 1990, just as bearish sentiment was peaking at 48%, he revealed that he had upped his position in Wells Fargo to just shy of 10% of the company. In the following 12 months, while the market returned a "mere" 29%, that one investment returned 123%. In the five years following that bearish peak, it returned 290%, or 31.3% average per year! And that doesn't even include the dividends. He still owns about 8.8% of the company.

Here's a more recent example
The last time bearish sentiment peaked, in the spring of 2003, it reached 47%. However, if you had been greedy instead of fearful, you could have picked up shares in the following fairly prominent, well-capitalized companies and gotten some outstanding returns:

Company
Market Cap, 3/31/03
Debt-to-Equity, 12/31/02
Price Change, 3/31/03 - 3/31/08

Apple (Nasdaq: AAPL)
$5.1 billion
7.8%
1,930%

Celgene (Nasdaq: CELG)
$2.0 billion
0.05%
840%

CVS Caremark (NYSE: CVS)
$9.4 billion
21.4%
240%

Research In Motion (Nasdaq: RIMM)
$1.0 billion
1.6%
5,056%


Source: Capital IQ, a division of Standard & Poor's.

What is Warren doing today?
Now with bearish sentiment again sky high, Buffett has been greedy this year. Not only has he continued to increase his position in railroad Burlington Northern (NYSE: BNI), but he's also taken a fairly sizable position in industrial-equipment maker Ingersoll-Rand (NYSE: IR). He's even bumped up his holding in health insurer UnitedHealth Group (NYSE: UNH) some 7%.

Will those picks work out for him? Given his record, probably.

However, the question you must ask yourself today isn't "What is Warren doing?"

Rather, it's "Am I going to be greedy?"

Need help?
I hope you'll answer "yes" to that question.

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Jim Mueller usually isn't green, but this summer has been an exception, though we refuse to speculate as to why. At the time of publication, he owned shares of Apple, but no other company mentioned. Apple and UnitedHealth Group are both recommendations of Stock Advisor, and UnitedHealth has also been selected by Inside Value. The Fool's disclosure policy has been basking in the summer sun, turning tan, not green.