Stock market investors have had a tough time so far this year. Major market benchmarks are sharply lower from where they started the year, and every time Wall Street seems to have regained its footing, some new concern sends stocks reeling once again.
For those with money to invest, falling markets pose a conundrum. On one hand, share prices for thousands of stocks are much more attractive than they were a year ago, so if you still believe that a company's business will succeed in the long run, getting to invest in more shares at lower prices is a bargain opportunity. On the other hand, nobody wants to buy a stock only to see it continue to lose ground.
So should you buy stocks now, or wait for some future sign? To get some insight on that question, it's helpful to turn to the words of legendary investor Warren Buffett. The Berkshire Hathaway (BRK.A -0.81%) (BRK.B -0.62%) CEO has been through plenty of bear markets in his long investing career, and his long-term investing approach has paid off with market-crushing returns through thick and thin. Here's what Buffett has given as advice to those trying to decide whether to invest or wait in tough times.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Buffett's advice for active investors
Buffett has a couple of ideas for active investors that at first seem to be in conflict. When you think about it, though, the net takeaway is to be aggressive but selective in choosing stocks to buy during difficult market conditions.
Buffett's aggressive nature shines through in several statements. In the shareholder letter that came out in 2010, the Berkshire CEO wrote: "Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble." That approach in the aftermath of the financial crisis proved to be quite timely, as the ensuing bull market lasted throughout the 2010s and was one of the most prosperous periods in stock market history. It also underscores his much more commonly cited aphorism, "Be greedy when markets are fearful."
Yet Buffett's success has largely come from being selective with his investments. Fortunately, tough times offer great opportunities to see the truth about companies. As he noted in the shareholder letter that came out in 2002, "You only find out who is swimming naked when the tide goes out." Even poorly run companies can do well in bull markets, but bear markets separate the wheat from the chaff.
Moreover, Buffett isn't hesitant to hold off on investments he's not completely confident about making. As he was quoted at the 1999 Berkshire shareholder meeting as saying: "The stock market is a no-called-strike game. You don't have to swing at everything. You can wait for your pitch."
Buffett's advice to less-active investors
Not everyone wants to spend a lot of time figuring out which companies are most likely to outperform their peers. For those less-active investors, Buffett also has some simple advice: Dollar-cost average using index funds.
Here's specifically what Buffett told investors at Berkshire's 2004 annual shareholders' meeting: "If you accumulate a low-cost index fund over 10 years with fairly regular sums, I think you will probably do better than 90% of the people around you that take up investing at a similar time."
Fortunately, there are plenty of such investing vehicles available for those who don't want to dive into individual stocks. Tracking popular indexes like the S&P 500 or even the entire universe of stocks is possible through mutual funds and exchange-traded funds, many of which charge 0.1% or less in annual expenses to investors.
The right answer for you
The most important attribute successful investors share is having an investing strategy. What that strategy looks like, though, can differ among investors without sacrificing the potential for success. Buffett clearly understands this, and it's why he acknowledges that different strategies will work better for different people.
In general, though, Buffett's a big believer in bucking market trends, taking advantage of bargain opportunities, and beating back your emotions. The times when you're likely most scared to invest have historically been the best times to get your money working the markets, and so even if you don't dive in right now, you won't want to wait too long before getting a solid investing plan in place.
Dan Caplinger has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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