The market hasn’t entered the optimistic growth phase known as a bull market yet. But as we wade through today’s difficult environment, one thing is for sure: A bull market is on the way. History has shown us that bull markets always follow bear markets.
Does a new bull market mean your chances of investing like Warren Buffett are over? After all, the billionaire investor favors buying stocks for a good price. And bear markets are ripe with good deals.
But that doesn’t mean Buffett sits idle during a bull market. Let’s check out this superstar-investor’s advice — and prepare for the next bull market, Buffett-style.
Famous for his quotes
Buffett may be just as famous for his quotes as he is for his investing. And during these tough market times, the following words from Buffett are inspiring. In a 1986 letter to Berkshire Hathaway shareholders, Chairman Buffett wrote, “[W]e simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The idea here is to block out the general market fears of the moment and instead take a close look at a company’s fundamentals — such as revenue and growth prospects. And then consider the valuation. If these metrics look good, don’t let general market fear get in the way of an investing opportunity. To invest like Buffett, we should seek opportunities no matter what the three major indexes are doing.
Here’s how we can put that idea into action. Right now, many growth stocks are trading at dirt cheap prices after tumbling over the past year. This represents an opportunity for long-term investors.
An example is Amazon (AMZN -1.49%). The e-commerce and cloud-computing leader is struggling with rising inflation. But its leadership in these two high-growth markets and efforts to improve its cost structure today should help it gain over the long haul. Today, the shares trade close to their cheapest in relation to sales since 2016.
Another stock to consider is Moderna (MRNA -2.26%). Investors fled the shares as they worried about a drop in coronavirus vaccine revenue post-pandemic. But Moderna forecasts a multibillion-dollar post-pandemic market. And the company aims to bring three potential blockbusters outside of the coronavirus program to market in the next few years.
Buying these or other growth stocks should help prepare us for a bull market. After all, these sorts of stocks often win in that market environment.
When the bull market arrives
Once the bull market arrives, some of the stocks seen as safer that excel in bear markets — certain healthcare players, consumer-staples companies, or even dividend stocks — may slip. At that point, instead of chasing growth stocks higher, investors may want to look at declining stocks for bargains.
All of this doesn’t mean we should just focus on price. And that brings me to another famous Buffett quote: “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
Buffett investing isn’t about getting a stock at its very lowest price. A company might seem dirt cheap right now but could be overloaded with debt and facing an uncertain earnings future. You’re better off paying more — a reasonable price — for a quality company with solid prospects. This applies to investing in any market, bull or bear.
All of this means that right now, the best way to prepare for the next bull market, Buffett-style, is to look for opportunities to buy companies you want to hold for the long term.
As mentioned above, in certain market environments, this may lead you to growth stocks more often. And in other market environments, this might offer you a chance to get in on different players — such as big, long-established companies trading at a discount.
The stocks you buy may not soar overnight — and that’s OK. Buffett didn’t make his fortune in a day. Like the billionaire investor, over time, you’ll benefit from fearlessly seizing opportunities at the right moment.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com and Berkshire Hathaway. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.