The brutal stock market crash in February and March caused by fears about COVID-19's impact on the global economy likely spooked many investors. Capturing the staggering losses lots of people saw in their portfolios during the crash, the S&P 500 lost an incredible 34% of its value between Feb. 19 and March 23. Making the downturn exceptionally painful, it marked the fasted 30%-plus stock market decline in history.
But in mid-March, few would have guessed the torrid climb stocks were about to see in the coming months. With the stock market rebounding higher recently, many people are likely wondering if now is a good time to buy stocks.
While people interested in buying stocks today certainly won't find the bargains that were available to buy in March, there's definitely a good case to be made for buying stocks now.
Signaling improving sentiment in the market for the potential of stocks recently, popular market indices have skyrocketed higher since mid-March. Indeed, the S&P 500 has recovered much of its downside. Now the S&P 500 is down just 7% from highs in February. Indeed, the momentum in the market is difficult to overstate. Consider that the S&P 500 is up 40% since March 23.
Investors seem to be pouncing on stocks while many of them are still down well below highs seen earlier this year, hoping to get shares at a discount relative to their long-term potential. This bet, of course, is based on the assumption that the U.S. economy continues with its progress of reopening following lockdowns that were aimed to flatten the growth curve of the coronavirus outbreak. If the economy goes back on lockdown, this could threaten the economic recovery stocks are starting to price in.
Of course, there's still uncertainty looming on the Street. After all, the market is still meaningfully below its all-time high in February and many of the sectors most impacted by lockdowns are notably still trading far below February highs, suggesting investors are exercising some caution about how quickly things can get back to normal.
Investors who believe the U.S. and global economy will continue its progress toward reopening still have a chance to buy many stocks at attractive levels. Walt Disney, Coca-Cola, and even Warren Buffett's Berkshire Hathaway (BRK.B -0.28%) (BRK.A -0.22%), for instance, are down 16%, 22%, and 21%, respectively, from Feb. 19, when the coronavirus market crash started. Further, the Vanguard Total Stock Market ETF (VTI -1.73%), an exchange-traded fund aimed to offer investors a diversified way to bet on companies across the entire stock U.S. stock market, is still down 8% over this same time frame.
While the buying opportunity today isn't as attractive as it was in mid-March, investors can still buy stocks at a substantial discount compared to what they would have had to pay for them in February.
Forget market timing
Ultimately, however, investors shouldn't be trying to time the market anyway.
Take it from famed investor and Berkshire Hathaway chairman Warren Buffett. "I can't time stocks. I don't know anybody else who can either," he has said. So what does Buffett do if he can't time the market? He's always on the hunt for good buying opportunities -- and he stays invested. "The risks of being out of the game are huge compared to the risks of being in it," he explains.
You might have heard that Berkshire finished its first quarter of 2020 with a whopping $137.3 billion of cash, implying he's holding out for another big stock market crash. While the Oracle of Omaha undoubtedly appears well-positioned for another market pullback, investors shouldn't forget that Berkshire's stock portfolio is currently valued at approximately $217 billion -- and this is on top of the massive portfolio of wholly owned subsidiaries Berkshire also has to its name.
Zooming out even farther, you could argue that one of the reasons Berkshire Hathaway has done as well as it has is because Buffett hasn't played the market timing game. By staying invested through recessions, pandemics, and other causes for market turmoil, Buffett has been able to let his winners compound over the years.
To buy or not to buy?
So, is now a good time to buy stocks? As long as you're willing to endure volatility and hold for the long haul, it's likely a worthwhile idea to consider investing some of your spare cash not already serving as an emergency fund or being set aside for some future purchase. This, of course, doesn't mean another market crash isn't right around the corner. It's simply impossible to time the market; the recent coronavirus market turmoil and the subsequent sharp rebound have made this lesson particularly salient.
The best an investor can do is always be on the lookout for a high-quality investment trading at a good price relative to its long-term prospects and then invest in these opportunities, holding for the long haul. What happens to stock prices in the near-term will likely be driven primarily by noise. Ultimately, however, if the underlying intrinsic value of the stock or fund you are buying can grow substantially over a long period of time, the stock price itself will eventually trend in that direction. As Benjamin Graham says, "In the short run, the market is a voting machine but in the long run, it is a weight machine."
Now is as good of a time as any to keep an eye out for a great stock to buy.