As investors evaluate and recalibrate to get ready for the stock market in 2024, the question on everyone's mind is: Buy now, or wait? The S&P 500 has been flirting with entering a bull market, but with persistent inflation, the corresponding high interest rates, and the subsequent retail crunch, investors haven't been enthusiastic enough about the potential in the new year to push it through.
When you need a good dose of investing wisdom, it's always a good idea to pull out the wise advice of legend Warren Buffett. Let's see what he might say about the right time to invest.
Don't wait for a bull market
As we teeter on the edge of a bear market, one thing Buffett would caution is to not get caught up in the hype of the bull market. "What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves[?]" he acknowledges. "Unfortunately, however, stocks can't outperform businesses indefinitely." Buffett constantly urges investors to focus on business fundamentals, which will lead to stock performance over time, as opposed to stock hype, which will eventually disappear.
This could be a good time to invest, simply because many valuations are still low. When the bull market comes back, you'll want to avoid unreasonably high valuations. When you can't find undervalued stocks, Buffett would say not to buy at all. "When conditions are right," he said in a 1986 shareholder's letter, "that is when companies with good economics and good management sell well below intrinsic business value, stocks sometimes provide grand-slam home runs. But we currently find no equities that come close to meeting our tests."
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Actually, Buffett and his team haven't been buying too many stocks lately, being a net seller of stocks over the past few quarters. Part of that might be because with interest rates high, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) can make a nice amount of interest on cash while keeping the cash ready to buy the right stocks when the opportunity arises.
Also keep in mind that when people talk about Buffett's portfolio and what he buys and sells, they're usually referring to Berkshire Hathaway, which is a holding company, not an individual portfolio. Buffett freely doles out excellent advice, but the right moves for a holding company with billions of dollars in equity that also owns several whole companies might be different than the right moves for your individual portfolio.
Does the stock market rise or fall with a new year?
There's a simple test to see if it makes sense to buy before the end of the old year or at the beginning of the new year. This is a chart of how the S&P 500 has performed over the past five years. You can see that, at least over these years, there's no distinct pattern of how the market performs leading up to a new year and at that start.
One thing to notice is that despite several falls, notably the 2020 crash, the S&P 500 keeps getting back up and rising again. That's the power of long-term investing. It doesn't matter when you buy; the key is to get into the market when you can, buy stocks when the market presents opportunities, look for the right things when you buy, and then hold on.
Keep holding on
One of Buffett's most-quoted sayings is that his favorite holding period is forever. For complete context, what he actually said is: "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." He added: "There are only a handful of businesses about which we have strong long-term convictions." He certainly is not advising to hold every stock forever, and he sells stocks all the time. He is imploring investors to be discriminating about which stocks they buy, which reduces the chance that you'll need to sell.
If you have cash to buy stocks after setting aside an emergency fund and paying off debt, and you can identify great stocks to buy at the right valuation, the time to buy is now. If you haven't identified which stocks to buy to fit your portfolio needs, then wait -- not just for the new year, but for when the right opportunities come up.
