Investors have brushed off several stock market headwinds in 2026 so far, pushing the S&P 500 (^GSPC +1.18%) to a new all-time high. Strong earnings expectations and optimism that the Iran conflict will resolve quickly have pushed investors to buy into weakness, leading to quick recoveries when the index dips.

But investors mindlessly buying more stocks whenever prices dip may be making a mistake, according to billionaire investor Howard Marks. The head of Oaktree Capital just shared eight words every investor should hear before buying more stocks.

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Marks on the market

The S&P 500 has been in a bull market since October of 2022, when the last bear market bottomed. Stocks have sold off on occasion since then, but investors have quickly bought any dips in share prices.

Marks describes every day in the stock market as a battle between optimists and pessimists. For the last 43 months or so, the optimists have been winning. That led Marks to this simple eight-word conclusion in a recent interview:

"This is not a market that's on sale."

In other words, indiscriminately buying stocks at the slightest sign of weakness right now will likely result in investors overpaying for shares in the long run, despite a 5% or 10% discount from all-time highs. Investors searching for real bargains will have to wait for sentiment to change.

"Bargains come when people panic, want to get out, and are willing to take an inadequate price," Marks said. "That doesn't describe today."

Those comments echo one of the longtime strategies of Warren Buffett. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful," Buffett wrote in his 1986 letter to Berkshire Hathaway shareholders. Buffett restated that idea multiple times throughout his tenure as CEO of the giant conglomerate. Indeed, the best investment opportunities come amid times of fear and pessimism.

But just because the entire market isn't on sale doesn't mean there aren't good opportunities. There are pockets of pessimism and growing fears in some sectors, which could present great investments right now. Additionally, some companies deserve optimism and high valuations. Marks pointed to one obvious group.

P/E ratio isn't the be-all and end-all

The S&P 500 is trading at a price-to-earnings (P/E) ratio well above its historic average. If you look at the cyclically adjusted P/E ratio, which evaluates current prices relative to the last decade of inflation-adjusted earnings, the S&P 500 has traded above its current level only once in history: during the dot-com bubble of the late 90s and early 2000s.

That alone may lead many to conclude that stocks are overvalued right now. In particular, the stocks with the heaviest weightings in the index, the artificial intelligence (AI)-fueled big tech stocks, may be the most overvalued.

But Marks says, "You can't just look at P/E ratios and know if it's high or low." In other words, a P/E ratio is only as good as the context in which you look at it.

Stocks with high earnings-growth potential backed by strong competitive advantages deserve higher P/E ratios. With the caveat that he's not an expert on the "Magnificent Seven" stocks, he thinks they don't trade for unreasonable valuations right now. As a result, the S&P 500 currently trades for a high P/E ratio, but many stocks in that group trade for a high P/E ratio without the same competitive advantages of the Magnificent Seven stocks.

That's a sentiment that's shared by hedge fund manager Bill Ackman: "We believe this concentration of performance and market value is not a temporary phenomenon, but rather a reflection of the durable structural advantages enjoyed by the highest-quality mega cap companies," Ackman wrote in his most recent letter to Pershing Square Holdings shareholders. "We believe the market's P/E multiple is justified and can remain sustainably higher than historical averages."

Indeed, some of the biggest companies in the stock market, those benefiting the most from advances in artificial intelligence, now trade at relatively low earnings multiples. Meta Platforms, Nvidia, and Microsoft all trade for forward multiples of 25 or less. Taiwan Semiconductor Manufacturing, which isn't in the S&P 500, trades for 26 times earnings expectations. These are large companies with massive competitive moats that should produce substantial earnings growth for years to come. It's hard to argue these stocks aren't trading at a fair price, if not clear bargains.