Warren Buffett, the legendary investor and former chief executive officer of Berkshire Hathaway (BRKA -0.04%) (BRKB +0.11%), has had a lot of great quips about investing and life over the years. And some of his best investing advice is often contrary to people's instincts.
For example, Buffett once said, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
This advice is applicable no matter what the stock market is doing, but it's even more relevant during bear markets.
A bear market may not be on your mind right now, considering the S&P 500 (^GSPC +0.17%) is up 16% during the past year, the Dow Jones Industrial Average (^DJI -0.18%) gained 12%, and the Nasdaq Composite (^IXIC +0.39%) popped 19%.
But Buffett's wise words are worth remembering when a bear market inevitably comes along because they could transform how you think about market sell-offs.
Image source: The Motley Fool.
When stocks slide, be on the lookout for good deals
Bear markets are a normal part of investing, but that doesn't make them easy to stomach. A bear market is defined by a 20% or more decline, and lasts an average of nine months.
But Buffett's wisdom about looking for high-quality stocks while they're on sale is a good reminder that bear markets can be the best time to find great deals. Consider another great Buffett line:
Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
Buffett said that years ago, but it sounds like he's talking about the current market. AI stocks have skyrocketed during the past few years, and while many tech companies have significant sales and earnings to justify the gains, some certainly do not.
But the main point Buffett make in these comments is that when investor sentiment sours on stocks, it feels like the obvious thing to do is pull your money out of the market. But that's when you need to go on the hunt for good deals.
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If it were easy, everyone would do it
What makes Buffett's words so transformational is that most people want to run away from stocks during a bear market. But history shows that you need to stay invested -- and add money to your portfolio -- during bear markets to experience the most gains.
Research shows that during the past two decades, seven of the best days in the market came within two weeks of the 10 worst days.
Which means if you pull your money out of the stock market during the worst times, you have a very high chance of missing the best days in the market -- and losing out on significant returns.
So how can you follow Buffett's suggestions without missing out?
One of the best ways to ride out bear markets is to spread your money across all of the S&P 500's sectors with an exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (VOO +0.11%).
Putting your money into the Vanguard S&P 500 ETF ensures that no matter which companies rebound or which industries grow faster, your portfolio will benefit because it's spread across all sectors of the economy and tracks the largest publicly traded U.S. companies.
And, just as Buffett recommended, putting money into the fund during a downturn will allow you to benefit from gaining exposure to stocks that are on sale.
If you can avoid the peer pressure to sell, you will be one of the few investors who actually takes advantage of the market's gains before everyone else. And you will have a far better chance of tapping into the S&P 500's historic annual average returns of 10%.
All it takes is trusting one of history's greatest investors... and betting against your own instincts.
