This year has likely left many investors disappointed. The S&P/ASX 200 Index (ASX: XJO) is currently 5% lower than it was at the start of 2022 and the All Ordinaries Index (ASX: XAO) has had an even rougher trot, falling 7% year to date.
However, as history has shown, a bull market is coming to the ASX. Here's how billionaire Warren Buffett is likely preparing for a market uptick.
Image source: Getty Images
How Buffett's likely gearing up for a bull market
Buffett famously advises investors "be fearful when others are greedy, and be greedy when others are fearful".
That guidance is born from the fact that markets have historically always recovered from previous downturns. Here's a compilation of some of the investing great's advice that might help disenchanted market watchers regain their optimism.
Look to the horizon
A bear market, or ASX downturn, is inevitably disappointing for Aussie investors. Still, it's worth remembering that a market tumble has never lasted forever.
For instance, the ASX 200 plunged 30% amid the onset of the COVID-19 pandemic. Before the worst of the pandemic was over, however, the index hit an all-time high of more than 7,600 points in August 2021.
Of course, that was an incredibly fast onset of a bear market and an even faster return to bull territory, and past performance doesn't guarantee future performance, but it highlights Buffett's point.
It takes a lot more than a simple downturn to derail the market. Over the long term, the ASX has always bounced back to its prior highs.
Take advantage of a downturn
Buffett's confidence in the market's long-term upwards trajectory means the investor takes advantage of downturns.
The 'Oracle of Omaha' is arguably the face of value investing. That is, buying into a company trading at below its intrinsic value and waiting for the market to catch up.
Value investing is often amplified during downturns when fearful investors sell and others sit on the sidelines waiting for an 'opportune moment', thereby increasing supply over demand.
As a result, quality companies often see their share prices fall below their true value, thereby presenting a buying opportunity before a bull market.
Focus on quality
Speaking of quality companies, that's where Buffett aims to invest. In a 2021 letter to Berkshire Hathaway shareholders, the billionaire wrote:
[W]e own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves.
That point is crucial: Charlie [Munger] and I are not stock-pickers; we are business-pickers.
Thus, if Buffett were to set his sights on Australia, he would likely turn to ASX shares with solid balance sheets, competitive advantages, and strong leadership – among other factors – that also happen to be trading cheaply.
And since it's near impossible to predict when the next bull market will occur, now could be the best time to invest in quality ASX shares to capitalise on a future green streak.
