My favourite time to invest is when ASX shares are going through a bear market. In other words, when S&P/ASX 200 Index (ASX: XJO) share prices have fallen heavily.
Share prices move up and down all the time. There are different buyers and sellers involved, trading amid different national and global events, so it's understandable why we see sizeable moves week to week.
I get particularly excited when an ASX share, or the stock market as a whole, falls 10%, 20%, or even more. When there's indiscriminate selling, I think there's a sea of opportunity because the market is usually being too pessimistic about the long term.
I usually see the best prices during a bear market. ASX shares can produce good returns over the long term anyway, but buying during a downturn can supercharge returns.
How the maths works
Imagine there's a company that has a starting share price of $100. In ten years (2033), it could have a share price of $200, so a return of 100% in a decade.
Imagine in 2026, there's a large crash of the share market and this company's share price drops to $70 – the initial investment is down 30%. Another investor buys at $70 and they hold it until 2033 when the share price reaches $200. For that second investor, their capital gain is 185.7%. It's a much bigger return over a shorter period of time.
But it's important to say here that we don't know when the next crash is going to happen, or how far share prices will fall, or when share prices will start recovering.
It can also be unwise to sit entirely in cash, avoiding the ASX share market altogether, and waiting for a crash to occur. We may miss out on strong gains and dividends in the meantime, and cautious investors may miss out on the best prices by waiting on the sidelines too long.
I think it makes sense to invest regularly, and try to invest as much as possible during a market crash.
Wise ASX share investment advice
Share market guru Warren Buffett is one of the greatest investors of all time. He's shared a number of useful pieces of advice that could apply to buying ASX shares in a bear market. I'm going to quote three of them:
Be fearful when others are greedy and greedy when others are fearful.
In 2001, he said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
In 1997, he wrote:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
