The ASX share market has gone through a rough period in the last few months. Since 14 February, the S&P/ASX 200 Index (ASX: XJO) has dropped 9%. For an overall index, that's a large drop in just one month. But, it's nothing that legendary investor Warren Buffett hasn't seen before.
Share markets don't always go up. We've seen the ASX share market go through large declines in 2020 and 2022, and now it's declining again. How far will it drop? When will a turnaround occur?
We'd need a working crystal ball to know precisely how the next few months and years will play out. My crystal ball isn't working at the moment.
All we can do is judge whether today's valuation is attractive and whether the share price reflects the long-term outlook.
When there's so much uncertainty at times like this, I think Warren Buffett's advice is really valuable.
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Be fearful and greedy at different times
One of the most famous pieces of Warren Buffett advice is:
Be fearful when others are greedy and greedy when others are fearful.
In other words, be cautious when valuations are becoming bubbly and take advantage of low prices when they show up.
Interestingly, Warren Buffett's company, Berkshire Hathaway, has been selling down some holdings in recent times, including its holdings in S&P 500 (SP: .INX) exchange-traded funds (ETFs).
He was right to be cautious before the recent sell-off. In previous crashes, such as the GFC, Berkshire Hathaway invested a lot into beaten-up US shares.
While the ASX share market hasn't suffered a catastrophic decline, it is now offering more compelling value almost across the board.
Lower share prices are better for accumulators
A lot of Aussies are still in a phase where they're buying assets, including ASX shares. While it's painful to see our portfolio values go down, it can actually help boost wealth-building because we can buy more for our money.
Warren Buffett once explained this much more eloquently than I have:
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.
At a different time, the legendary investor compared share market volatility to buying burgers:
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.
Overall, after a 9% decline of the ASX 200, I think investors can be more optimistic about buying ASX shares than they were a month ago.
