Warren Buffett's Approach to Buying Stocks in a Downturn Is Similar to How He Views Shopping

As of the end of last week, the S&P 500 was down more than 5% to start the year. The market is off to a brutal start, and investors are worried that there could be more trouble ahead given that trade wars and tariffs may weigh on the results of many businesses for the foreseeable future. Plus, at a time when valuations have been elevated for a while, many stocks could be due for significant corrections.

In times like these, investors may want to look to billionaire investor Warren Buffett for guidance. Over the years, he has been a source of many insightful quotes on what to do in the markets, both in good times and in bad. One of the more interesting ones compares shopping to investing.

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How Buffett sees shopping for merchandise similar to buying stocks

Buffett is a value investor, and so it should come as little surprise to investors that what he likes to focus on is price and valuation. He says that "whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

Amid a downturn, a lot of stocks can look like they are on sale and potentially good buys. But one important keyword in that quote that you shouldn't ignore, however, is quality. Buffett makes sure to qualify this statement by not simply stating that it's a good idea to buy any stock that's down in value but instead to focus on quality investments that are trading lower.

Buffett's company, Berkshire Hathaway, has been making headlines for stockpiling cash rather than loading up on stocks in recent quarters, in a sign that the billionaire investor isn't seeing many compelling buying opportunities in the markets of late.

But even if you don't find any particular stocks to be appealing buys right now, one way to take advantage of reduced valuations is to invest in exchange-traded funds (ETFs) which prioritize value stocks.

A good place to find value these days

If you're not sure about which stocks to buy or aren't confident in your stock-picking abilities, a good option may be to invest into the Vanguard Value Index Fund ETF (NYSEMKT: VTV). As its name suggests, it focuses on value stocks. The ETF is currently averaging a price-to-earnings (P/E) multiple of just over 20, which is noticeably lower than the 23 times earnings that the average stock in the S&P 500 trades at.

What investors may also like about the fund is that it isn't heavily dependent on tech; just 8% of its holdings are in that sector. Instead, financials (23%), healthcare (16%), and industrials (15%) account for the bulk of its portfolio. Buffett fans will no doubt like the ETF's top holding -- Berkshire Hathaway class B stock, which accounts for roughly 3.5% of the fund. JPMorgan Chase and ExxonMobil are the next largest holdings after Berkshire.

There are 340 holdings in the ETF, which gives investors some excellent diversification at a time when reducing risk may be paramount. It also pays a dividend that yields around 2.2%, and that can help pad your overall returns. Another attractive feature is its minimal expense ratio of 0.04%.

^SPX data by YCharts.

Why investors shouldn't be rushing to sell stocks

Now can seem like a scary time to invest in the markets, but for long-term investors, it could be a great time to do so. Buying quality stocks while they are trading lower can set you up for significant gains in the long run. Although it may not be a quick recovery for stocks, by remaining patient and hanging on amid this uncertainty, you can generate some significant gains from your investments in the long run.

Tariffs and trade wars may be problems for the economy in the short term, but that doesn't mean they'll be ongoing forever. Buying stocks right now can be a great move to make and if you aren't sure what to go with, simply having a position in a diversified fund such as the Vanguard Value ETF can be a good way to ensure you're still invested in the market.

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*Stock Advisor returns as of April 1, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Vanguard Index Funds-Vanguard Value ETF. The Motley Fool has a disclosure policy.