In 1986, Berkshire Hathaway CEO Warren Buffett said in a letter to shareholders that he attempts “to be fearful when others are greedy and to be greedy only when others are fearful”.

After the coronavirus wiped hundreds of billions of dollars from sharemarkets around the world, that quote resurfaced in recent days.

Investors and analysts dropped it into articles and tweets in a bid to put the recent falls – and gains – into context.

And for good reason.

As any market analyst worth their salt will tell you, shares have performed well over the long term.

A recent Credit Suisse Group report found that, as of the end of February, Australian stocks had achieved an average annualised return of 6.8 per cent a year since 1900, with the Australian sharemarket performing the best in the world over that timeframe.

Although past performance is not an indicator of future success, long-term investors recognise that the coronavirus outbreak presents a good buying opportunity as share prices have plummeted.

The hard part is timing the move and choosing stocks wisely.

How do you know when the market hits rock bottom?

You can never know for sure, and not even the most experienced investors can call it.

But monitoring a handful of indicators will give you a good sense of when the market has turned a corner.

Pepperstone head of research Chris Weston told The New Daily that sharemarkets won’t stabilise until the full impacts of the coronavirus are known and global policymakers announce much larger stimulus packages that “blow us out the water”.

He advised investors sitting on a pile of cash to delay buying shares until:

• Daily trading volumes fall significantly
• Daily increases or decreases in share prices contract
• The implied sharemarket volatility index (VIX) comes down substantially (right now it’s at record highs)
• The accumulation phase kicks in – demonstrated by share prices going sideways for a sustained period of time
• The worst of the virus impacts are fully understood so that markets can accurately price in the challenges ahead.

“When we’ve got just enough of a hint to know how bad this is going to be … [to know whether] we’re going to have a depression, [whether] small and medium-sized businesses are going to collapse and [whether] there’s going to be a pick up in unemployment that’s going to hit people in multinationals,” Mr Weston said.

“When we get that little bit of clarity, and we back it up with what’s going on with central banks, then I think we will probably start to see that accumulation.”

Meanwhile, AMP Capital chief economist and head of investment strategy Dr Shane Oliver said there “was no magic indicator” to determine when a market had hit rock bottom.

He told The New Daily that sharemarkets were cheap when sentiment is extremely negative and bad news has been fully factored in.

He added that business and investor surveys provided a good reading of investor sentiment, and that a slowing in the daily increase of new coronavirus cases would indicate the worst is likely behind us.

Tweet from @CommSec

How to pick a winner

Mr Weston advised investors to think about which sectors of the economy will benefit from the policies implemented by central banks and governments.

For example, if policies encourage lending, then bank stocks might be a good idea.

Or if governments end up giving money directly to households, then consumer and supermarket stocks could benefit.

“Longer term is very difficult, as I genuinely believe that this is going to change the world and how we live our lives going forward,” Mr Weston said.

He added, however, that long-term investors should pick stocks according to trends and momentum, rather than trying to find the best value for money after a drop, and that ethical investments would perform strongly over the next decade.

“ESG (environmental, social and governance) is going to be the new tech over the next decade … companies that are doing the right thing and have an interest and business model around [ESG] are where the capital is going to to go,” Mr Weston said.

For the average mum-and-dad investor, though, picking a winning stock can feel like finding a needle in a haystack.

Which is why Dr Oliver said buying into an active fund managed by a fund manager, or an index fund that tracks the overall sharemarket could be a good idea.

Vanguard and BetaShares are two well-known fund managers that offer these funds, but there are many others, too.

The information provided in this article is general in nature and does not constitute personal financial advice.