Investors Are Growing Fearful About the Market. Warren Buffett Says This Is the Best Time to Buy More.

Allianz Life released a survey last month that said 74% of Americans are concerned that a correction is coming as they see recent market highs as unsustainable. That was on Sept. 22 and the S&P 500 went on to hit an all-time high on Oct. 6 of 7,818. Currently, the large cap benchmark is at 7,720, up about 13% year-to-date.

CNN's Fear and Greed Index also indicates that investors are fearful about the market. This index, which examines seven different indicators to gauge the mood of the market, currently has a score of 35 out of 100, indicating fear. But just a week ago, the index plummeted to 19, which indicates extreme fear. This happened after a major tech sell-off that saw the Nasdaq fall 2.6% on Oct. 23.

Fear, or concern, is not necessarily a bad thing. Investors should be aware that the S&P 500 is overvalued and could potentially correct or undergo a deeper, longer decline. The more important thing is how you react to that fear or caution. There are really two broad tenets that you should follow when that fear starts to arise.

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Don't miss the best days

When markets are overvalued, like they are now, and the economy is showing signs of strain from rising prices, trade wars, and elevated interest rates, your radar should be up.

But what you don't want to do is to make drastic moves and get out of the market in any significant way. That's because, if you get out of the market, you are likely to miss the markets best days. According to an analysis by the Hartford Funds, 48% of the market's best days over the past 30 years have occurred in bear markets, while 28% of them happened in the first two months of a bull market.

Further, a study by Invesco found that even missing the 10 best days over the past 30 years can have a significant impact on returns. Specifically, Invesco found that an average annualized return of 10.3% over the past 30 years drops to 7.4% when missing the 10 best days.

But what you may want to do is gird your portfolio for a potential downturn in advance. The best way to do this is look for stocks in your portfolio that are well above their historical valuation ranges. You may want to trim those back, because if you have stocks that are wildly overvalued, they will likely be hit harder if and when a correction or downturn comes.

Secondly, you want to make sure that your portfolio is nicely diversified with a mix of core holdings and various investments that balance one another out. This is particularly important in a downturn. If you are light on bear market stocks or exchange-traded funds -- those that tend to perform well when growth stocks or the larger market is down -- then this would be a good opportunity to fill those gaps. Some stocks that tend to hold up well in downturns are dividend stocks, value stocks, and consumer staples, to name a few.

Overall, you want to make sure your portfolio includes quality companies that are stable and well-capitalized without tons of debt. These are the types of companies that will be able to navigate even a severe downturn.

Be greedy when others are fearful

Beyond trimming overvalued stocks and balancing and diversiftying the portfolio, investors should be looking for deals in a bear market.

Bear markets and corrections are probably the best time to find great stocks at good values. As former Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) CEO Warren Buffett said: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful," Buffett wrote in his 1986 letter to shareholders.

Being greedy when others are fearful means that when the market is down and people are panic selling, you should be opportunistically buying. If a quality company, perhaps a Magnificent Seven or AI stock, sees its valuation metrics drop below historical ranges, that is the best time to add more shares, because all great long-term stocks are going to have their ups and downs, and it's on the downs that you want to buy.

Or, as Buffett wrote in the 1997 shareholder letter: "Smile when you read a headline that says 'Investors lose as market falls.' Edit it in your mind to ' Disinvestors lose as market falls -- but investors gain.'"