I love volatile ASX share market days like today.
It's been quite a while since there was a drop as heavy as this, though there was a bit of volatility earlier this week too.
Cheaper opportunities
Volatile days for the share market are attractive because it provides opportunities to buy ASX shares at cheaper prices than before. On single days like today it means some shares will drop by a few percent.
Volatility can also lead to extended periods of declines. This can give us once-a-year or once-in-a-generation opportunities to buy shares at much cheaper prices like we saw in March 2020 when COVID-19 caused a major share market crash.
It's unlikely that today's fall – as heavy as it is – will be the start of the S&P/ASX 200 Index (ASX: XJO) falling 30% again. The Australian economy has already seen through the worst of COVID-19 spread and the country is aiming to open up by Christmas, except perhaps Western Australia.
'Buying the dip' seems like simple advice. It might be detrimental to your returns to wait entirely for dips before buying anything, but adding extra cash to your ASX share portfolio to buy on days like today can be a smart move.
I decided to invest in something today. I can't tell you what it is due to trading rules, but I thought my choice was worth buying with today's volatility. During the crash in March 2020 I bought shares like WAM Microcap Limited (ASX: WMI) because I liked the diversification, the long-term outperformance and the widening discount between the share price and the net tangible assets (NTA).
There are plenty of high growth ASX shares that have sank today like Appen Ltd (ASX: APX), Nearmap Ltd (ASX: NEA) and A2 Milk Company Ltd (ASX: A2M). These growth names may fall further next week, but they're probably not going to be lower forever. It could be a good time to consider BetaShares NASDAQ 100 ETF (ASX: NDQ) too.
It's meant to be volatile
I'm also glad for volatile ASX share market days because shares are meant to be volatile. A 3% drop in one day is a probably bit steep. But shares are meant to go up and down over the shorter-term. Each day the market is made up of different buyers and sellers. Participants should have differing views about what price they're happy to transact at. The market isn't just going to go higher and higher.
The recovery over the past six months has been surprisingly strong. Some people may think it has been too strong.
If you believe the ASX share market was too expensive last week, then I think it's worth thinking about investing today (or next week). Investors seem to be able to quickly let go of their fear. The opportunity to buy at a lower price probably isn't going to hang around.
I'm not saying go 'all in' if you have been saving up cash for a while. But the best time to buy and be greedy is when there's fear, like today.
At some point COVID-19 will fade into the history books, as bad as it has been, like the Spanish Flu did. Hopefully an effective healthcare solution can be found sooner rather than later. But it's important not to let shorter-term concerns stop you from investing in anything for the long-term.
Foolish takeaway
Who knows why people are suddenly happy to accept ASX share prices substantially less than yesterday? Perhaps some investors didn't have much conviction in their ideas. That's why I think you should only invest in something robust enough that you'd be comfortable to hold through a hefty market crash. If you sell during a market crash then you're just crystallising a decline and permanently hurting your wealth.
If the market keeps falling next week then I'll be putting more of my reserve cash to work.
