While the S&P/ASX 200 Index (ASX: XJO) isn't technically in a bear market yet, for most sectors we are well and truly in one.
This is because mining and energy have carried the index upwards, so for many investors, their paper losses would be much more than the ASX 200's 12% suffered so far this year.
Ophir Asset Management co-founders Steven Ng and Andrew Mitchell reminded investors that ASX shares bounce back the strongest after a trough.
"It is an investment truism that generally the best time to buy, and the worst time to sell, is when the market has entered bear territory," their memo to clients read.
"This environment is throwing up opportunities and setting up stronger returns for investors."
They analysed the historical statistics for the S&P 500 Index (INDEXSP: .INX) for the post-World War II era to prove their point.
The Ophir team found the average one-year return after a bear market is a stunning 22%, while it was 14.25% pa over three years and 13.17% over five.
It's a scary time but investors need to act against their fears.
Small caps are out of favour, so pick them up cheap now
But which is the best buying opportunity at the moment?
Again, Mitchell and Ng suggested acting against emotions and to look forwards beyond the wisdom of the day.
"The most common strategic response to tightening financial conditions, slowing economic growth, and elevated market volatility is to shift to big cap, stable companies with robust and predictable earnings streams," read the memo.
"But the flip side of this is that at the smaller end of the market this often creates greater mispricings that provide significant buying opportunities."
The Ophir team, which focuses on small and mid-cap ASX shares, reckons it has witnessed "overly aggressive price falls" for such stocks.
There are now many "unusually cheap" small-cap stocks going for "a historically big discount" relative to their bigger brothers.
"We are now finding some wonderful businesses that were too expensive for us to own in the past but are now close to levels that we think provide great investment opportunities."
Just another case of history repeating
Another expert specialising in small cap ASX shares, Cyan Investment Management portfolio manager Dean Fergie, told The Motley Fool that interest rates are still at historically low levels.
"So I'm actually pretty optimistic. I've been around for a long time, and I know that the market has pretty big swings," he said.
"I'm not seeing underlying pessimism from the companies to which I'm speaking to — that gives me confidence that the underlying fundamentals are still intact. And that spells an opportunity in depressed share prices to make some good buys."
As far as Ng and Mitchell are concerned, it's just history repeating.
"We have seen these times before when indiscriminate and liquidity driven sell offs push down the valuations of some small cap businesses to unsustainable levels given the strength of their underlying operations," read the memo.
"We think this bodes well for investment returns for those that fit this mould during the inevitable market recovery."
