As you're likely aware, the S&P/ASX 200 Index (ASX: XJO) has had a few big down days recently.
The benchmark index managed to finish in the green on Tuesday and Wednesday before closing down 0.23% yesterday.
But it was last Friday and Monday that really gave investors a case of the jitters.
On Friday, 2 August, the ASX 200 fell 2.1%, only to plunge another 3.7% on Monday. As of market close yesterday, the index of the top 200 Aussie stocks is down 5.07% in August.
United States markets have faced similar pressures.
The Nasdaq Composite Index (NASDAQ: .IXIC) has officially entered correction territory. The tech-heavy index is down 13.15% since 10 July.
The S&P 500 Index (SP: .INX) has fared a little better, down 8.25% since 16 July.
Global stock markets have hit some headwinds amid fear that the US Fed has been too slow to cut interest rates and that the world's top economy could be headed into recession.
There's also talk that the AI market boom got ahead of itself. And of course, there's plenty of uncertainty as to what the US election outcome might bring, not to mention ongoing heated geopolitical tensions across much of the globe.
So, what's an investor to do when global stocks and the ASX 200 are selling off?
What to do when the ASX 200 tanks
If you were able to time the market highs and lows perfectly, my answer would be simple.
Sell at the highs right before the market retreats. Then buy at the lows right before it recovers.
Of course, history has shown that no one can do this consistently.
Meaning most often, panicky investors may sell their ASX 200 shares after they've already fallen significantly. Then, these same investors are prone to wait on the sidelines, trying to confirm a recovery. This often sees them buying back in at a higher price than where they sold.
So, what to do when stock markets are crashing?
Well, if you have some extra cash to invest, this can be a great time to scoop up some bargain ASX 200 stocks that have been unfairly sold down in the broader market panic.
As legendary investor Warren Buffett advises, "Be greedy when others are fearful." A strategy that would have paid off handsomely following the COVID market crash in 2020.
If you're not looking to add to your holdings during a market pullback, your best bet is generally to hold tight to the stocks you believe in.
According to Scott Phillips, The Motley Fool Australia's Chief Investment Officer, "The recent market falls highlight investors' focus on short-term sentiment – how people are 'feeling' about things."
Phillips added:
Sharp downward moves can be worrying, but at The Motley Fool, we remind ourselves of what we own (and why we own it), keeping our eye on the long-term horizon. And don't forget, these near-term volatile movements are unavoidable and tend to be insignificant bumps over time as they get evened out.
Should the ASX 200 suffer another bout of sharp losses in the weeks ahead, Phillips advises investors should "stay focused and remember that patience and long-term perspective are key to navigating market volatility during this upcoming reporting season".
