Market sell-offs are never comfortable, but they are a normal part of investing.
The share market moves in cycles, and even strong companies can see their share prices fall sharply when sentiment turns negative. While it can feel unsettling in the moment, those periods often create some of the best long-term buying opportunities.
If the ASX share market were to crash, my approach wouldn't be to panic or rush for the exit. Instead, I'd be looking for high-quality businesses whose long-term outlook remains intact but whose share prices have been dragged down with the broader market.
Here are three types of investments I'd be paying close attention to.
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High-quality compounders
One of the first places I'd look during a market crash is high-quality ASX growth shares that have strong long-term track records.
Businesses like Pro Medicus Ltd (ASX: PME) and Xero Ltd (ASX: XRO) have built global platforms and operate in industries with long growth runways. These are the kinds of companies that can grow earnings for many years, but their share prices can still fall heavily during broad market sell-offs.
When that happens, the underlying businesses don't suddenly lose their competitive advantages. What changes is the price investors are asked to pay for them.
If a crash pushed these types of companies to more attractive valuations, I would see that as a chance to build a position in businesses I already admire.
Market leaders with durable earnings
I would also look for dominant companies with resilient earnings and strong balance sheets.
Businesses like Wesfarmers Ltd (ASX: WES) and Woolworths Group Ltd (ASX: WOW) have established leadership positions in their industries and generate significant cash flow through economic cycles.
Retail spending may fluctuate, but these companies operate essential businesses with strong brands and extensive distribution networks.
During market downturns, even these kinds of blue-chip companies can be sold off alongside everything else. That can create opportunities to buy reliable, long-established businesses at prices that may not normally be available.
Broad ETFs
Finally, I would likely look to add to broad market exchange-traded funds (ETFs).
Funds such as the iShares S&P 500 ETF (ASX: IVV) or the Vanguard MSCI Index International Shares ETF (ASX: VGS) provide exposure to large numbers of companies across different sectors and regions.
Buying diversified ETFs during periods of market weakness can be a straightforward way to increase exposure to the market without needing to pick individual winners.
Over long periods of time, markets have historically recovered from downturns and gone on to reach new highs. Adding to diversified funds during those weaker periods can help investors benefit from that recovery.
Foolish Takeaway
If the ASX share market crashes, my focus wouldn't be on trying to predict how far prices might fall.
Instead, I'd be looking for opportunities to buy strong businesses and diversified ETFs at more attractive prices. Market downturns can be uncomfortable in the short term, but they can also provide the chance to build a portfolio of high-quality investments for the long run.
