It does not always feel comfortable buying shares when they are down heavily.
Prices are falling, headlines are negative, and sentiment is weak.
But in my opinion, this can sometimes be the best time to make a move.
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A market creating opportunities beneath the surface
The broader share market has underperformed in recent months, but has not fallen dramatically.
The S&P/ASX 200 index (ASX: XJO) is down around 8.4% from its recent high, which is noticeable but not extreme.
But that does not tell the full story.
Beneath the surface, a number of ASX shares have been sold off heavily. In many cases, far more than the overall market.
And when I see that kind of divergence, I start paying attention.
Why buying cheap ASX shares can matter
Buying ASX shares after they have fallen significantly can provide something that I think is incredibly valuable.
A margin of safety.
If expectations are already low and sentiment is weak, it does not take much for things to improve. And when they do, share prices can move quickly.
That is where the potential for outsized returns comes from.
Of course, not every fallen share is a good opportunity. Some deserve to be down.
But when high-quality businesses are caught up in broader sell-offs, I think that is where things get interesting.
Where I am seeing value today
There are quite a few ASX shares that have pulled back sharply over the past year.
Online retailer Temple & Webster Group Ltd (ASX: TPW) is down around 58%. Healthcare giant CSL Ltd (ASX: CSL) has fallen roughly 42%.
Radiopharmaceutical company Telix Pharmaceuticals Ltd (ASX: TLX) is down about 50%, while footwear retailer Accent Group Ltd (ASX: AX1) has dropped close to 60%.
Even high-quality industrial names like James Hardie Industries Plc (ASX: JHX) and Cochlear Ltd (ASX: COH) are down around 35% and 37%, respectively.
These are not small moves.
And while each company has its own reasons for falling, I think it is important to recognise the broader context as well.
What is driving the sell-off?
There are a few key factors at play.
The conflict in the Middle East has pushed oil prices above US$100 per barrel, which is raising concerns about inflation and the potential for higher interest rates.
At the same time, artificial intelligence (AI) disruption concerns have been weighing on parts of the market, particularly software and growth stocks.
Put that together and you get a market that is more cautious, more selective, and in some cases, more pessimistic.
But I do not think that necessarily reflects the long-term outlook for many of these businesses.
Lessons from the past
One thing I often think about is how investors behaved during the COVID crash in 2020.
At the time, fear was widespread and uncertainty was high. But for those who were willing to step in and buy quality ASX shares at depressed prices, the returns that followed were significant.
I am not suggesting this is the same situation. But I do think the principle still applies.
Periods of weakness can create opportunities for long-term investors who are willing to look beyond the short-term noise.
The importance of a long-term mindset
If I am buying ASX shares that have fallen sharply, I am not doing it for a quick rebound.
I am doing it with a long-term mindset.
Some of these companies may take time to recover. There could be more volatility ahead. And not all of them will bounce back in a straight line.
But if the underlying businesses remain sound and continue to execute, I think the next decade could look very different from the past 12 months.
Foolish takeaway
Buying dirt-cheap ASX shares is not about chasing falling prices.
For me, it is about identifying quality businesses that have been caught up in broader sell-offs and buying them at more attractive levels.
With many ASX shares down significantly and the market off its highs, I believe there are opportunities available for patient investors.
