It has been a year that's been generally light on fear and filled with days of small gains that added up to the Dow's best quarterly performance since 1998.
Until now…
Overnight the Dow plunged over 200 points, good enough for a 1.65% drop. The VIX , or fear gauge, rose for its eighth straight day.
One of the great underfollowed story lines this year has been the disappearance of "wild markets" that defined the past several years. The VIX had dropped all the way down to 13.66 after peaking at 48 last year (higher VIX scores show higher "implied volatility" in the market's future).
With the markets churning downward this past week and the VIX soaring, is it time for investors to panic?
Our view is to take a "wait and see" approach. U.S. markets have had a strong first-quarter rally, with the S&P/ASX 200 also putting in a decent performance. When you're experiencing record results — the Nasdaq had its best first quarter since 1991 — it's expected that there will be some speed bumps along the way.
Your challenge as an investor is to not be myopic when the market gets scary and keep up the search for some great bargains that are presented.
One such stock is BHP Billiton (ASX: BHP). Back in September last year, Motley Fool Share Advisor analyst Dean Morel suggested investors prepare to load up on the Big Australian.
But he never did suggest investors hit the buy button, saying…
…if you can patiently sit on the sidelines, at some point volatile and fearful markets could give you an even better entry point. In November 2008 BHP shares briefly dipped below $22. Such an opportunity should have investors trembling with greed.
Investors today are nervous again. Volatility is on the up. BHP Billiton shares are down…perhaps not to $22, but closer to their 52-week low than their 52 week high of close to $50.
We're not saying BHP is a buy today. But if this volatility and uncertainty drags markets down for an extended period, taking other world class ASX companies like BHP, Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL) down with it, Dean will be ready to pounce. Watch this space.
The key is to find great businesses that you believe in across the long term that are getting thrown out with the broader market. While any slowdown of the global economy would certainly hurt a broad swath of companies, we've still only witnessed a couple of marginally bad data points across the past couple of days.
Even if the market's downturn continues, great companies bounce back. You only need to look at the depths BHP plunged to back in late 2008 to know that superior companies with great balance sheets can actually extend their lead in times of market turmoil.
So while you might wince every time you check on the market today, the larger point is to keep a watchlist of your favourite companies close at times like these. The line between desperation and opportunity is very thin.
Keep searching for opportunities
Looking for a place to start your watchlist of companies to buy?
If you're looking for ASX investing ideas, look no further than "The Motley Fool's Top Stock for 2012." In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.
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