Owning shares in a falling market isn't much fun.
Watching your portfolio shrink, day after day…
Your wealth slowly diminishing as red share prices flash across your monitor…
Wondering when (or if!) it will ever end, and how much your portfolio will fall by the time it's over…
Unfortunately, there's been no avoiding those feelings over the last week.
Share markets around the world have crashed on the back of crumbling oil prices, while China's growth prospects have sparked 'grave concerns' for the global economy.
Indeed, The Australian Financial Review highlighted that the world's 400 wealthiest individuals had collectively lost the equivalent of $280 billion last week.
It's been no different for Australia's own S&P/ASX 200 (ASX: XJO).
We've only had six full sessions so far in 2016, but already the main bourse has crashed about 7%. That equates to a loss of more than $100 billion with various media sources saying it's our worst start to a year in history.
I'll let that sink in for a moment…
It's treacherous out there, for sure.
The banks have all fallen, sharply. BHP Billiton Limited (ASX: BHP) has continued its rapid descent, falling nearly 5% yesterday and 13% so far in 2016…
Not even the so-called 'defensive' stocks like Telstra Corporation Ltd (ASX: TLS) can survive!
Nowhere to run, nowhere to hide
Your first instinct might be to sell your shares, and maybe even move back to the safety of cash, or even gold.
But that would be a mistake.
Selling your shares could calm your nerves in the short term, but there's a good chance you'll regret it once markets stabilise.
And they should stabilise.
Indeed, selling now could see you exit your positions at exactly the wrong time, gifting the investors on the other end of the transactions some potentially great long-term rewards.
The fact is, the ASX 200 has already fallen nearly 18% since its peak in April. Maybe it'll fall further from here, but history suggests we could be close to bottoming out.
So rather than selling your shares, now could actually be a fantastic opportunity to start buying some of the market's best companies!
With that in mind, I recently moved more cash into my brokerage account. It's currently ready to be put to work at a moment's notice.
Of course, that's not to say I haven't kept any cash…
Keeping some cash spare is always important. You'll want to keep some handy in case the market does fall further, or if some unexpected bills suddenly pop up.
It's also important to hold some cash in case these kind of opportunities arise! If the market does fall any further, I want to make sure I've got even more cash ready to buy shares when they're dirt cheap!
I don't ever expect to be able to buy at the exact bottom of the market's dive. But if I can add money regularly, I should be able to at least reduce my average purchase costs and ensure I'm well positioned for a recovery.
That raises the question…
What to buy?
Firstly, it's important to note that not everything in a falling share market is a buy.
Some companies – or entire industries – are falling for perfectly good reasons.
Take the miners, for example. Oil prices plunged nearly 7% again overnight, and iron ore prices are stuck in reverse as well.
Most miners are heavily exposed to China which is transitioning away from infrastructure growth so demand could continue to drop, with conditions not expected to pick up anytime soon.
But some other high-quality businesses are simply getting thrown out with the bath water, and those are the ones we should be focused on.
One company on my radar is Wesfarmers Ltd (ASX: WES).
A name familiar to most investors, Wesfarmers is the owner of high-quality businesses such as Coles, Bunnings and Officeworks.
Sure, it's exposed to coal as well, which is also hovering around multi-year lows, but resources accounted for less than 2% of group earnings before interest and tax (EBIT) in financial year 2015, a negligible amount for a company as large and diversified as Wesfarmers.
Wesfarmers is a high quality business with a strong balance sheet. It has an enviable track record, and has proven its ability to weather tough economic environments.
To top it off, the stock offers a very compelling 5.1% fully franked dividend yield, which grosses to a yield of 7.3%!
You won't beat that by locking your money away in a term deposit… At least not while interest rates are sitting at just 2%!
Of course, Wesfarmers' isn't every investor's cup of tea. But thankfully, there are plenty of other great alternatives for those investors to consider right now.
