Oh, spit! OMG! The sky is falling!

Stop. To steal a line from Cameron Crowe's 1989 Say Anything: "You must chill. You must chill."

Yes, I understand that pretty much every market average fell 3% or more on Thursday. I get it. E*Trade (NASDAQ:ETFC) shed nearly 9%. Wachovia  (NYSE:WB), almost 10%. US Airways  (NYSE:LCC) -- more than 10%. And while I personally (and thankfully) don't own any of these companies, one of the stocks I do own, Oshkosh (NYSE:OSK), dropped close to 8% for the day. So believe me: I feel your pain. It's scary out there.

Yet if you're reading this, it means I'm still typing. I haven't jumped out of any windows -- not that you have to worry about that, since I live on the ground floor. But even if I lived in a New York penthouse apartment, that sort of dramatic overreaction just wouldn't help. Panicking as your stocks plummet won't slow their fall, and it won't salvage your portfolio -- just lock in your losses.

Well, what should we do?
You should thank the good Lord (or your deity of choice) for providing you an object lesson in the volatility of the markets.

From time to time, we all need to be reminded that asset prices can go down as well as up. Otherwise, we might do something stupid -- like, say, pay more than 130 times earnings for a share of Cypress Semiconductor (NASDAQ:CY). Or buy a $200,000 house for $300,000, finance it with a no-money-down subprime adjustable-rate mortgage at 2%, and then wonder why we can't afford the mortgage when the rate resets and our monthly payments suddenly triple.

Hypothetically speaking, and present company excluded, of course.

No, no -- what should we do about the stock market?
Oh, right. Well, just keep on doing what you've been doing. I did say "present company excluded," right? So keep collecting your paychecks and saving your money. Keep researching high-quality, low-price stocks. Keep buying shares at a significant margin of safety. And be sure to buy no more of any given stock than you can afford to lose. (Because we all make mistakes from time to time.)

Once you've got that down, though, it's time to get greedy.

Greed is good
See the opening lines of this column up above? A lot of investors are saying things like that right now. Even the pros are panicking. The hedge-fund types? They're worrying about making their quarterly numbers, and they're selling out of positions they love, in a frantic attempt to staunch the bleeding.

Meanwhile, you should consult your stock "wish list" -- you've drawn one up, right? -- and see whether this week's panic selling has pushed any of your favorite stocks down below your hoped-for buy-in price. Today just might be your lucky day.

In short, while the so-called Wise Men on Wall Street are busy selling their favorite stocks, you should be marshalling your pennies, updating your buy list, and deciding how far Apple (NASDAQ:AAPL) and Intel (NASDAQ:INTC) have to fall before you'll be willing to buy in.

Further fearless Foolishness:

This article was originally published on July 26, 2007. It has been updated.

Fool contributor Rich Smith owns shares of Oshkosh, while Intel is a Motley Fool Inside Value pick and Apple is a Stock Advisor recommendation. Sadly, The Motley Fool's disclosure policy forbids Rich from buying any of the stocks named above for at least the next 10 days.