Investors can use market volatility to their favor, advises Mohamed El-Erian, CEO and co-chief investment officer of fund giant Pimco.

Sure, market plunges can be painful, frustrating and perplexing. But they can also present opportunities for investors who know what they're doing, El-Erian writes in an article for Fortune.

El-Erian compares volatility to a group of people in a room when the oxygen is suddenly and temporarily sucked out. Some people recover relatively quickly when the oxygen is restored, others more slowly and some not all.

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It's the same with financial markets with regard to liquidity, he says.

Financial values recover in time. But before they do, markets can suffer from an "adverse multiple equilibrium," El-Erian explains. Instead of returning to mean values, market prices may see a bad outcome increase the chance of even worse results.

"So markets overshoot on the downside beyond what would be warranted by fundamentals; and such overshoots can be considerable in the context of excessive market exuberance going into the liquidity implosion."

That's exactly what's happened in recent weeks, he notes, pointing to "the excessive disconnect" between prices and fundamentals.

"The proximate market spark was concern that the underlying wedge — that is investors' excessive faith in the power and effectiveness of central banks — was being undermined by signs of policy inconsistency and less-than-stellar economic data."

The less liquid and more highly leveraged markets, such as emerging markets, first suffered the liquidity disruption, and the turbulence could spread to more advanced economies, he asserts.

The good news is that investment opportunities abound when prices inevitably overshoot on the downside.

The key is finding investments supported by solid fundamentals and picking the right timing, as more volatility is possible.

"Successfully navigating today's volatile market environment and effectively seizing market opportunities," El-Erian writes, "requires a combination of careful risk management, an analytical framework that separates signals from noise and, yes, intelligent courage."

High volatility is common after a sustained run and generally points to a market reversal, writes Nigam Arora, chief investment officer at The Arora Report, in an article for MarketWatch. "This time is no different," Arora says, adding that speculation of the Federal Reserve ending its bond purchases is causing the volatility.

Arora recommends investing in stocks and exchange-traded funds that will benefit from economic recovery, taking advantage of volatility by buying on dips and taking profits on spikes and cushioning risk by partial hedging or holding cash.

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