Opportunities in a horror bear market

Simon Hampel · 3rd Dec, 2008

Opportunities in a horror bear market -

This tumultuous sharemarket has been described as providing a huge fire sale, with prices of quality stock marked down by 40% to 60%. But investors should move with extreme caution when trying to take advantage of the buying opportunities.

Many share investors are in a dilemma about whether or not to buy into this sharemarket.

Should they take advantage of a highly-depressed market filled with what may be the biggest bargains of a lifetime – or at least a generation or two? Or should they wait to see if prices have much further to fall?

In favour of the buy-now argument, prices seem extremely tempting, given that the S&P/ASX200 Index is 47% down from its high last November.

Craig James, chief equities economist for CommSec, says the price-earnings (p/e) multiple* of the All Ordinaries Index is “hovering near a 30-year low” while the index’s average dividend yield is near an 18-year high.

But in favour of the don’t-buy-yet argument, this is of course a breathtakingly volatile and treacherous market that appears not to have hit bottom. Global economic news seems to be getting worse day-by-day, and the extent of the volatility is illustrated by last week’s 7.4% downturn in the S&P/ASX200.

Should you be a buyer, or simply hold tight for a while?

Some leading market and investment specialists suggest that strictly long-term investors may consider highly cautious and highly selective buying, even though the market may well have further to fall – perhaps much further in a worse-case scenario.

Buyers should stick to top quality stocks, and buy progressively – rather than putting their entire store of cash on the line. And be prepared for much more volatility.

Prasad Patkar, portfolio manager with Platypus Asset Management, sums up the opportunities for investors: “Investors who buy good quality stocks and hold on to them through the volatility and for long enough should make a lot of money.”

Michael Heffernan, private client adviser and strategist for Austock Securities, says there is no question that a fire sale is taking place on the sharemarket, with some outstanding buys. “And you don’t have to go far outside the top 20 for buying opportunities,” he says. “But you have to be brave to put your money on the line.”

Heffernan says you may have to wait some years to be really rewarded for your bravery. “But you will look back and think how smart you were to buy at such great value.”

Here are six strategies to consider – along with some stock tips:

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Opportunities in a horror bear market

Simon Hampel Founder Staff Member

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Opportunities in a horror bear market

Simon Hampel Founder Staff Member

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