Market panic. Be brave. Buy cheap shares


The Motley Fool says the time to buy shares is when they are on sale. What are you waiting for?

It was never meant to be like this. We’ve already been through GFC1. Now people are talking about GFC2!

They said the bailouts would save us. They said low interest rates would save the U.S. economy, and therefore Australia. They said we’ve de-coupled from America.

Stock markets may have stabilised, for now, but the financial crisis is still with us. It remains global, and the news over the past couple of weeks turned from bad to worse.

  • For the first time in history, the American government has lost its top-notch AAA rating, while euro-leaders held emergency meetings to prevent Italy and Spain from defaulting on their debts.
  • Even more than before, everyone’s hurting… countries, investors and consumers alike. Banks have put the brakes on lending. House prices are falling. Stock markets are plunging. Your super is shrinking. It’s a nasty, downward spiral. Yet again.
  • Unlike the GFC, this time around, analysts, economists, ministers, policy-makers, and equity commentators cannot agree on how these latest events will be resolved, or when — or indeed, if — the global economy will recover.
  • This time around, the American and European bailout funds are running dry. This time around, they can’t cut interest rates. This remains unchartered territory for us all.

Worst since the Great Depression

It’s difficult to predict the future at the best of times, let alone now, when by most accounts, we are in the worst financial mess since the 1930s and the Great Depression.

We could possibly be on the verge of seismic monetary crisis, which would further transfer world economic power from Britain, the States and Europe to the BRIC nations and other emerging markets.

Such resourceful, agile and productive overseas countries could easily leave the old ailing service-based economies, like ours, dead for years. Think Japan.

What conventional wisdom is saying

Given the uncertainty, and the differing views of all the so-called experts, ordinary investors could be forgiven for sitting on the sidelines and waiting to see how events unfold.

The market remains unpredictable, if nothing else.

Let’s say S&P/ASX 200 index falls back below 4,000, and then heads lower to 3,500 as further worries arise.

You’d have thought that would be an ideal time to buy shares, wouldn’t you? We would.

Conventional wisdom says the very best time to buy shares is when everyone else is selling.

Even high-class companies such BHP Billiton (ASX: BHP), Wesfarmers (ASX: WES), CSL (ASX: CSL), Incitec Pivot (ASX: IPL), Cochlear (ASX: COH) and ResMed (ASX: RMD) could once again trade at bargain-basement prices.

If you are waiting on the sidelines today, waiting for the S&P/ASX 200 to go below 4,000, or even 3,500, you might think you’re making a smart move.

But you know what? We bet if — or when — the market does go below 3,500, you’ll still be sitting on the sidelines, waiting for it to go even lower.

Still waiting to buy

And if the index then falls to 3,000, we bet you’ll still be waiting to buy. That’s because, if the market did fall another 30% from here, it will have done so for a very good reason.

It might be because of US government suffers another credit downgrade, or the euro-zone collapses, or a major institution goes bust.

It might be because the Chinese economy goes into reverse. It might be because Warren Buffett capitulates and starts selling. Or something else equally unexpected.

Whatever it might be, you can be sure the news is going to be negative. There will be more uncertainty than ever, and therefore more reasons not invest in the stock market.

By all means, wait for the worst to pass. Then you can buy shares safely again… after everybody else of course… when the S&P/ASX 200 is trading at 5,000 or more. Remember, it was close to 5,000, in April this year.

Take a deep breath

To be a successful stock-market investor, you need courage and bravery. You need to take leaps of faith.

The best time to buy shares is when the news is bad, the economy is struggling, and there are no lights at the end of the tunnel. That’s when shares are at their cheapest.

The great investors always have belief, as doom and gloom gives them the opportunity to buy great companies at cheap prices. If you wait for the recovery, you’ve waited too long.

Have faith, and don’t you be the person who makes the classic mistake of buying only when prices are high.

Our strategy is to continue to drip-feed money into the market.

If you are disciplined and contribute regularly to your favourite stocks, companies like Commonwealth Bank (ASX: CBA), Telstra (ASX: TLS), QR National (ASX: QRN), Monadelphous Group (ASX: MND) and Sonic Healthcare (ASX: SHL), in the medium to long term, you should be rewarded.

Be brave… and buy cheap shares. You know it makes long-term, Foolish sense.

Good luck.

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Motley Fool staff and freelancers may have interests in any of the stocks mentioned in this article. These interests can change at any time. The Motley Fool has a living, breathing disclosure policy.

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