Share market slump continues

Share market woes continue, but for The Motley Fool, it's not a time to be selling.

$30 billion wiped off sharemarket – The Age

Markets tumble as investors run for cover – The Australian Financial Review

Aust shares plummet on US recession fears – ninemsn

Nowhere to hide as shares dive – The Australian Financial Review

The headlines say it all. Wednesday saw Australian shares suffer their biggest one-day fall of the year, closing at their lowest level in a year. Thursday was no better, the S&P/ASX 200 index losing another 1.3% to close below the 4,300 level.

Official: it's a correction

We're officially in correction territory now, the index having plunged more than 13% since its high point in April this year.

The doomsters will simply call this the continuation of a decade-long bear market.

In the U.S. the Nasdaq peaked way back in March 2000, and today is still over 45% off that peak.

In Australia, our market peaked in October 2007 at the heady level of 6,750. It could take 5 years or more to get back to that peak. If so, we'd be staring at our own lost decade. At least, with the U.S., Japan and the UK, we'd be in good company.

Give up on shares now?

Here at the Motley Fool, we're glass half-full people. Sure, it has been a tough few years for share market investors, but is that alone a reason to give up on the market now?

We all know the time to buy shares is when they are cheap.

So why don't we do it?

It's all in your head.

People don't buy when shares are cheap because…

1) They could get even cheaper. Who's to know tomorrow won't bring another big fall? Or next week? Next month?

2) Shares only get really cheap when pessimism is at its peak.

Today, you don't have to look far to get a good dose of pessimism.

The debt-ridden U.S. economy is moribund, taking the U.S. stock market and commodities down with it. Witness the recent falls of BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Santos (ASX: STO), for example.

In Europe, Italian and Spanish borrowing costs have risen to new highs, sparking contagion fears.

Locally, retail sales have plunged to a near 50-year low.

No surprises then that retailing shares Billabong (ASX: BBG), David Jones (ASX: DJS), Harvey Norman (ASX: HVN), JB Hi-Fi (ASX: JBH), Myer Holdings (ASX: MYR) and Noni B (ASX: NBL) are all trading at close to 52-week lows.

Boom or bust?

It doesn't matter the mining boom remains in full swing, for the moment anyway. Perish the thought it sees a significant and prolonged slowdown.

And what about commodity prices? All we can say is it takes a brave investor to bet against China, over the long-term.

In an excellent Fairfax article titled China: it's full speed ahead, Nobel-prize winning economist Michael Spence says China's explosion of economic growth could last for another two decades.

The thought of it all has The Motley Fool's very own Investment Analyst Dean Morel licking his lips. He's thinking mining services stocks. Watch this space.

Given all this pessimism, it's no wonder investors are sitting on the sidelines. Shares might look cheap, but that alone doesn't stop them getting cheaper.

But, we'd rather be buyers now, with the index at around 4,300, than buyers at close to 5,000. As the old Warren Buffett quote goes, you pay a high price for a cheery consensus.

Time to sell?

On the flip side, is it time to sell?

We all know the time to sell shares is when they are expensive.

Are they expensive today? On face value, no. Still, there are plenty of value traps out there, companies facing structural headwinds, particularly in the traditional media. The easy way to avoid them is not to buy. Job done.

A quick look at some of the bigger losers over the past 4 months might give you a few investing ideas.

Any analyst worth their salt will tell you just because a company's share price has fallen is no reason alone to buy. But there's been some pretty dramatic falls in recent months.

So what's an investor to do? Don't panic. Turn off Sky Business News. Maybe do some bargain hunting.

These times will pass, and the ones who keep their cool will win. That's always how it works.

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