We lose a visionary and set-out a clear investing vision

The simple secret to investing and why so few people can do. Shares are truly cheap when chaos, panic and fear prevails. Plus how to best invest during a secular bear or sideways market.

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We were shocked and saddened to hear of the death of Apple (Nasdaq: AAPL) co-founder and Chairman Steve Jobs, aged just 56.

"Steve's brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives," Apple said in a statement. "The world is immeasurably better because of Steve."

We wholeheartedly agree. Cancer is an awful disease, but sadly one that will likely touch many of us at one stage of our lives. Death is so final. We just hope Jobs died a satisfied man. He had many reasons to be happy with his hugely successful life.

It's at times like these when you realise there's more to life than worrying about the daily ups and downs of the sharemarket. Life is precious. It's to be enjoyed and cherished, for sometimes it is all too short.

R.I.P. Steve Jobs. A visionary man whose legacy will be with us for decades to come.

For the rest of us, life does go on.

Crisis over?

Overnight in the U.S., the S&P 500 index advanced 1.8%, capping its biggest two-day gain in more than one whole month.

So is that it? Sharemarket crisis over?

Some seem to think so. Bloomberg reports Brian Belski of Oppenheimer & Co as saying the U.S. stock market probably hit bottom yesterday.

Naturally, the local market will follow suit, as will the Aussie dollar – both are trading higher.

More than ever, global markets are moving in sync. One up, all up.

Except, until recent days, it has been one down, all down. Worries of contagion caused by the ongoing European sovereign debt crisis have seen investors run for the hills.

We recently received an email from Steve. He summed up the prevailing mood succinctly when he said…

"…I agree with a lot of what you are proposing however I do have some very major concerns in the spruiking you are doing. Telling clients to buy now and that it is cheap is a very fire sure way to lose money and go broke… I don't care how good the fundamentals are because when Greece defaults it will cause havoc in our banking sector to the likes we have never seen in Australia and this will have a major impact on the market, on business and on consumer sentiment."

Firstly, let us say we are not spruiking. We'll leave that to the people who run those 'free' investing seminars.

We're simply giving our opinions. Between us, Bruce & Dean have close to 50 years of practical, hands-on investing experience. But it's up to each and every individual to make their own investing decisions.

Buying shares cheaply

We are clearly getting old. But hopefully we're getting wiser too. We like to keep things simple. And for us, that means buying shares when they are cheap.

Sounds easy, doesn't it? So why do so few people do it?

In a nutshell, shares are only truly cheap when chaos, panic and fear prevails.


We'd all love to buy cheap shares when the economy is ticking along very nicely thank you very much. But it's precisely at those times when shares are anything but cheap.

Think back to 2007. In October the S&P/ASX 200 index peaked at 6,750. House prices were high. The commodities boom was in full swing.

Commonwealth Bank of Australia (ASX: CBA) shares were trading at over $60. Woolworths Limited (ASX: WOW) shares were on their way to peaking at close to $35. Even Telstra Corporation Limited (ASX: TLS) shares were trading at $4.80.

Oh to be a seller at those prices…

But back then, most expected the good times to keep on rolling, and rolling and rolling. The sharemarket was riding high.

Speculative resource stocks was the game. Anyone remember Terramin Australia Limited (ASX: TZN), Platinum Australia Limited (ASX: PLA), Bannerman Resources Limited (ASX: BMN) or Pluton Resources Limited (ASX: PLV)? They are all down over 80% since those heady days.

As we all now know, the bottom was about to fall out of the world economy, the GFC wiping billions from the sharemarket, share portfolios and our superannuation funds. We're still feeling the effects.

Go forth, fearless Fools

Investing is not about looking in the rear view mirror. We can learn from the past, but it doesn't necessarily help us predict the future.

As of now, as Steve points out, a Greek default and the potential for European, and hence global, banking contagion hangs over us.

We admit we don't know how it will all unfold. The Germans appear determined to save the euro, at whatever cost, for now anyway. The best outcome would be an orderly Greek default, a recapitalisation of European banks, and we can all move on…until the next crisis point.

As to the specifics, not even German chancellor Angela Merkel knows the answers, saying any plan should be left to the technical experts…whoever they may be. We presume she's not talking about a team from Google (Nasdaq: GOOG).

So what's an investor to do? Sit and wait on the sidelines and see how it all shakes out? Or take advantage of cheap share prices whilst they last?

Exciting opportunities, but no cash

On that point, we received an email from Garry…

"That was an interesting read… where does a guy like me get the funds to take advantage of all these exciting opportunities to capitalise on buying all the basement bargains that you can see (and so can I)?"

It's a great question, one we set The Motley Fool's Investment Analyst Dean Morel onto. Here's Dean's excellent answer…

Investors often find they don't have the cash to take advantage of the bargains that appear during a bear market. If that sounds like you then I hope these tips will help.

1. Sell something to raise the cash. A great time to sell a company is when you've found a better investment. Market sell-offs provide a good opportunity to upgrade your portfolio. Compare bargains against your current shares. Sell the lowest ranked companies and buy the highest ranked.

2. Update your watchlist. Then, if you've got regular income, keep buying good companies. There are many companies being sold at generational lows of between 2x- 5x EBITDA. Investing as funds become available is a great way to ensure you spread your investments over time.

3. Save harder. Funds invested during bear market will provide higher returns than those invested during the euphoric highs of a bull market. There are always ways to reduce your outgoings and now is the time to do so.

4. If you have invested through bear markets before and not sold out then I have another tip for you. But please beware as this tip is only for rational, battle hardened investors. I'm talking about the dirty six letter M word.

Yes I'm talking about margin. The only form of leverage I recommend is non-callable debt. In general that means a line of credit against another asset, like a property. The only time I recommend using a small amount of leverage is during bear markets and then only if you are battle hardened.

5. My final and best tip is to learn from this experience.

During a secular bear or sideways market increase cash when the market is riding high.

If you do that, you'll gleefully be cheering on lower prices so you could put that cash to work. This is an invaluable opportunity to learn about the true value of cash.

In secular bear markets it is more important than ever to buy low and sell high, then rinse and repeat. You want to have cash ready for when table-thumping, back-up-the-ute opportunities arise.

When all seems rosy start selling your fully priced shares, as in a secular bear market you'll get an opportunity to load up again.

As we said earlier, Dean has been actively investing for close to a quarter of a century. He's got a document track-record of out-performance.

When he talks, it pays to listen. But, again, please don't take this as spruiking. Do your own research and make your own investing decisions. And if you are tempted to use leverage, please consider doing so very cautiously. Just ask the thousands of investors who were wiped out in the last GFC as to what can happen if things really go pear shaped.

Read more:

Road map to riches – treasure hunting on the ASX

The 4 step action plan if you're fully invested

My simple investing plan for this bear market

Another place to look is this free report by our top equity analysts that profiles two companies they think will be well insulated from any bursting of the dollar, gold and commodities bubble. Grab this report – 2 Safe Ways To Play The Commodities Boom – while it's free and still available.

Bruce Jackson has an interest in CBA, Woolworths, Telstra, Google, and Apple. Dean Morel has an interest in both Telstra and the sharemarket. The Motley Fool's disclosure policy is a must-know.

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