The Motley Fool

Bear markets: The perfect time to buy cheap shares, as we’ve just done ourselves

The last 24 hours prove, once and for all, that share markets can and DO rise, even in the face of a dire economic outlook.

On Monday the S&P/ASX 200 index jumped 1.85 per cent. Overnight in the U.S, the S&P 500 surged 2.9 per cent. The Nasdaq soared a whopping 3.5 per cent.

Bloomberg reports the S&P 500 is trading for 10.9 times analysts’ forecast for earnings in 2012, compared with its five-decade average of 16.4 times.

In short, shares are cheap.

But you should know that already…

Don’t let the doomsters get you down
Read the weekend newspapers and you could be forgiven for heading down to Coles or Woolworths (ASX: WOW) to stock up on tins of baked beans and bottled water.

For example…

  • Europe is a basket-case hellhole, with no plan, no future, and will stubbornly drag the rest of the global economy down with them.
  • The U.S. has its own massive debt problem, stubbornly high unemployment, and on the verge of a double-dip recession.
  • Jim Chanos is bearish on China, saying the banking system there is built on quicksand.
  • Our local banks are facing a funding spike.

Buying into the teeth of the bear market
Meanwhile, here at Realism HQ, otherwise known as The Motley Fool, we simply carry on with business as usual.

For myself and Dean, that means continuing to look for investing opportunities.

In fact, on Monday, we both bought shares in one small, seemingly totally overlooked ASX company that last year grew its revenue by over 20 per cent and is expecting to grow at a similar rate in 2012.

Yet, despite this growth profile, and an attractive 5 per cent dividend yield, this company is trading at around 5 times earnings.

It’s madness. But more to the point, it was an opportunity we couldn’t refuse.

It’s exactly the type of company Motley Fool Investment Analyst Dean Morel will be looking to recommend to subscribers of our forthcoming Motley Fool Share Advisor newsletter service. It’s not the company, as we’d never recommend you buy something just after we’ve bought it for our personal accounts. The Motley Fool has a strict disclosure policy.

A sneak preview…
I’ve had a sneak preview of Dean’s first recommendation for Motley Fool Share Advisor.

It’s a small, overlooked company that Dean believes is on the cusp of something truly transformational.

He thinks this company has massive long-term upside potential, yet it still trades at a bargain basement price and a very attractive dividend yield.

Speaking of Motley Fool Share Advisor, if you missed the introductory video from David and Tom Gardner, click here to view it.

Even if Share Advisor is not for you, I think you’ll benefit from the wisdom of the Gardners. They are truly inspirational leaders and investors.

For all those many people interested in subscribing to Share Advisor, we’ll have an update in the next couple of days. We thank you for your interest, and your patience.

The time to start investing in shares is now…
At The Motley Fool, we don’t believe anyone can accurately predict where the economy — much less the sharemarket — is headed over the next month or year.

I think the movements in the markets in the past 24 hours prove as much.

That’s why we don’t encourage you ever to “go to cash”, and why we like to say that right now is always the time to start building a market-beating portfolio.

Hiding in cash and waiting for better prices that may never come is simply too risky and your time is too precious.

Good companies at great (cheap) prices
Market meltdowns can be scary. But we look at them differently. Bear markets offer informed, confident, fearless investors the unique opportunity to buy good companies, at great prices.

These opportunities don’t come around very often.

If history tells us anything, it’s that bargain prices don’t come when the market is powering along… the outlook is sunny… and the future looks rosy.

As Warren Buffett so beautifully puts it…

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

We couldn’t be more excited to be launching Motley Fool Share Advisor into the teeth of this bear market. We hope you’ll be equally as excited, and more importantly, highly rewarded in the months and years ahead.

I’ll leave you with yet another excellent article from our feature writer Scott Phillips.

The Death of Shares Has Been Greatly Exaggerated
The sad reality is that despite decades of economic booms and busts, we don’t seem to be able to learn from the past.

We continually commit the cardinal sin of buying high and selling low. Markets are low today, yet people aren’t buying cheap shares. Keep it in context. Focus on the long-term, and the inevitable passage of time will look after the rest.


Happy investing.

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