Learn to love stockmarket falls

• 13 Aug 07

Most people are net buyers of stocks throughout their lives, which means that market falls should be welcomed rather than feared.

You could be forgiven for thinking that there had been some major ructions in the stockmarket over the past couple of weeks. There’s been talk of crashes, collapses and crunches, with well-known Wall Street pundits shouting and screaming (if only for effect). So far at least, though, we haven’t even seen the 10% drop that people arbitrarily consider is necessary for a ‘correction’ and the All Ordinaries Index is still above where it stood in March.


The truth is that fear and panic get people’s attention and the media is well aware of it. But it’s at times like this that investors need to stand back from the crowd and make a cold assessment of what’s going on. No doubt some companies are affected by recent turmoil in global debt markets, but some have, and/or will generate, all the cash they need for their future investing plans and have little to fear from a recession, which might in fact help them take market share from competitors. Yet these companies have been getting cheaper along with everything else and we’ve been licking our lips.


Only a few stocks have so far drifted into our buying range – Corporate Express, Ten Network and Servcorp (almost) – but we’re hopeful of bigger falls and further opportunities.


It’s a truism to say that, all things being equal, you’ll do better from stocks if you buy them cheaply. But what people forget is that for most of their lives, they’re net buyers, or at least holders, of stocks. And the ideal situation is to reach retirement with enough in your pot that you never have to become a net seller. So for most people, for most of their lives, stockmarket falls are good things.

Price and value


The crucial point to understand is that the price of a stock and its value are two different things. The market sets the former and we spend our days trying to estimate the latter. To make our life easier, we generally avoid poorly managed, debt-laden or cyclical businesses where predictability is poor, and we look for a margin of safety to protect us against an error of judgement – the more uncertain we are about a company’s value, the greater the margin of safety we require.
Most of the time, price is pretty close to value. But sometimes it gets out of whack, and occasionally by enough to give us a decent margin of safety. It’s these situations that present the greatest opportunities for canny investors and the greatest dangers for those who succumb to understandable but irrational mood swings. Preparedness makes all the difference.


Imagine you’re researching a company, Little Acorn Limited, which operates in a predictable industry, has decent management and pays no dividends. It reinvests all its profits, meaning that returns are entirely in the form of capital growth. You’ve done the work, and are as comfortable as you can be that Little Acorn will grow earnings per share (EPS) at 10% per year, from the current level of $1.00, with very little chance of variability.


Deeming Little Acorn to have all the right stuff, you buy the stock for $15 – a price-to-earnings ratio of 15. If your estimate of earnings growth is accurate, then EPS will grow from $1.00 to $2.59 over the next decade. If the market is still happy to pay a PER of 15 at that point, then the stock will trade at around $38.85, and you’ll have achieved an annual return of 10%, in line with the earnings growth.


The future is always uncertain


Of course, the stock might trade lower in a pessimistic market in 2017, giving you a lower annual return (but an underpriced stock that’s likely to do well in future years). Alternatively, it might trade higher, giving you a larger annual return (but an overpriced stock that you might choose to sell).


Which of those possibilities eventuates is of some importance. But what happens in the stockmarket over the next week, month or year doesn’t make a lick of difference as to how the market will view Little Acorn in ten years’ time.

Great oaks from little acorns grow
	Price in 2007	Price in 2017	Annual return
Expected	$15	$38.85	10.0%
outcome	$8	$38.85	17.1%
Lower	$15	$25	5.2%
outcome	$8	$25	12.1%
Higher	$15	$50	12.8%
outcome	$8	$50	20.1%

So let’s say that shortly after purchasing Little Acorn for $15, the market tanks and takes Little Acorn with it – down to $8. The talking heads everywhere go berserk over the ‘blood on the streets’ and you’re staring at a ‘loss’ of almost 50%. The emotional investor gets the chance to do some real and permanent damage here. Avoid this at all cost.


Assuming that Little Acorn is still as likely as ever to grow its EPS at 10% per year and arrive in 2017 with EPS of $2.59 and a stock price of $38.85, your forecast of its future is unchanged, and your expected return from yesterday’s investment is unchanged at 10% per year. You won’t get that return if you sell out now. But if you do nothing but hold, your eventual wealth will be just as great as if the share price followed a straight line from $15 to $38.85 over the course of a decade.


But wait there’s more


If you have some spare cash, though, you can actually improve your position, by going against the crowd and buying more shares in Little Acorn at $8. At that price, your additional investment will compound at 17% per year until the shares trade at $38.85 in 2017, dragging up your average return in the process. So the market tumble has actually provided an opportunity.


Of course, the real world isn’t so neat. Market crashes can hurt the economy, affecting company profits in the short and medium term. And the 2017 value of the stock will swing based on both the mood of the markets then, and the company’s growth in the intervening years. But that’s the case regardless of whether stocks are cheap or expensive today. Which brings us back to the trusim that the less we pay for our stocks, the greater the bargains they’ll prove to be.


So remember that when the market takes a tumble, it’s just changing the price that it’s setting for stocks. The value of those stocks, all things being equal, will remain the same. You don’t have to sell your stocks, but you can choose to buy, if you have the spare cash and can find something suitable. Viewed like this, market crashes won’t do any harm to long-term investors, but actually offer you the chance to compound your money at a greater rate.

http://www.intelligentinvestor.com.au/articles/230/Learn-to-love-stockmarket-falls.cfm

Crises Equal Opportunities - History Makes Money

 
What $10,000 invested at times of various historical calamities would be worth today?
 
In 1962, the missile crisis brought us close to World War III.  At that time, if you had invested $10,000, the value today would be $156,661.
 
In 1965, we bombed North Vietnam and were attacked in the Gulf of Tonkin.  The value of $10,000 invested then would now be worth $109,602.
 
In 1968, there was a six-day war in the Middle East and five days of rioting in Detroit, the value of $10,000 invested then would now be worth $87,429.
 
In 1980, Iran was holding American hostages, the value of $10,000 invested then would now be worth $48,700.
 
The recession in 1982 caused the market to hit 730 in August and by February the following year the market was up 57 percent to 1150.
 
On October, 1987, the country saw the most severe drop in market history.  $10,000 invested at the bottom of the market on October 20 would be worth approximately $24,000 today.
 
These down markets caused by crises events are opportunities only if you have cash available to seize the opportunity of the moment of the down markets.  If you are caught fully invested in stocks when these events occur and your quality stocks go down, ride them out and stay fully invested as the market always recovers and given time, eventually heads to new record highs.


http://www.sap-basis-abap.com/shares/history-makes-money.htm

How to make money in a down market?

Here is an example of making money in a down market.

At the end of 2007, an investor was enthusiastic about a stock ABC.  Then the severe bear market of 2008/2009 intervened.  Here were the investor's transactions in stock ABC.

1.11.2007  Bought 1000 units  @  $6.00          Purchase value  $6,000
6.11.2007  Bought 1000 units  @ $ 6.75          Purchase value  $6,750
15.9.2009  Bought rights 800 units @ $ 2.80    Purchase value  $2,240
!5.9.2009   Bought 5,500 units  @ $ 3.51         Purchase value  19.305

Total bought 8,300 units
Purchase value  $34,295
Average price per unit $ 4.13

Current price per unit  $ 5.51
Current value of these 8,300 units is $ 45.733.

This is a total gain of $ 11,438 or total positive return of 33.4% on the invested capital, excluding dividends, received for the investing period..


Lessons:
1.  Investing is most profitable when it is business like.
2.  Stick to companies of the highest quality and management that you can trust..
3.  Stay within your circle of competence.
4.  Invest for the long term.
5.  Generally, hope to profit from the rise in the share price.
5.  At times, the share price becomes cheap for various reasons # - be brave to dollar cost average down, provided no permanent deterioration in the fundamentals of the company..


# Severe bear market of 2008/2009.

Investment outlook: For a brighter investment forecast, look long term

Despite the recent market volatility, opportunities to grow your nest egg are out there

4:22PM GMT 25 Nov 2011

Doom and gloom might be the order of the day – as politicians struggle to control the EuroZone debt crisis, plus a worsening UK economic outlook – but the medium- to longer-term forecasts remain much brighter. In particular, leading fund managers agree that future market conditions appear more favourable for investors, providing your money is in the right place.

2011 will certainly be remembered as a year of global market volatility, kicking off with unrest in the Middle East and North Africa, followed by devastating earthquakes in Japan and New Zealand. More recently, the EuroZone has taken centre stage.

All of these events have contributed to a climate of uncertainty, where even the smallest piece of economic news can send markets into a spin.

Yet the fundamentals of stocks and shares equities themselves offer greater encouragement. That’s because the present stock market issues are mainly due to a lack of confidence over the inaction of European politicians in tackling the EuroZone difficulties. The balance sheets of the corporate companies themselves – particularly large blue chip companies – look strong.

While share prices are currently low, the FTSE 100TM has already grown by 10pc since the lows of early October. Many industry experts agree that the medium- to longer-term prospects look encouraging, here’s why:

Dividends to reach a three-year high

Dividend yield payments – a share of the profits companies pay to investors on a regular basis – are on the increase, and 2011 looks set to see the fastest growth in dividends since 2008. This is particularly the case for the UK dividend market, with Capita Registrars reporting that some companies were increasing payments to investors by as much as 100pc mid-way through 2011.

Even allowing for the subsequent market volatility, dividend payments still rose by 16pc between July and September, compared to dividend payments over the same period a year earlier.

Dividends have always been an important part of equity returns. While equities can rise and fall in value, dividends are generally more stable. This means they can prove a valuable way of providing an income or supporting growth in the value of your investments.

It’s ‘time in’ the markets, not ‘timing’

Investing your money should always be viewed as a medium- to longer-term commitment. Sadly, many investors make the mistake of encashing their investments after only a short-term, especially when the markets suffer a downturn. Having originally agreed a longer-term investment horizon, this about-turn in strategy often results in losses.

While past performance should not be considered a guide to future returns, historically markets have recovered strongly, over time, from significant crashes. According to Hindsight statistics, in 1987, ‘Black Monday’ saw the FTSE 100TM (total return including dividends) fall 31pc – but five years later it had grown by 120pc. After the devastating 9/11 attacks in 2001, the FTSE 100TM dropped 11pc; by September 2006 it had risen by 57pc.

Time – not timing – is the key to a successful investment strategy. Generally the longer you are able or prepared to retain your investments, the greater the potential return.

A balanced approach

Not that investing has to be solely about stocks and shares assets. Essentially there are four other types of assets that can feature in your overall portfolio: cash (deposit-based savings), fixed interest (loans to the Government or companies), property and commodities (e.g. gold).

Each asset class has its own positives and negatives. By placing your money into an investment fund that contains a range of asset classes, you can reduce the overall risk to your capital. That’s because when one type of investment is performing less well – such as property recently – others may produce higher returns.

Receive no-obligation financial advice

The medium- to longer-term outlook for growing your money might appear encouraging, but is your nest egg suitably positioned to take advantage of potential market opportunities?

http://www.telegraph.co.uk/financialservices/investing/Telegraph-Investment-service/8916213/Investment-outlook-For-a-brighter-investment-forecast-look-long-term.html

Equity investors: Don't panic!

This week has heralded another sharp sell off in the stock market – but whatever private investors do they must not panic.

When there is a mass sell-off of assets everything falls. Photo: AP

By Garry White

5:02PM GMT 21 Nov 2011

Of course, the situation in Europe is serious – with debt concerns moving from Greece to Italy to Spain and now France. the US deficit is also of serious concern. However, events currently unfolding are not the end of the world. Equity markets are likely to recover from this crisis over the next few years as the global economy improves, but there will be plenty of pain on the way.

When there is a mass sell-off of assets everything falls – the good assets and the bad. Investing is a long term affair and panic selling could means good investments are sold when they are cheap. This defeats the main investment principles of buying low and selling high.

Of course, the value of an asset is only what someone else is prepared to pay for it – so although shares look cheap at the moment they could get cheaper in the short term. However, returns from the stock market over time – particularly when dividends are reinvested – are still likely to mean it is worth staying in the market.

There’s also the fact that panic selling can crystallise tax liabilities to consider.

The truth is, now is actually a great time to buy quality companies at what could be a bargain prices, as long as you have a sensible investment horizon. And are brave enough.  

Invest at the point of maximum pessimism." This is a famous quote from legendary investor John Templeton, who was one of the last century's most successful contrarian investors - hoovering up shares during the Great Depression. He was the founder of fund management group Templeton.

Conversely, the theory goes, you should sell at the point of maximum optimism.

It is important to remember that you will never time a market bottom or market top accurately. That's why Questor thinks the best investment strategy is to continue to drip-feed funds into the market – and this is especially the case when markets are falling.

This strategy is called pound-cost averaging and it makes good sense for investors with an appropriate time frame.

Although the sharp falls seen recently in equities is a concern – it is not a reason to panic. Sell in haste today and you may regret your decision in two year’s time.

http://www.telegraph.co.uk/finance/markets/questor/8904859/Equity-investors-Dont-panic.html

"The Collapse Is Coming...And Goldman Rules The World"

BBC Speechless As Trader Tells Truth: "The Collapse Is Coming...And Goldman Rules The World"

Hiding in Cash. Is It Time to Get Back Into the Markets?

by Walter Updegrave
Friday, September 2, 2011


My wife and I are 43 and have about $350,000 in retirement accounts. Over the last couple of years, I've moved the money between stock, bond and money-market funds. But since I'm nervous about the market, all of it is in money funds now. What's the best way to move back into the markets? — K.A., Bay City, Mich.

The answer to your question lies in an important investing lesson I think we can all draw from Hurricane Irene.

No, I'm not talking about the kind of knee-jerk lesson that's typically offered up: "Insurers will be raising premiums to pay for storm damage, so buy insurance stocks!" (Never mind that by the time you read the advice the stocks have probably already moved on that news.)

I'm referring to a deeper insight we can draw from the events leading up to and following the storm's onslaught that we can use to help improve our investing strategy for the long term — and, I hope, get you to stop shifting your savings around in a vain attempt to outsmart the market.

As you no doubt recall, in the days prior to Irene's arrival we experienced another storm of sorts — a drenching downpour of media coverage predicting devastation and chaos in the storm's wake.

But here's a question: How much of that coverage focused on possible destruction in inland areas in Vermont, New Hampshire and upstate New York, where swollen rivers and bloated streams have inflicted massive property damage and even resulted in loss of life?

The answer, of course, is practically none. News reports focused almost exclusively on coastal areas. Which makes sense, as those areas are most vulnerable to hurricanes and such.

So what in the name of Al Roker does this have to do with your question about when to move your retirement savings back into the markets? The answer is that, as with tropical storms, things don't always play out in the economy and the markets the way we expect.

As investors we may feel that we know what lies ahead and that we can use that knowledge to avoid losses or rack up gains. But that confidence is unwarranted, and acting on it can lead to investing decisions we may later regret.

Take the downgrading of U.S. debt by credit-rating firm Standard & Poor's last month. In the days and weeks leading up that unprecedented event, the consensus was that a downgrade would lead to higher interest rates as investors demanded a higher premium to hold Treasury securities that no longer held S&P's triple-A rating.

But did that happen? No. Far from shunning U.S. debt, investors flocked to it as a safe haven in a troubled world, driving yields down. So anyone who bet against Treasuries on the theory that the downgrade would devastate their value bet wrong.

And what about all the sturm und drang during the days of the debt-ceiling drama that the stock market was on the verge of falling apart? The market slid, but it's not exactly Armageddon. Besides, anyone who's patting himself on the back for getting out of the market in late July or early August and avoiding that decline also ought to ask himself if he's so smart, why didn't he get out in late April, when stock prices were at their most recent peak?

My point is that when it comes to investing, there are so many variables that determine the prices of stocks, bonds and other investments that it's virtually impossible not just to predict what might happen, but to know how investors will ultimately react to whatever does happen.


The more moves you make in the face of this uncertainty, the more chances you have to get it wrong, and do yourself financial harm. Which brings me to my advice for you, as well as for anyone else sitting in cash and wondering when to get back into the market: Stop the guessing game, already.


Rather than try to dart in and out of different asset classes, you're better off investing in a broadly diversified retirement portfolio of stocks and bonds that matches your time horizon (how long the money will remain invested) and your tolerance for risk (how large a loss you can take before you panic and sell). And then stick with that portfolio through the markets ups and downs.

At age 43, you've still got a lot of years of investing ahead of you and plenty of time to recover from market setbacks. So you can still afford to invest largely for growth. Generally, someone your age might have 70% to 80% or so of their retirement savings in stock funds, and the rest in bonds.

As you age, you can gradually shift more into bonds to protect your capital, perhaps ending up somewhere around 50% stocks - 50% bonds at retirement time. But that's just a general guideline. You'll want to adjust that blend to your own tastes.

For help in doing that, you can try different stock-bond combinations at Morningstar's Asset Allocator, a tool that can give you a sense of how different mixes might perform.

This approach won't immunize you from losses. But avoiding losses altogether shouldn't be your aim when investing retirement savings. The goal is to end up with a nest egg that will be large enough to support you once you call it a career.

And the best way to do that is to create a portfolio that can participate in stocks' growth over long periods of time while affording enough short-term protection from downturns so you don't abandon your strategy.

So I suggest you settle on a portfolio that's right for you and divvy up your savings accordingly (and do it as soon as possible, don't dollar-cost average your way to your chosen mix).

Or you can continue to do what you've been doing, and hop back and forth between cash, bonds, stocks or whatever — and hope the markets take the path you expect.


http://finance.yahoo.com/focus-retirement/article/113440/hiding-cash-get-back-into-markets-cnnmoney?mod=fidelity-managingwealth&cat=fidelity_2010_managing_wealth

Peter Lynch talks about bottom-fishing on Wall Street

http://multibaggersindia.blogspot.com/2010/11/investing-strategies-from-peter-lynch.html

Shield your portfolio from stock market falls

As turmoil in the markets continues, which assets should investors buy to avoid losses – or even make money?

How markets have fallen recently after a period of relative stability 

By Richard Evans

1:16PM BST 16 Aug 2011

8 Comments

Stock market crashes can be terrifying for investors – even when, as happened last week, they are followed by dramatic recoveries.

What can we do to make our portfolios less susceptible to these disasters? After all, we now have access to a huge range of assets that were previously hard for private investors to buy – gold and government bonds, for example, which you can own easily via exchange-traded funds.

With these options available, there's no longer any need to put all your money in a UK equity unit trust and simply hope for the best. Private investors can now build portfolios as diversified as those put together by the biggest fund managers. But what exactly should they buy? We asked some of the City's best asset allocators where they were putting their money to ride out the storm and even make money amid the turmoil.

Sebastian Lyon runs Troy Asset Management's multi-asset Trojan fund, and has built a reputation for being a defensive manager, able to protect investors' money in the most difficult trading conditions. He said: "Delegate to someone with experience of moving in and out of asset classes. If you're in a fund that is fully invested in shares all the time, you are going to go up and down with the market."

In line with this philosophy, Mr Lyon's fund, which aims for capital preservation and long-term growth, currently has just 35pc of the fund in equities. This is down from 75pc following the market crash in the wake of the collapse of Lehman Brothers in 2008.

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"If the correction continues, high-quality firms with good dividend records and low debt will come down with the rest." He mentioned Unilever, GlaxoSmithKline, British American Tobacco, Nestlé and Sage, the software company, as examples that should be on investors' buy lists if prices fell.

Thirty per cent of the fund is in index-linked bonds issued by the British and US governments. This is because Mr Lyon believes the threat of inflation will continue to be a problem. "We think policy in Britain and America is very inflationary," he said, "and can see the danger with inflation at 5pc and interest rates at zero."

He added: "Conventional bonds don't insure you against this. So non-index-linked government bonds are very dangerous assets. However, index-linked ones do cover you to some extent." However, he said he hadn't bought index-linked bonds for three to four months because they had been "overbought" in the "flight to quality". But for retail investors NS&I index-linked certificates are a sensible alternative.

Mr Lyon has 20pc of the fund in gold and gold shares, saying that he "can't see gold going down very far".

"The environment is right for gold at the moment. We are long-term investors, buying on weakness rather than selling on strength." But he said he was avoiding miners, banks and cyclical sectors such as industrials, as well as property and corporate bonds.

Lord Rothschild, the chairman of RIT Capital Partners, the investment trust, said he had anticipated this kind of market turmoil and had already positioned the fund to withstand it.

"In June last year I said we had more to worry about than at any other time in my 50 years of working in the City," he said. In his recent annual chairman's statement he wrote: "The risks ahead are glaring and global." This week he reiterated that these risks remained. "Few people listened at the time – now they are," he said.

To reduce the trust's exposure to risk, he put about 10pc in gold, avoided being fully invested in equities but increased exposure to big, US-listed global stocks. "We'll stick with that," he said. "We are concerned about inflation over the longer term. We don't own any bonds."

David Stewart, the chief investment officer of the Butterfield Group, described the current market crash as a "nightmare". He said the bank was holding 50pc of a typical client's funds in equities, 40pc in fixed interest and 10pc in cash.

"We believe in winning by not losing – making sure we avoid those asset classes we think are going to fall," Mr Stewart said.

Among shares, he favoured "megacap blue chips" quoted in Europe or the US. "We like emerging markets as a growth area but would rather access them via Western companies.

"Which would you rather own for the next 20 years: bonds issued by indebted Western countries or Unilever, Nestlé, Proctor & Gamble and the like?" he asked, adding that he also favoured the big pharmaceutical firms and General Electric.

Some of his clients' money is also in equity income funds, such as Veritas Global Equity Income and Schroder Global Equity Income.

"We look for growing yields and well covered dividends. Income has become a more important part of the total return. By holding on to equities we are also not throwing away the chance of participating in the recovery when growth returns," he said.

Mr Stewart was not worried about inflation, for now at least. "At some point, inflation will be a problem – if not, all attempts to jump-start economies will have failed. But that's not where we are now; we are in the middle of the credit crisis of 2008-2015."

Fidelity's Richard Skelt, the co-head of investment solutions at the fund manager, said investors faced a difficult task in trying to build a portfolio that could cope with the market response to either inflation or low growth – it was still unclear which outcome the economy faced.

"There are two ways to deal with this uncertainty," he said. "Either you own an incredibly broad spread of assets to cope, or you take a view." The danger with the latter route is that if this view is wrong, your portfolio could be hammered.

He suggested balancing your portfolio between growth assets and those that do well in low inflation, while pointing out that liquidity was also really important. "Illiquid strategies became badly unstuck in 2008, so have a lot of assets that can give you the liquidity you need," he said.

Mr Skelt called the wisdom of owning government bonds yielding 3pc "highly questionable" but said investors had to be "really careful" when buying index-linked bonds. "They are among the asset classes that have most disappointed people. There are some technical factors at work so buy carefully.

"Over the long term we like emerging markets. Buying a broadly based emerging market fund probably makes sense, although it's likely to be volatile."

The Ruffer Investment Trust, which has an enviable record of capital preservation, held almost 30pc of its assets in index-linked bonds at the end of last month, with 25pc in Japanese equities. It held 16pc in British shares and 8pc in US equities, with smaller allocations elsewhere. It also owned 6pc in gold and 4pc in cash.

http://www.telegraph.co.uk/finance/personalfinance/investing/8698751/Shield-your-portfolio-from-stock-market-falls.html

Opportunities raining down

August 17, 2011

Illustration: Karl Hilzinger.

It takes courage to buy when others are fleeing the sharemarket's fury. But some fund managers have been doing just that, writes John Collett.

Shelter from the carnage on sharemarkets is not easy to find. While no listed company is bulletproof, there are some whose share prices are likely to hold up better during the turbulence and outperform the market in the long term.

Good businesses, including the big banks and the big miners, have been caught in the investor fear emanating from overseas. Although the share prices of these companies have recovered somewhat, many are still trading at knock-down prices.

Sharemarkets around the world have fallen heavily in the past three weeks as concerns over sovereign debt in the US and Europe were deepened by the historic downgrading of America's credit rating by Standard & Poor's from the highest AAA rating to AA+ with a negative outlook. Now there are fresh concerns that the world may be entering GFC Mark II and perhaps even a global recession. Australian shares are down almost 20 per cent since the post-GFC highs of April 2010. With the S&P/ASX 200 dipping to just below 4000 points last week, the market was back to where it was two years ago, though it has recovered somewhat to about 4200.

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''Ultimately, confidence is critical in terms of global growth.''

''What we are seeing is a combination of a huge vote of no-confidence collectively in governments around the world,'' the head of equity strategies at BT Investment Management, Crispin Murray, says. ''The issues that need to be addressed are being addressed in a piecemeal way, rather than quickly and decisively, and the result is that confidence continues to be eroded.

SLUGGISH ECONOMY

''There is no question the market is offering quite good value and quite a good earnings outlook but unfortunately the world economic outlook is looking much more shaky than it was,'' the head of research and senior portfolio manager at Investors Mutual, Hugh Giddy, says. ''The economy is going to be fairly sluggish for a while. And in a sluggish economy you want to be focused on the high-quality stocks that can deliver without relying on economic growth.''

But Giddy, like other leading fund managers, is still managing to see a silver lining. Unlike the amateur investors who take flight whenever markets turn ugly, fund managers see opportunities to pick up shares in good companies at bargain prices.

One of those bargains is CSL, whose share price has fallen to about $30; prices not seen since 2009 and the GFC. The blood-products maker has ''great growth prospects'' but has been caught up in the overall sell-off and the worries about healthcare spending in the US, he says.

Woolworths is another good defensive stock whose shares are trading at about $26 on a decent yield. Metcash, the distributor to independently-owned grocery and liquor stores, is another good business that pays a good yield, Giddy says. He also likes Telstra, which has a good balance sheet. The telco's earning are not going to be growing fast but the earnings are defensive and these are the types of stocks that investors need to be in, he says.

SHARES PRICES LOW

''While macroeconomic concerns continue to overshadow the market and impact sentiment … some companies are being impacted much less than others,'' the head of Australian equities at Fidelity, Paul Taylor, says.

Taylor's top picks include Rio Tinto, which he prefers over the smaller miners. ''Rio Tinto owns long-life, low-cost mines, has a very strong balance sheet and has just upgraded its share buyback program,'' Taylor says.

''At a share price around $70, we believe that Rio is very attractively valued and represents a great long-term investment due to its strong balance sheet, with plenty of growth options.''

Taylor also likes Wesfarmers. The turnaround at Coles, owned by Wesfarmers, is continuing and all the signs point to an improving return on invested capital, Taylor says. ''Coles is a quality asset that has maybe not been managed to its highest potential through the years but with the new management team, the improvements in returns could be substantial,'' he says.

Wesfarmers, at about $27 a share, is very attractively valued with a strong, fully franked dividend yield, Taylor says. He says Domino's Pizza represents an excellent long-term investment.

''Domino's Pizza has a strong management team, a strong balance sheet, has proven itself in a tougher economy, has excellent long-term growth prospects in Europe and, at around $6.00 a share, is also attractively valued,'' he says.

BT's Murray sees opportunities to pick up more shares in home entertainment retailer JB Hi-Fi. It is a stock that many investors would probably not want to go anywhere near given the weak consumer confidence and challenge from internet retailers. But the company has still been able to generate a decent rise in profitability despite the challenges, Murray says.

JB Hi-Fi has a relatively small chain of stores and more earnings growth could come from opening more stores.

''JB Hi-Fi has the best operating model in that market segment,'' Murray says. And, as the shares are on a cash yield of about 6 per cent, fully franked, investors get some some protection from weaknesses in the share price, he says.

DEFENSIVE STOCKS

Like Giddy, Murray also regards Telstra as a good defensive play. In coming to an agreement with the government on the National Broadband Network (NBN), where the telco will hand over its copper network, some certainty for the telco has been created, Murray says.

The way the NBN contract is structured means that even if there is a change in government, the NBN is unlikely to be unwound, he says. The telco's cash yield of almost 10 per cent, fully franked, is sustainable, he says.

Murray also likes Asciano, which owns and operates a range of infrastructure assets including ports and rail across Australia. ''It will benefit from the growth in coal volumes,'' he says. ''Its ports business is now starting to win back market share after it lost some contracts more than a year ago,'' Murray says.

The head of Australian equities at Schroder Investment Management Australia, Martin Conlon, says now is the time investors want to own good companies with competitive advantages. ''As prices fall, as they have recently, we will become more optimistic, not less,'' he says. ''The price which we pay for the cash flows of a company is likely to remain a very significant determinant of future returns.'' Conlon says the Australian sharemarket is on a price to earnings ratio (P/E) of between 10 times and 11 times compared with the long-term P/E of between 14 times and 15 times. He says the Australian sharemarket could even return between 10 per cent and 15 per cent in the next 12 months from dividends and rising share prices. Conlon looks for good-quality companies with strong balance sheets and management teams, excellent growth opportunities and attractive valuations.

His three top picks are Rio Tinto, Wesfarmers and the Commonwealth Bank, which share these characteristics.

GOOD MANAGEMENT

The head of Perennial Growth, Lee Mickelburough, says it has been a tough environment for a couple of years now but that is reflected in the prices of stocks. ''The market is cheap from a long-term perspective,'' he says.

AMP is a good example of a quality business that has been unfairly sold off by investors. At about $4 a share, it is back to levels not seen since the darkest days of the global financial crisis, he says.

AMP management has worked hard to reduce costs in recent years. Mickelburough says the acquisition by AMP of Axa was a good one and he rates AMP's management team highly. ''When [revenue] flows come through you will have a business that is [already] in great shape,'' he says. Once markets normalise, AMP could be trading at $5 or $6, Mickelburough says. He says ANZ, which has embarked on an Asian growth strategy, is particularly attractive. He also likes NAB, which has been growing its loan book a bit faster than the market.

MINERS

A portfolio manager of the EQT Flagship Australian shares fund, Shaun Manuell, says: ''There has been an awful lot of bad macro[economic] news thrown at us.'' He would be very surprised if Australian shares revisited their lows of the GFC but the market is finding it difficult to move out of the range of between 4000 points and 5000 points. Manuell continues to like BHP Billiton and Rio Tinto.

''We like them because of their size and their low costs [of production] and the long lives of their mines,'' he says.

If commodities prices fall because of their higher costs of production, smaller miners may struggle again as some did during the markets turmoil of 2008 and 2009, he says.

Manuell also likes ANZ, which has been a favourite of the fund for eight years. He likes the management and the ''Asian story'' which, if successful, will ''deliver a lot of upside.''

Golden future at silly prices

In the midst of the doom and gloom, BT Fund Management’s Crispin Murray thinks that we may even be at the low point for domestic stocks. After the ASX/S&P 200 index fell to just below 4000 points last week, it has recovered somewhat.

The Australian dollar has dipped a little, which will help exporters, oil prices are down, which will help keep inflation down, and the next change in interest rates will probably be down, which will spur consumer confidence, Murray says.

However, he expects the Australian economy to remain sluggish.

Murray says the big issue is that we have an economy where policy has been set for a two-speed economy — the mining sector and the rest of the economy.

‘‘The benefits of the mining boom are not coming through [to the rest of the economy] as significantly as people had been anticipating,’’ he says.

Lee Mickelburough of Perennial Growth, says that while consumers are cautious and retail sales remain weak, there is still much about the Australian economy that is the envy of the developed world.

Unemployment is just above 5 per cent, the sharemarket offers good value and companies with defensive earnings and competitive advantages will do well.

http://www.smh.com.au/money/investing/opportunities-raining-down-20110816-1iv5t.html#ixzz1VO7SbzZp