Opportunity Once Dust Has Settled; Matthew Field from Citi Quilter Investment Management Espouses the Virtues of the Maxim "Be Fearful When Others Are Greedy, and Be Greedy When Others Are Fearful"
Byline: Matthew Field
Recent falls in the market have been widely compared to the Great Depression of 1929, which saw equity markets fall dramatically, characterized by the stampede of panicked investors running for the exit door.
There are many reasons why investors should seek to liquidate their assets - the global banking system is currently in chaos, credit markets are frozen, house prices continue to fall and the global economy is slowing dramatically. Yet despite these headwinds and the air of capitulation, I believe that once the dust has settled there will be a "once in a lifetime" opportunity to buy high quality companies at rock bottom prices.
Warren Buffett's quote "be fearful when others are greedy, and be greedy when others are fearful", is one that stays with you and is sure to be referenced for years to come. It is also a quote that rings true for many long-term investors. Volatility should be thought of as our friend - an opportunity to take advantage at the forced sellers' expense.
Recent sharp falls in global markets have left stocks on lowly valuations (as shown in chart 1 Price/Earnings ratio) at levels last seen in the 1970s.
For the first time since 2003, equities (excluding financials) have yielded more than 10 year gilts. This has traditionally been a strong buy signal for equity investors.
Corporate profitability has also roughly doubled since early 2003 which means companies have more cash and are in better shape going into this period of economic weakness. …