Market panic: have you got the balls to buy?

Aug 19, 2011
Ben Riley-Smith

With shares in freefall, some analysts say there are big profits to be made by those who dare to gamble

As stocks plummet and panic spreads across the international markets, anxious investors are quietly being reminded by some analysts of an old financial truism: fortune favours the brave.

"If you want to buy when there's blood on the streets, and on the screens, then today is a good day," said Nick Bubb, a retail analyst with Arden Partners. Bubb believes it's an opportune moment "to pick up good quality, high-yielding general retail defensives like M&S and WH Smith, as well as undervalued global retailers like Inchcape and Kingfisher."

He wasn't alone. In the Guardian today Money Minder's Ray Black said: "Right now looks like a pretty good time to 'stock up' on cheap shares… in true Warren Buffett style, I find myself reminding investors to ‘be greedy when others are fearful and fearful when others are greedy'."

There is little doubt days of financial instability can bring windfalls. George Soros notoriously made $1bn on Black Wednesday, short selling pound sterling and pre-empting the currency's devaluation when the Bank of England left Europe's ERM. Could today's sliding shares mark a similar chance to cash in?

Berenberg Bank's Holger Schmieding points out that financial hysteria often obscures the real worth of investments. "Panics do not last forever," he said. Reason returns and markets price long-run trends more accurately again. "In retrospect, such phases of panic are eventually revealed as great opportunities."

Maynard Paton, writing on the investment advice website The Motley Fool, has encouraged his readers to take a gamble in recent weeks. In a post earlier this month headlined 'Market Panic: Be Brave... Buy Cheap Shares', Paton wrote: "The time to buy shares is when everyone else is selling. What are you waiting for?"

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