Martin Hawes: Bag a bargain in the sharemarket

Over the past few weeks, I have been buying shares - very cautiously and in very small numbers.

I have not bought these shares because I think the recession is over - far from it - nor because I think I am buying right at the bottom (more volatility is likely).

Instead, these shares represent excellent value and I expect that when I look back at the purchases in, say, 10 years' time, they will be well in the money.

I have been almost completely out of the sharemarkets for the past couple of years. I owe this to a story similar to Joseph Kennedy's shoeshine boy story. (Kennedy was getting his shoes cleaned in 1929 and the shoeshine boy started to give him share tips.

Kennedy decided that if even shoeshine boys were in the market it was time to sell out, which he did - just before the Crash.)

My own story is this: in July 2007, my partner Joan Baker went skiing for the day. When she got back she commented on the people she saw skiing: everyone had a new Toyota Prada, whole families had brand-new ski gear and even kids were wearing jackets that Joan knew cost $1000 (she had looked at them in the shops but rejected them as too expensive). Where was the money coming from? she asked.

We both knew the answer: credit cards or mortgages. We were already nervous about investment markets, but we thought the excesses that Joan saw on the ski field were consumerism and debt gone mad. We started to sell out of the sharemarket the next day.

Since then I have not been optimistic about an early or a strong recovery in investment markets. I find it hard to see any bottoming out of the recession before the end of this year.

The world is now "deleveraging", a flash term for debt reduction. Companies and consumers are doing this by repaying what they owe or in many cases overseas, by walking away and going broke.

In the United States, this has resulted in a lot of "jingle mail" - people have walked away from their house and mortgage and posted the jingling keys to their lender on their way out of town.

This "deleveraging" probably still has a fairly long way to run. There are still a lot of stressed borrowers around - the debt for those ski trips has not yet been paid. This is why I am not confident that investment markets have finished their plunge.

Throughout the turmoil of the past year, I have found myself pulling out and chanting many of the old investment sayings. One of these is: "No one rings a bell at the bottom".

This adage really says that you will not be able to pick the exact bottom and you should not even try to.

That is why I am buying shares at present: I am not listening for a bell but instead I am going to use this economic mayhem to buy quality at a good price.

Then, I am going to wait - for years if necessary. If you are not a short-term trader and, provided the companies that you buy are good, in the long run it won't much matter if your timing is a few months out.

* Financial author Martin Hawes shares strategies to help you grow your wealth. Email questions to info@wealthcoaches.net