Investment opportunities

While the sharemarket has fallen to its lowest level in about two years - share prices of household names like Harvey Norman, Commonwealth Bank and David Jones are down by more than 30% since November 2007 - there are plenty of investment opportunities out there.Let's put it in perspective. Often when we see prices fall, many of us race in to catch a bargain. When it comes to shares we tend to react differently. If the share prices of well-managed, dividend-paying companies fall, we view them with suspicion and fear, when perhaps we should see them as opportunities.Sometimes share prices do fall for a good reason. It's true that when recessions occur, company earnings will decline and some companies will make losses. Does that mean all companies will make losses? And are we about to enter the sort of recession we saw in the early 1980s and again in the early 1990s? We think not.Growth in the Australian economy over the next two or three years may not be as robust as it's been for the past ten years but we believe it will grow. That's because our population is growing, the world needs the products we sell and Australian companies are reinvesting much of their profits back into their businesses.
The populations of our capital cities are unlikely to shrink over the next five years, so the companies that have been profitably supplying their needs for the past fifty years should continue to do so. There's also been a lot of growth in Asia - so they will be buying our resources and adding to economic growth.Let's look back at what happened after the 1987 crash. From the end of 1987 to the end of 1989 the share prices of all the major banks rose by more than 50% - as did BHP, Rio Tinto, Harvey Norman, Coca-Cola, Caltex, Wesfarmers and QBE Insurance. These were household names providing services at a profit. This is what many businesses are doing now and will continue to do in 2009.While it's easy to be gripped with fear, it's important to look at history and at what makes the market tick. Some share prices have fallen for good reasons; others have just fallen when investors became fearful and sold everything. This is when bargains emerge and investment experts work hard to take advantage of them.