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Bargain hunt

Two events stick in my mind from last week and reaffirm my growing conviction that the real risk for investors now is being out of the market, rather than in.

At the first of the Association of Investment Companies’ private investor roadshows, the turnout was remarkable.

So many representatives of Middle England crammed into the conference suite just outside Knutsford that extra chairs had to be brought in and when it came to question time, a veritable forest of hands rose into the air, with the result that many had questions unanswered.

It is not unreasonable to speculate that attendance might have been driven more by fear than greed but these were not investors planning to desert the market.

In some measure, the questions were predictable. How do I replace lost bank deposit interest? Where are markets heading? And, perhaps more surprisingly, what will institutional investors do to prevent wage excesses in the future?

Indeed, corporate governance featured prominently, as did the topic of gearing and the prospects for such unloved sectors as commercial property and private equity.

But the overall tone was far from desperate. Taking the long-term approach seemed natural to those to whom I spoke, although a friend told me afterwards that there were some very worried people present. It reminded me just how important a healthy investment market is to all our lives. There is clearly money waiting to go back into shares once confidence has been rebuilt.

PSigma’s Bill Mott warned that once the green shoots of recovery started to appear, you wouldn’t see some shares for dust.

He cited as an example Travis Perkins, a well run builders’ merchant that has seen its shares savaged as construction activity imploded. From over £11 within the past year, the shares had fallen to a little over 200p but recently nearly doubled in value. Moreover, the measures they use to predict future activity are beginning to turn positive. Only beginning, mind, but it’s a start.

Markets will need an improving economic situation to sustain any turnround.

With the US and Japan joining us in the game of printing money, it is clear there are some very worried governments around. The clear risk is the return of inflation, although the wily Mr Mott still believes the odds favour the authorities pulling off an anaemic recovery which will restore faith in equities while not trashing bonds through a sharp rise in the cost of living.

I cannot help but wonder if Western governments secretly welcome a bit of higher inflation. Inflation devalues debt – and there is rather too much of that around. It is, though, a genie that can be most difficult to rebottle once freed. It wouldn’t do shares – or commo dities – any harm, though. With so much money being thrown at the problem, it has to be a bigger risk than prolonged deflation.

What was interesting was that the fund managers speaking on the same platform all adopted a similarly humble approach.

Investors must expect bad days as well as good but careful bargain-hunting may now make sense.

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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