broker research, page-14

http://www.theaustralian.news.com.au/business/story/0,28124,24647906-30538,00.html


Split your bets

IT'S official. Yesterday's 230-point fall on the ASX means we are now in the third-darkest bear market in 120 years.

The Australian market has now fallen 46.4 per cent from its 2007 high point and that means we have eclipsed the legendary 1987 crash which saw the market fall 46 per cent.

We are now within reach of the 1929-30 crash which was, interestingly enough, only the second worst retreat of all time. Over the year which prefaced the Great Depression, the local equity markets fell 49 per cent. Another 5 per cent fall from here and we will beat 1929.

It seems the worst market contraction of all time occurred between 1973 and 1975, when equities crumbled by 58 per cent. And to match that disaster the market needs to drop another 22 per cent.

Well, the investment market reckons his family could do with a new and very rich big brother and that the recruit should be signed up as soon as possible.

Which is all very interesting but what can we take away from that? That is what I asked the head of one of Australia still functioning and relatively profitable hedge funds.

"Well, history is telling us that we are getting towards the bottom. And if history is correct, then this is a time when millionaires might be made," he said.

His best advice to those with cash and a three-year view is to divide your investment pool by 10, then find 10 companies that have strong operations but whose solvency is currently in question. Look to the likes of Asciano, to BBI and maybe, topically enough, even Fortescue.

If, for example, you have 10 grand to risk, you should place $1000 on each of your ten best bets. If only half survive, you lose five grand but your upside on the survivors leaves you more than comfortably ahead.