I've been talking to a lot of people recently about their thoughts on the share market at the moment. Just look at the price chart of most major shares, and they all have that same slippery dip straight down that sent brokers crazy back in the 20's.

When I start to tell people I'm looking at buying into banks and the financial sector, they look at me like I'm crazy.

"You can't do that!" They say, "The prices have fallen 50% in the last 6 months!".

That's True. I bought into ANZ a number of years back for $25, the price now teeters around $12-13. So why would I be stupid enough to go back and buy more?

Let me put it to you this way. Are you one of the people who goes straight out and buys a new release DVD of a movie you enjoyed as soon as it comes out for $30? Or do you wait the 3-4 weeks it takes for the new releases to go from $30 to $12? If you are one of the latter, then don't you think the movie might be less quality now that it's only $12? Surely the cast must have changed, the plot is substandard and the editor is fresh out of college? Of course this isn't true! It's just supply and demand! It has nothing to do with QUALITY!

What I'm saying is, just because the share price of a company has dropped, doesn't mean the business quality itself has dropped! While the DVD's are an extreme example, and there are far more factors involved when you start talking the share market, the fact still remains that share price reflects supply and demand of the market. People get scared when the word recession is thrown around, and sell sell sell, making the shares worth less.

Banks, historically, have been a good source of consistent dividend (Commonwealth Bank (CBA), for example, just posted their interim dividend on Monday), rather than the capital growth that mining and other sectors are known for. So why shouldn't we pick up a cash cow from the bargain bin?

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Great Post Tim
written by Carl Taylor, February 18, 2009

Great Blog post Tim, and you are completely right that those shares which are now half price or less are still (at least currently) paying the same dividend that they did when they were at the higher price.

It all comes down to the sharemarket strategy you choose, is it for capital growth or income.

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