The Greatest Buy Signals For This Brutal Market

The market's best investors are bullish on shares.

So we're a week into October, and we've already seen a manic FTSE plunge below 5,000.

Let's face it: the omens for this month are not great. Whether it's Greek debts, bank ratings, currency wars, Chinese inflation, rising unemployment, government cutbacks, peak oil or the gold bubble, investors everywhere seem to have every reason to sell.

Or at least not buy.

Five month of declines

The UK stock market has fallen every month for the last five months now. Declines of 1% during May and June were then followed by 2%, 7% and 5% drops during July, August and September.

A poor October will then give the FTSE a record-equalling run of six monthly declines. True, we might not have seen a 20% bear market just yet, but my portfolio certainly feels like it has! 

Indeed, I'm not sure what I'd prefer right now -- one great big shocking crash to get everything over and done with, or what we have now: a relentless sinking market, slowly eroding all of our pension plans and life savings... tempting us all to buy in and find the bottom... only to slide lower next week and next month.

What I'd really prefer is a market that actually goes up, or at least does not go down.

But there is hope

As I keep on telling myself, it's pessimistic times such as these that create the very best buying opportunities.

Now I could bang on about valuations, and how the FTSE is trading at 8 times earnings, and how household names such as Barclays (LSE: BARC) and BP (LSE: BP) are trading on P/Es of 5 or less.

I could also bang on about how leading FTSE names, such as National Grid (LSE: NG) andVodafone (LSE: VOD), are yielding a super juicy 5%-plus.

Or how stalwarts such as Tesco (LSE: TSCO) and GlaxoSmithKline (LSE: GSK) haveadvanced their dividend payments throughout the banking collapse and this credit recession.

Then again, I could bang on about the healthy long-haul returns from shares, how history shows the stock market always pulling through past downturns, and how the best time to buy is always when there's blood on the streets.

Step forward the experts

But to me at least, the greatest buy signals for this brutal market have emerged from two particular investment experts.

Now you'll have certainly heard of these gurus. Both buy big-name shares, invest for the long run, and have proven -- and public -- records of successful stock-picking in unbridled bull markets, crippling bear markets and even bewildering what-on-earth-is-going-on markets like we face today.

Basically, all I need to know is that, if Neil Woodford and Warren Buffett are ultra-bullish in these awful times, then so am I.

The Woodford way

Let me take Neil Woodford first, who runs the country's two largest investment funds and currently has about £19b under his control. Mr Woodford has thumped the index over time -- his funds, with dividends reinvested, have returned about 160% during the last ten years versus just 60% from the wider market.

Anyway, Mr Woodford issued a remarkable statement in May. He declared: 

"During the technology bubble the disparity between price and fundamental value was stretched astronomically in both directions, and [I] see an opportunity of that scale again now in the stock market -- a 'once in a decade opportunity'. This has presented... an opportunity to invest in high-quality businesses at what [I] believe are very attractive levels..."

A 'once in a decade opportunity' sounds extremely promising to me, especially when Mr Woodford knows all about fundamental value. He of course famously piled into high-yield stocks such as British American Tobacco (LSE: BATS) during the technology boom, and so clearly has a record of betting -- and winning -- against the crowd.

Since Mr Woodford issued his May statement, the FTSE has slid from 5,989 to about 5,200. Many of Mr Woodford's favoured shares can still be picked up at their May prices, while some, including AstraZeneca (LSE: AZN) and BT (LSE: BT-A), can now be purchased at cheaper levels.

The Buffett buyback

So on to Warren Buffett and another 'once in a decade opportunity'. Mr Buffett runs Berkshire Hathaway (NYSE: BRK-A.US), an $183b US investment conglomerate, and has delivered 20% per annum returns to his lucky stockholders since 1965. The S&P 500, meanwhile, has provided annual gains of about 9%.

Anyway, Warren Buffett issued a remarkable statement last month. He declared: 

"[The] Board of Directors has authorized Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares. In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise."

Now this statement also looks extremely promising to me, since Mr Buffett has to my knowledge only ever considered buying back Berkshire stock once before. That occurred during early 2000, when dotcoms were all the rage, Neil Woodford was piling into tobacco shares and Berkshire's stock had collapsed 50% from its previous peak.

Had you bought on Buffett's buyback blessing back then, you'd have tripled your money within the next eight years. The call proves that Buffett, too, knows how to win against the crowd. Berkshire stock traded at $66 just before his latest buyback announcement, and is now $74.

Gurus to mortals -- shares are cheap

So yes, this market remains on a knife-edge, and is ready to plummet on the slightest whiff of bad news. Many investors have already given up and sold out at any old price, just to rid themselves of the ruthless psychological pain. Another month of falls might push even more to throw in the towel.

But old hands such as Neil Woodford and Warren Buffett know it's depressing markets such as these that present the very best prices for sensible buy-and-hold investors.

Both gurus have, in my view, issued the clearest of buy signals for us ordinary punters. For all of the worries of sovereign debts and double-dip recessions, they are telling us there are still businesses out there worth buying at today's low, low prices.

All we have to do, of course, is just summon up the courage and follow their lead. 

If you're still worried about the state of the stock market right now, then I'd heartily recommend you get our latest free special report -- What To Do When The Market Crashes.

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