The more opportunistic London rioters have been grabbing plasma TVs and trainers in the mayhem. While it’s pure burglary, at least there’s some rationale to their criminality.

Do you want to snag a bargain in the equivalent stock market furore? I’ll quickly run through a few things I’ve been looking at or even buying, just to give you some food for thought.

Disclaimer and warning: These are NOT recommendations for you to buy. They are at most a few ideas for further research. As ever any decisions you make are your own, and your trades are not my responsibility. I’ve written what I believe to be true, but it might be wrong. These are fast markets1 and there’s no reason why you have to get involved.

Lower risk ideas

All shares are much higher risk than cash or bonds, and you can lose all your money. That said, the following look good opportunities for more risk-averse equity investors.

Tesco

You can now buy Tesco at around the same price Warren Buffett paid when he first bought into the supermarket everyone loves to hate. Stonking 4.3% forward yield from one of Britain’s most consistent dividend risers. Great overseas prospects, and solid asset backing.

Weir Group

This FTSE 100 engineer fell nearly 9% on Monday, just a few days after it reported record orders and great profit and sales growth. It is closely tied to the commodities industry that was flavor of the month a month ago. Looks cheap, on a PEG rating 0.5. I suspect hedge fund dumping.

iShares’ Australia ETF

A few weeks ago Australia was a safe haven. Now its stock market is officially in bear mode, with 20%+ declines in the past three months. The iShares Australia ETF (Ticker: SAUS) is an easy way to buy into this commodity rich list.

RIT Capital Partners

I’ve written about RIT Capital Partners before. The Rothchild investment trust is one of the nimblest out there, but it’s falling like a stone and is now back on an estimated discount to NAV of nearly 7% – that’s quite big for this trust. Some of the income investment trusts are moving to a discount, too.

Halma

The share price of this superb manufacturer of safety-orientated devices (Ticker: HLMA) soared out of the recession, yet profits didn’t stop growing even during the worst of the downturn. It’s got one of the UK’s best dividend records, too, and although the forward yield is only 2.7% it has grown strongly in the past and is more than twice covered.

Medium risk ideas

A trio of ideas here.

Tullow Oil

Down nearly 25% in five days and more than a third off its highs in April, Tullow (LSE: TLW) is an £8.5 billion oil and gas explorer with operations right around the world. A fair bit of debt, true, but if you are one of the legions of peak oilers, it could be a fresh opportunity to pick up a quality asset.

Xstrata

Xstrata has moved almost in lockstep with Tullow, despite being in the mining sector and again reporting positive results. Funny how China has suddenly stopped industrializing, eh? I’ve avoided these sorts of companies for years (and before the 2008 crash if I’m honest) but they’re getting interesting. Again I suspect hedge fund dumping.

City Natural Resources High Yield Trust

This investment trust (Ticker: CYN) could be a good way to get into commodities if you don’t want to invest in individual shares. Be warned it’s very volatile, and despite the name the yield is tiny. Indeed, it harks back to a time when commodity companies paid big dividends, which shows how far they could yet fall. BHP Billiton (Ticker: BLT) could be a better bet for income seekers – massively diversified, and the yield is back above 3%.

High risk ideas

I repeat, shares could easily fall another 10-20% or more from here. But if you want to take a chance, here’s a few risky things I’ve been looking at.

Polar Capital Technology Trust Subscription Shares

A few weeks ago there was a new tech bubble in full swing, although everyone has seemingly forgotten about that now. If you want to take a big punt on things going back to usual, then these subscription shares (Ticker: PCTS), which key off the Polar Capital Technology Trust (Ticker: PCT), could prove lucrative – they were trading nearly four times higher a few months ago. They expire in March 2014, with the option to buy PCT shares at 478p. That trust currently costs 310p, so it’s a not inconsiderable mountain to climb in two and a half years.

Artemis Alpha Trust Subscription Shares

Artemis Alpha Trust (Ticker: ATS) is a global fund with a bias towards energy and commodity companies. The trust’s subscription shares (Ticker: ATSS) have until 2017 to run, so plenty of time to recover. For that reason there’s a lot of time value in the share price, but that hasn’t stopped them moving in a very volatile fashion in the past few days.

Medusa Mining

Gold is at an all-time high in dollar terms, yet Medusa Mining (Ticker: MML) is down 25% since the end of May. In the 2008 downturn miners were dumped because of funding fears, but Medusa has over $100 million in cash. The price has run up sharply in the past year, but if you’re late getting gold exposure (like me) it might be an option. Centamin (Ticker: CEY) is similar, and similarly risky in terms of emerging market exposure.

Finally, given all the various potential bargains around and about, you could obviously do worse than just buy an index tracker. Pound cost averaging is a good approach when buying in volatile markets.

Readers, what have you been doing in the crash? If you’ve been buying or selling anything please let us know below.

1. Yields and prices are as of close on 8 August. [↩]

Angry men have been wreaking havoc across London. Fueled by aggression, fear, and a disregard for the long-term, they’ve been destroying value that’s taken years to build.

No, I’m not talking about the riots on the streets of Tottenham, Hackney, and Ealing, and the fires in Clapham, but rather the share traders that have sent the FTSE 100 index down around 20% from its high of the year – most of it in a record-breaking run of 100+ point declines.

Traders in suits and hoodlums in hoodies have more in common than just testosterone, however. Both justify running rampant on what seems like a convenient excuse, rather than any changed reality.

• At the heart of the London riots are ugly truths – poverty, racial tension, an alienated underclass, police bungling, and the death of a man with loved ones.

• At the heart of the stock market crash are ugly truths, too – the US deficit, the unprecedented downgrade of its AAA bonds, the contagion in Europe, unemployment, and a lack of political leadership.

Yet in both cases most of this was true last month, too.

Rather than rationally responding to new information, youths looting electronic stores and traders dumping holdings are behaving like animals.

Cheap, and getting cheaper

I can’t see any good reason for the FTSE 100 to be trading on single-digit current and forward P/Es, based on what’s emerged in the past week. It implies a change in earnings expectations from very strong growth next year to a sharp decline. The data doesn’t yet support that.

But take my opinion for what it’s worth. True, I was worried about the US downgrade, and I’ve been tilted much more defensively this year – but I was still absolutely overweight in equities. I was holding Unilever, Diageo and the like on valuation grounds, not because I saw a big correction was imminent, let alone a crash!

Even last week I quickly put my recently liberated cash back into equities. Needless to say, everything I bought has fallen further!

It reminds me of the old stock market joke: A long-term investment is a short-term trade gone wrong.

Equity income on sale

I am in this for the long-term, though, and if you are too then you’ll agree it’s hard not to salivate at some of the apparent bargains on offer.

The markets look utterly oversold, at least in the short-term. Yet once this kind of panic sets in anything is possible. You have to assume anything you buy now could fall a lot further.

If you’re looking for long-term income from quality shares, however, now looks a great time to buy. Even the FTSE 100 index will probably be yielding 4% on a forward basis by the time you read this, and its dividend-paying companies are generally in great shape. The 4% yield is more than a 1% spread over 10-year gilts – very high. Ideally, you’d buy a high yield portfolio and ignore the capital fluctuations.

Having said that, some of the real bargains appear to be at the more speculative end of the spectrum – small cap miners, little oil explorers, and the like.

What I suspect is happening here is both private investors and bigger leveraged funds are having to dump holdings to meet margin calls or as stop losses are triggered.

We’ll probably also discover in the months ahead that one or more big funds have completely failed, if history is any guide.

Some good reading to end a topsy-turvy week.

Well, it’s finally happened. As Chinese mandarins fingered their mountain of U.S. Treasuries by flickering LED light and we soundly slept beneath U.S. nuclear bombers patrolling our skies, the S&P agency downgraded U.S. debt.

The decline from AAA to AA+ puts the U.S. on a lower rating than the UK as well as Liechtenstein, and on a par with New Zealand.

S&P said in its press release (reprinted by the WSJ):

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.

We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

U.S. Treasury officials tried to head-off the downgrade by pointing out a $2 trillion error, amongst much else:

Treasury officials noticed a $2 trillion error in S&P’s math that delayed an announcement for several hours. S&P officials decided to move ahead, and after 8 p.m. they made their downgrade official.

From hedge fund traders buying Korean growth stocks to doomsters hunkering down with gold, everyone knew this was coming. For at least three years the question was been how best to respond to the deterioration of America’s finances, not whether it had happened.

As such, this should all be in the price. Indeed on Thursday I published a graph showing bond yields typically fall after a downgrade from AAA status, meaning bond prices rise as investors buy more of the downgraded debt!

There’s usually been a sell-off in such bonds beforehand, however. In this week’s market madness, U.S. bond yields had already shrunk in the flight to safety, pushing down yields.

There’s also the scary question of unintended consequences from the downgrade. Will the embarrassing shift to AA+ status also cause technical breaches in financial contracts? As I wrote last Saturday, some City insiders have considered the potential for a systemic event.

Downgraded portfolios, too

This blog doesn’t have the answer to a question on a million financial professionals’ lips. On the face of it though, the downgrade to U.S. debt looks ridiculous: This is the world’s reserve currency, from the world’s strongest nation, and nobody seriously fears Treasury holders won’t get paid.

True, some fear the U.S. will inflate its way out of debt – so you might get paid, but in much less valuable dollars. But according to S&P’s press release, its model scenarios put CPI inflation at 1.5% to 2%. So no Zimbabwean antics to blame there.

Even if the chances of a superpower that can print its own money not doing so to pay its debts seem close to zero, I don’t berate S&P for the downgrade. Whatever ratings agencies do, they’re kicked for it. Let’s remember it was U.S. politicians squabbling and posturing for their constituents and the chronic lack of both long-term thinking and honesty about the past that brought America to this juncture.

Another reason I’m not going to make any specific predictions: If I’d been more vague about my foreboding last weekend, I’d now be seen as a financial soothsayer!

The FTSE 100 fell 10% last week – one of the worst weekly performances of all-time – and the modest portfolio trimming I’d conducted beforehand was a pretty flimsy defense. My year-long defensive shift away from trackers pumped up on energy and cyclicals towards companies like Unilever and other income payers (together with more skeptical investment trusts like the Independent Investment Trust and others) served me well until Friday, when the levee broke, spreads widened, and my small cap and subscription shares cratered.

Regrets? Life’s too short, and selling out too expensive.

While it’s rare for me to be worried about the markets, churning your portfolio is a very costly insurance, even for more active investors like me, for whom bargain basement costs are intellectually sound but in practice fleeting.

A frictional cost of 2-3% or so may seem cheap compared to a crash, but markets don’t usually crash, and when they don’t the entire effort is simply an ill-judgement tax on your wealth.

There’s also the issue of when you buy back in. Most market timers miss the bottom.

Instead of regrets I’m glad to have the chance to buy more shares cheaply, especially at the more illiquid end of the spectrum. A focus on income helps, too.

If you’re young, then the markets hanging around at these levels for a few years will likely make you much richer in the long-run. The growing multiple of my portfolio against my annual disposable income is lessening that effect for me, but there’s always the dividends to reinvest and compound.

With the FTSE 100 on a current P/E of less than 10 and a forward P/E around 9, I don’t expect us to stay down here for long.

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