STOCKS have tumbled to their cheapest for a generation, and company bosses took advantage of last week’s turmoil to snap up shares.

The FTSE 100, Britain’s blue chip index, plummeted more than 21% last week, its worst loss since Black Monday in October 1987, wiping £250 billion off the value of the country’s leading companies.

Wall Street plunged 18% as investors fretted that recent moves by authorities to thaw frozen credit markets would not be enough to avert a global recession.

Tumbling stock markets also wiped £45 billion off the 200 largest UK final-salary schemes in just one week, taking their value to £375 billion, Aon Consulting said. However, long-term investors were urged to follow the lead of the pension funds and sit tight.

Andrew Chapman, manager of the £2 billion John Lewis pension scheme said: “Our fund managers are shellshocked. Our investment consultants are telling us to hold on and wait until things get better.”

Investment experts even said the turmoil could present the best buying opportunity in a generation for the very brave.

“For long-term investors, there are some causes for optimism. Equity markets are now firmly pricing in global recession, with shares on some measures the lowest for a generation,” said Paul Niven at fund manager F&C.

Company directors seemed to agree, buying their own shares with gusto. Directors’ dealings — traditionally a key “buy” signal — last week spiked to a buy-to-sell ratio of 25-to-1 by volume. That compares with a long-term average of 2.5-to-1, an average of 8-to-1 in the past 12 months and a ratio of 10-to-1 at the end of the 2003 bear market, financial data firm Digital Look said. “Thank heaven somebody has faith in the longer-term prospects for the stock market,” said director Andy Yates.

“Directors think that the current share sell-off has gone far enough and that valuations have reached such a level that there are bargains to be had.”

The International Monetary Fund gave a warning that the world economy was in a major downturn — but that could be good news for stocks: markets tend to price in prospective gloom and trough before the onset of recession.

UK equities bottomed out nine months and one month respectively before the start of the recessions of the early 1980s and 1990s, Morgan Stanley said. “Recessions are pretty good times to invest,” said Graham Frost at broker Bestinvest. “Sometimes markets are just too cheap.”

When the market does start to rise, it could rebound sharply. The FT 30, the predecessor to the FTSE 100, fell 73% from its peak on May 1, 1972, to its low on January 6, 1975. It then doubled by the end of February. Taking 1975 as a whole, the index rose by 142%. Similarly, in the year following the 1981-2 recession, the market rose 29%.

We asked the experts for some advice.

Keep some cash Stock market historian David Schwartz, who started his career as a market researcher in New York in 1961, is sitting in cash but believes that the end of the bear market is nigh. “The kind of headlines we are seeing now often appear at the end of a bear market. Fear is setting the stage for the next advance.”

Sit tight if you are in for at least five years Brian Dennehy of Dennehy Weller & Co thinks the FTSE 100 will test the low of 3,287 reached in March 2003.

However, he thinks that Britain’s £500 billion rescue package will be copied globally, which would mark the bottom of markets and usher in a sharp bounce-back.

“If you had a clear rationale for your portfolio, in terms of your attitude to risk and timescale, you should ride out this storm. But there are important caveats.

“Peace of mind is always the final arbiter. If you previously thought that you could cope with such events but as you now experience the worst of the storm can’t sleep at night, you should look to reduce your exposure.

“ It will be painful, in terms of accepting sharp losses but it will enable you to get your life back.”

Andrew Merricks of Skerritts Consultants disagrees. “I honestly think that to bail out now is probably too late. A short, sharp sell-off can actually be better than a slow-mo crash as in 2000-03 and value appears more quickly.

“ The trick now is to use any rally to trim positions, as hedge funds dumping billions of pounds-worth of stock is going to continue over the next three months.”

If you are going back in, don’t do so all at once Gavin Oldham at The Share Centre said: “There are a lot of people dipping a toe back into the markets but markets could still fall further. If you’re going to go back in, don’t do it all at once: put in a bit at a time.”

Tim Whitehead at broker Redmayne-Bentley said that he was tempted to start buying quality stocks that have been unfairly punished by the downturn, citing the medical devices company, Smith & Nephew. Its shares have declined by 30% since their peak year.

Buying at rock bottom prices can net a tidy profit. Halifax Bank of Scotland shares closed last Monday at just 94p, down more than 40% in just one day but the stock rebounded after the government announced its financial sector rescue package and Britain joined central banks around the world in making an emergency cut in interest rates.

The stock rallied to 160p on Thursday, a 70% rise that meant those who bought on Monday and sold three days later turned a £7,000 profit per 10,000 shares.

Collins Stewart said that HBOS had the most to gain from the government’s funding guarantees and was a high-risk “buy”, although HSBC remains its most important “buy” recommendation among the UK banking sector.

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