The bears are on the prowl again – US rates are going up, Greek bonds are going down and all developed nations are bust, aren’t they?

This all gets me depressed until I look at my portfolios, and all I see is cheap, very cheap and blindingly obviously cheap. And I am not talking ‘cheap and cheerful’; no I’m talking great companies which are completely the wrong price. ‘Buy low, sell high’ is as good an investment philosophy as any, and the on-going pessimism of ‘Mr Market’ towards equities keeps providing long-term investors with the opportunity to make decent money by buying good companies on valuations that are often 50% too low.

Two examples: Barclays has just had its 2009 results at which it confirmed that its capital position is now very strong (10% core Tier 1, that’s great compared to pre-credit crunch levels), that its core Investment Banking operation is now one of the very best in the world, and that bad debt provisions had peaked in 2009. What do you have to pay for this strong franchise that has lots of profit recovery potential? You pay significantly less than the value of its equity (book value), a level of cheapness that has not been seen in a generation at a time when Barclays has come through the worst of the credit crunch a stronger business (relative to its competition) than going into it. I expect the shares will double over the next few years.

And moving further afield there is Yahoo, one of the strongest internet brands in the world. Yes it’s weaker than Google in search, but this is not its only area of business. It’s starting to grow rapidly again in display advertising, with over $2bn of revenues in this area and having a fantastic global footprint. As for the valuation – the shares trade at $15, it has $4 of cash on the balance sheet, Yahoo Japan (the strongest internet franchise in its market) is worth $7 a share, so one is paying $4 a share for Yahoo equity or less than 8 times earnings and 4 times cash flow. Crazy or what?

The aggregate result of these types of undervalued shares are that my portfolios are trading as cheaply as I can remember – Long Term Recovery is on a discount to book value, with over 200p of turnover for every 100p invested, and High Alpha is only on a very modest premium to book value and a normalised Price Earnings ratio of eight times. As a result I am happy to ignore the doomsayers and keep buying units in my funds.