Isaw the bear market in the 1970s that many other investors haven’t seen, and I saw early that it was one of the worst bear markets we’ve ever had.

Back then, the Bank of England started its lifeboat rescue of many secondary banks, so it’s not the first time there’s been a procedure for the government stepping in and rescuing the banking sector. But, as ever, it’s never quite the same.

In the 1970s, it was in some ways very different. The Bank of England was fully in control, and it didn’t have to second-guess what anyone else doing.

I was still very much in the learning mode in the 1970s. But it did make me cynical about people’s ability to get their investment timing right.
I remember going to City lunches where each manager would boast about his liquidity: “I’m 40 per cent liquid”, “I’m 50 per cent”, “I’m 70 per cent.” Then it turned on a sixpence!

The problem is that everything around you makes you do the opposite. Some investors would buy now, but there is a new dimension: fear that the whole financial system might fail, that this time it may be wrong to buy.

I admit I was cautious early. But, for the first time in a couple of years, I’ve started to feel optimistic. In the last two weeks, we have looked into the abyss that you get at the bottom when the system collapses. What markets have done in the past two or three days are all signs of a low, but whether it is the low is hazardous to say.

This bear market started in financials, then moved to consumer cyclicals and, in early summer, to industrials. My view was that it wouldn’t be over until it hit commodity stocks. We’ve seen that finally happen. I still feel, when it comes to the upside, that the first in will be the first out: the financials and consumer cyclicals.

I’ve also looked at the nature of the bull market. It was unlike the technology, media and communications bull market where valuations were above trend. That didn’t happen in this bull market – earnings were above trend. Earnings have been coming back down to trend. But we have not seen excessive levels of valuation – so it doesn’t have to be a huge bear market. And this bear market is already long in the tooth compared with previous bear markets. It began last summer, so it is 15 months old – that’s long. In the mid-1970s, the bear market was longer, as was the bear market of 1969-71.

Now, all the things I like to see for a recovery are in place. My market view comes from the behaviour of investors – sentiment is very bad. I use indicators such as the purchase to sale ratio, the Vix (index of volatility), put-call ratios, advisory sentiment, the advances/declines measure, and hedge funds net long/short ratio. They are all saying people are extremely cautious, which I think is very bullish.

In my 30 years in the business, the standard mechanisms have always worked: the heart of the stock market is sentiment flows, and when there are big excesses, you bet against them. When consumer sentiment is very negative, you want to buy it.

I would say shares are as cheap as I’ve seen them in my lifetime of managing money, in some sectors – especially consumer cyclicals, such as general retail and media. There’s quite a bit in those prices already discounting recession – more than in previous cycles.

So, although I haven’t invested in the market for several years, I put my own money in two weeks ago, and I put some more in on Tuesday – in funds, and more in developed than emerging markets.

But it will be a slow process – I’m not looking for a fast recovery. It will be an extended recovery, and the market may go sideways for a time.

The safest places are the places without leverage: well financed companies, as many companies will have to renew their facilities in the next few years, and markets that have less leverage at heart. In Russia, there is a lot of borrowing against equity, so I think it will be a difficult market for some time.

I would consider investing in a basket of banks – I’m talking about commercial banks not investment banks – as the majority will survive. If I’m right and the Lloyds TSB-HBOS merger goes through, more consolidation in the banking market will lead to better margins. I have concerns, but a lot of those concerns are in the price.

Anthony Bolton is president, investment, at Fidelity International. His Fidelity Special Situations fund has been the top performer in its sector since its launch in 1979. He was manager of the fund for more than 27 years and now has a full-time role mentoring Fidelity’s younger fund managers and overseeing Fidelity’s investment process.

Anthony Bolton’s column appears in FT Money on the first Saturday of each alternate month. Next column: November 1.