Investors have learnt a lot in the past few months. Some of the information has been welcome: Ben Bernanke does blink. Some has been less helpful: certain business models do not work when credit channels change. Some is a shock: just because a financial instrument has the backing of a ratings agency and a blue-chip investment bank doesn’t mean it can be priced.

In spite of the cut in US interest rates and the improvement in money market liquidity, investors still need to decide: is the present situation an investment opportunity? Many stockbrokers are aggressively slashing their growth forecasts for next year, while Hank Paulson, the US Treasury secretary, has warned that the situation in the credit markets could be worse than the Latin American debt crisis of the 1980s. To help answer such a question, in a research piece in our Global Horizons series, my colleague Richard Batty and I examined ways investors can use valuation tools as a means to enhance investment performance. There were four conclusions.