Remove flack jackets. This sharemarket is on fire


We look at the latest news from Europe, a sharemarket “on fire”, gold’s best start to a year since 1980, and the continued spectacular rise of Maverick Drilling & Exploration Limited (ASX: MAD), my fastest ever double…

Is this the green light for fence-sitting sharemarket investors to remove their flack jackets and start buying cheap shares?

“The worst of the European sovereign debt crisis may be over as the region’s banks are increasingly able to access funding, according to Nomura Holdings Inc.’s top executive in the region.” – Bloomberg, Jan 27 2012.

Maybe.

Without much in the way of headline grabbing news, the S&P/ASX 200 index has slowly but surely risen close to 6 per cent so far in 2012.

Shares on fire
According to Chris Weston of IG Markets, Australian shares were on track to post their eighth-best January since 1970 as positive noises from Europe boosted investor confidence.

“We’re on fire at the moment. Hopefully, from here, the path of least resistance will be higher.”

Could the year of the dragon also be the year of the bull?

It wouldn’t surprise us here at The Motley Fool. Regular readers will know our glass is half full. Our War on Pessimism continues…

We also tend to be contrarian investors. When all about us are panicking, we view the indiscriminate sell-off as a buying opportunity. It’s only when everyone else’s glass is half full that we start to get worried.

But, thanks to Europe, we’re a long, long way away from that point.

A healthy recovery
And shares are cheap, too. In The Australian Financial Review, Bob Van Munster, head of equities at Tyndall AM seems to agree.

“I would argue the markets have factored in too much risk. Economic growth is set to slow in 2012 globally, but the market appears priced for this. If a global recession can be avoided, the equity market could stage a healthy recovery in 2012.”

It was only a couple of weeks ago when our Investment Analyst Dean Morel asked whether the Australian sharemarket could experience an unprecedented third down year in a row.

As he said, anything is possible, but the odds are certainly more in investor’s favour today than they were in 2011, and 2010 for that matter.

My fastest ever double
In these fast moving markets, a lot can change in two weeks. The U.S. economic recovery is continuing. The Aussie dollar is back above $1.06. Even gold is up 10 per cent this month, its best start for the year since 1980, confounding people like me.

You can’t get everything right all of the time. But when you do get something right, it can make up for your losers many, many times over.

On that point, the spectacular rise and rise of Maverick Drilling and Exploration continues unabated…

Since we suggested Motley Fool Take Stock (our free email) readers take another look at this junior oil producer, in the past 11 trading days, its shares have soared exactly 100 per cent.

As a shareholder myself, it’s my fastest ever double.

Whilst I’m thrilled, of course, I’m also realistic enough to know a double this quickly is highly unusual.

Of all ASX companies with a market capitalisation above $100 million, Maverick is the very best performer so far in 2012, besting the likes of takeover targets Ludowici Limited (ASX: LDW) and African Iron Limited (ASX: AKI) and high risk uranium explorer Alliance Resources Limited (ASX: AGS).

And I also realise Maverick shares may drift back a little in the coming weeks as some of the hot money drifts away. But rather than be disappointed, I’d look to any share price weakness as an opportunity to potentially buy some more.

When you’re onto a good thing, stick to it…

A celebratory dance
Investing should be viewed as a long-term endeavour. In the years ahead, if Maverick keeps profitably growing, the zigs and zags in today’s share price will be irrelevant. The key is to focus on the business, not the share price…although on occasions like this, I hope you’ll forgive my little celebratory gig.

Dean Morel is in contact with the company, and is hoping to talk with Maverick’s Executive Director sometime this week. It’s that level of diligence and research which hopefully goes a long way in helping us differentiate the winners from the hundreds of losers trading on the ASX sharemarket.

In most recent issue of Motley Fool Share Advisor, our subscriber-only share recommendation service, we updated members on our very latest thoughts on Maverick. We’ll have more once Dean speaks to the Maverick Executive Director. We update Share Advisor members each Monday. Click here for more information on Share Advisor.

A word of caution
Although we’re optimistic about the prospects for the market, we’re realistic to realise it won’t be all plain sailing.

Global economic growth, whilst positive, is likely to be relatively tepid. Europe will almost certainly fall back into recession. The U.S. still has stubbornly high unemployment. Both have years of hard yards ahead of them.

The non-mining parts of the Australian economy are doing it tough, especially the retailers. We’ll find out more when Woolworths Limited (ASX: WOW) and Wesfarmers Limited (ASX: WES) release key sales figures later this week.

Our thinking is all this already priced into shares, and more. That doesn’t mean there won’t be more wobbles, and more panicked selling sometime in 2012. But as we said previously, we’d view such a panic as a buying opportunity.

MAD and madder
We’ll leave with some thoughts from Anthony Starkins of First Samuel in The Australian Financial Review.

He says the local economic signs are good and investment numbers suggest the sharemarket is cheaper than at the trough of the global crisis.

He warns investors not to let feelings of misery put them at risk of being swept up in “the madness of crowds” that prevails in busts as well as in booms.

MAD certainly is the flavour of the day. Onwards and upwards, optimistic soldiers.

Not satisfied with a 100 per cent gain in 11 trading days? Motley Fool readers can click here to request a new free report titled The Motley Fool’s Top Stock For 2012.

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Bruce owns Maverick Drilling & Exploration. Bruce also has an interest in Woolworths and Wesfarmers. The Motley Fool’s disclosure policy soldiers on.

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