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Still waiting for the market crash of 2012

What’s not to like about a good old market wobble?

Overnight, the Dow fell 100 points, or 0.78%, the Nasdaq falling 1.0%.

At one stage the Dow was down 180 points, reminiscent of those wonderfully volatile days of 2011.

Ah…those were the days. When you didn’t have to wait too long for a general market panic, and you could step in and buy good stocks at cheap prices.

2012 has been characterised by low volatility. Although overnight the VIX volatility index, also known as the fear index, jumped almost 9% to around 19, it is a far cry from October last year when it spiked up to 45.

The wait for the 2012 market crash goes on. We’d welcome the cheaper prices, of course, but not the pessimism that would come with a correction. There’s too much pessimism in this world already.

Gold atheists
Speaking of pessimism, poor old gold fell overnight too, down another $10 to $US1,632 an ounce, once more defying its reputation as a so-called safe haven.

An article by Matthew Kidman in The Sydney Morning Herald had a great quote…

“…gold is on par with God: either you believe in it or not, and it is impossible to prove or disprove its value.”

We won’t go into religion, but it’s safe to assume when it comes to gold, we here at The Motley Fool are atheists.

Even the gold miners are doing it tough, with Newcrest Mining (ASX: NCM) today announcing gold production for 2012 will be reduced amidst higher cost inflation and lower labour productivity.

We can’t remember the last time a gold producer increased its production guidance…but then again, it’s not a sector we closely follow, as you can imagine.

Call us out of touch, call us stubborn, call us ignorant, or just call us, but we prefer to look for the big winners of tomorrow outside the giant mining houses and speculative junior exploration sector.

Investing’s two favourite words
Motley Fool Share Advisor Investment Analyst Dean Morel looks for companies with accelerating growth, something you simply don’t find with large mining companies like Newcrest, BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO).

But you do find it at smaller companies. One such company recently piqued his interest, announcing an earnings upgrade.

In a still-tough economic environment, earnings upgrades are as rare as hen’s teeth, so when they come along, Dean gets excited. Even after soaring higher, the company trades on a P/E of just 10.

Accelerating growth, anyone?

He’ll cover the company in the coming weeks, either here in our free Take Stock email newsletter, or if he’s really excited, in Motley Fool Share Advisor, our best of the best subscription-only stock picking service.

Biotech heaven
As many readers will know, Dean has spent the past month immersed in Australia’s exciting biotechnology sector.

Biotech companies are uniquely placed to benefit from accelerating growth. One drug, produced cheaply, sold to many. Voila.

Ah…if only investing, and biotech investing, was so simple. That one drug typically takes over 10 years to develop, costs millions and millions of dollars, and still there is no guarantee of success.

The sector is littered with fallen and failed shooting stars. Many of today’s heroes will be tomorrow’s failures. Yet the rewards can be immense.

Witness Biota (ASX: BTA) – the first Australian company in many, many years to take a drug to market (in 1999). The share price spiked from around $1 in 1992 to almost $8 in 1998, but is now under the $1 mark.

The market is an unforgiving place. Stating the obvious, we’re looking for the big biotech winners of the future. Time will tell.

Flat ASX, falling Aussie dollar, interest rate cut locked in
As of writing, the ASX is up slightly on the day. The Aussie dollar is down below $US1.03 as economists, currency strategists and even Felix The Foolish Wonder Cat lock in an interest rate cut in May.

Some are even suggesting the Reserve Bank of Australia might cut by 50 basis points.

We were hoping our market would follow Wall Street lower, dragging down the prices of some of our favourite stocks, including our ‘biotech beauties’.
Can’t win them all…

Shares were lower across the globe, but nothing much else has changed.

European economies will continue to struggle, no matter which party is in power in France, The Netherlands, Greece, Germany, Spain or Italy.

Turkeys voting for Christmas? Fat chance
It’s no wonder Europeans are voting against austerity. Who wants to work longer, for less money, retire with less, have fewer weeks annual leave, a lower level of healthcare and education?

“Markets are realising that messy European national politics could aggravate already complex economic and financial conditions,” said Mohamed El-Erian of PIMCO on Bloomberg. PIMCO is the world’s biggest bond fund.

In the same Bloomberg article, Byron Wein of Blackstone Group said “The financial markets are correcting, but they will do better later in the year.” Blackstone is the world’s biggest private-equity firm.

‘World’s biggest’ seems to count for something when it comes to being quoted on Bloomberg. As to whether their comments are accurate, or even matter, is open to debate.

Here at The Motley Fool we’re constantly astounded by the short-term focus of investors.

Perhaps it’s not surprising when you read comments like those from Mr Wein above.

What is he suggesting we do? Bail out now, wait for the correction, but pile back in ‘later in the year’?

Two recipes for losing money
It’s a recipe for buying at the top of the market and selling at the bottom. It’s also a recipe for making your broker rich. Brokerage fees are cheaper now that ever, but they can still add up.

We don’t play the market-timing game. We’ll happily leave it to others. If they can make a buck jumping in and out of stocks at just the right time, good luck to them. But we’re guessing most don’t.

Another game we don’t play is pure speculation.

Yet that doesn’t stop us receiving emails like the following (the company names have been changed to protect the innocent)…

Magic Loadsa Resources has had a pretty good run the last few months – check it out, is it set to continue?? Who knows?”

“Have you looked at Miracle Oil, Gas and Power and if so what do you think? It seems like a company that is ready to come out and explode but I am reading complex documents and being fed company propaganda and would like some expert opinion.”

Maybe we’re missing something, but we simply can’t see the fun in losing money.

Are you fearful of a coming market crash? Read This Before The Next Market Crash is The Motley Fool’s free report. We strongly suggest reading it now might save you thousands of dollars. Click here now to request your free copy, before it’s too late.

More reading

Motley Fool General Manager Bruce Jackson has an interest in BHP and Biota. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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