Two great investors sharing one winning strategy

Was that the bottom of the market? Share surge higher as Europe is forgotten for a couple of days. You'll feel sick in the stomach if you sold any of these six companies. Plus, two profitable opportunities flying under the radar.

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Was that the bottom of the market? Share surge higher as Europe is forgotten for a couple of days. You'll feel sick in the stomach if you sold any of these six companies. Plus, two profitable opportunities flying under the radar.

Crisis? What crisis?

World sharemarkets are on a tear. Yesterday's 2.73 per cent gain for the S&P/ASX 200 index was its third biggest gain this year.

What's up?

Commodities. The Aussie dollar. Oil. Gold. Takeovers. Shares. Banks. Risk. Everything.

What's down?


What's forgotten?

Europe…for the next couple of days at least.

Was that the bottom?
This period reminds us a little of the period post-March 2009. From its GFC low point, it marched higher, and higher, and higher.

Before you could say "was that the bottom?" in 3 months, the S&P/ASX 200 had jumped 30 per cent higher.

But before then, although many investors knew shares were over-sold, they sat on the sidelines, waiting for the crisis to pass.

And they sat, and they sat, and they sat…and they piled back into the sharemarket in the period leading up to April 2010, just when the S&P/ASX 200 index was peaking at close to 5,000.


Investing is not a popularity contest
A couple of quotes from the man universally acknowledged as the world's greatest sharemarket investor, the multi-billionaire Warren Buffett, may resonate…

"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

"Success in investing doesn't correlate with I.Q. Once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

We trust you get the message. Control your emotions, and you'll control your investing destiny.

Another great investor
We believe The Motley Fool's co-founder David Gardner is also one of the world's best investors.

We're not just saying that because he's one of us, a Fool that is.

Anyone with a public, documented, market-thrashing track record over a period of two decades has the right to be called one of the best. We'll hear more from David in the coming weeks…

Anyway, at a recent investing conference, David said something along the lines of…

For investors, a long-term perspective is a key advantage in a short-term world. While others are frantically selling and buying, creating volatility, we can zero in on big-picture opportunities others either miss entirely or actually contribute to by thinking short-term.

One winning strategy
When you invest for the long haul, you're much more likely to make a profit. To put it another way, a portfolio is most vulnerable to losses when it's being managed for the short term.

It's no coincidence that Warren Buffett and David Gardner both invest for the long-term.

Why? Focus on the short-term and you are likely to sell out of shares when sentiment is at its absolute worst, and when share prices are close to their lowest.

Just take a look at the gains for some of these ASX shares in just the last 20 odd days…

Company Share Price ChangeOct 4 to Oct 24 '11
Karoon Gas Australia (ASX: KAR) +46%
Paladin Energy (ASX: PDN) +46%
Coalspur Mines (ASX: CPL) +42%
Cochlear Limited (ASX: COH) +32%
Lynas Corporation (ASX: LYC) +30%
Myer Holdings (ASX: MYR) +22%

You'd be feeling a little sick in the stomach if you'd sold out of any of those shares in a moment of market panic.

Missed it by that much
Of the companies above, we'd love to have picked up some shares in Cochlear at around $45. It is rare to be able to pick up one of Australia's truly world-class companies at a relatively cheap price.

Such is an investor's life. The surge back to $60 caught us a little by surprise. But there you go. We may have missed this one, for now, but there will be more like it. And we wouldn't count out Cochlear revisiting its early October low.

Investing is often a waiting game – identify great companies, and patiently wait for the moment to pounce.

"Margin of safety." Warren Buffett calls them "the three most important words in all of investing."

Before we pounce, we make sure we have a substantial margin of safety.

2 profitable opportunities flying under the radar
Take two of Motley Fool Investment Analyst Dean Morel's favourite stocks right now.

These are not companies you'll find on the radar of Merrill Lynch, Goldman Sachs and the like.

They are far too small. And that's just the way we like it…

Small = ignored = opportunity.

In no particular order…

Integrated Research Limited (ASX: IRI)

Specialty Fashion Group Ltd. (ASX: SFH)

Last month we highlighted those two companies, plus AMA Group Limited (ASX: AMA) from Motley Fool guest contributor Peter Phan, in an article titled 3 growing ASX companies at value prices.

Since then, AMA Group shares are up over 40 per cent, Integrated Research up 11 per cent and Speciality Fashion up 14 per cent.

It's a good start. And there could be more gains to come.

As Dean prepares for the launch of the Motley Fool's subscription share picking service, he is personally talking to the CEO and CFO of two of those companies this week. It's the sort of research and attention to detail we've come to expect from Dean.

After all, when you've been investing for a living for the past 7 years, and actively investing for close to 25 years, with a documented market-beating track record, you make sure you leave no stone unturned.

Stay tuned…

The world isn't ending
Who knows where the sharemarket will go from here? In the short-term, we certainly don't know if it will be up, down or sideways.

Overnight, Bloomberg reports that U.S. stocks rallied, almost wiping out this year's decline in the S&P 500 Index, amid takeover deals, higher-than-estimated earnings at Caterpillar Inc. (NYSE: CAT) and progress in talks to tame Europe's debt crisis.

Keith Witrz of Fifth Third Asset Management said…

"The world isn't ending. If there's any sentiment change after five months of market declines, you're going to get a rebound in stock prices. The market is just hungry to get the European crisis behind us…We're not in a recession"

As for Europe, the world awaits the blueprint from its 13th crisis-management summit in 21 months. Just two days to go…

If you are looking for specific stock ideas, look no further than The Motley Fool's Top Stock For 2011-12. Click here now to request this special report, whilst it's still free and available.

Dean Morel has an interest in Specialty Fashion, Integrated Research and AMA Group. He eats his own cooking. Bruce has no interest in any of the companies mentioned above. The Motley Fool's disclosure policy is never hungry.

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