ASX shares surge despite warnings of another market cataclysm

Seemingly against the odds, ASX shares are on the up. The European crisis is forgotten for another day, but if it returns, we have a plan to beat it

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Seemingly against the odds, ASX shares are on the up. The European crisis is forgotten for another day, but if it returns, we have a plan to beat it.

Crisis in Europe?

France lose their AAA credit rating. A Greek default looks a certainty.

What crisis?

More on that a little further down, including The New York Times warning of another market cataclysm.

Still, today at least, the music is still playing, and investors are dancing, which is more than can be said about those poor souls on the sunken Costa Concordia.

In early Tuesday trade, most sectors moved higher. Leading the way were Paladin Energy (ASX: PDN), Fairfax Media (ASX: FXJ), Goodman Fielder (ASX: GFF), Flight Centre (ASX: FLT) and Leighton Holdings (ASX: LEI).

Laggards included penny dreadful Bone Medical Limited (ASX: BNE), Cash Converters International (ASX: CCV) and even Maverick Drilling and Exploration (ASX: MAD).

As if by magic…
Speaking of Maverick, we've highlighted this $100 million market-cap stock in our last two editions of Take Stock, the Motley Fool's free email.

As regular readers will know, on Thursday we highlighted Maverick as a company firmly on the radar of Motley Fool Share Advisor Investment Analyst Dean Morel.

Low and behold, as if by magic, on Friday the company's shares jumped by 27 per cent.

This prompted at least two emails effectively suggesting Thursday's Take Stock alone was responsible for the huge rise in the share price, and we were taking credit for it to "…help boost confidence in Motley predictive powers?"

If only our predictive powers were so good…a career in card-reading, fortune telling and horoscopes awaits.

Putting the record straight
We figure a few other people might have been thinking the same way. So…let's put the record straight!

The Motley Fool's purpose is to help the world to invest – better.

Our company was founded in the U.S in 1993 by brothers David and Tom Gardner. You can see them in action in this video. We've been around a while.

Call us naïve, but we figure the way to help people invest is to recommend they buy shares in good to great companies trading at good to great prices.

You won't find us hyping the share price of some penny dreadful company for our own means. In fact, in our most recent edition of Motley Fool Share Advisor, Dean Morel explained to subscribers why we steer clear of such 'story stocks.'

All hype, but ultimately full of nothing but hot air
'Story stocks' are the ones that seemingly have all the potential in the world, but currently have no sales and make big losses. As Dean puts it…

"…the market contains scores of junky shares with amazing stories – tales of potential returns that would make your head spin. While the best advice we can offer new investors is to reflect on themselves and their personalities, the most profitable and actionable advice we can give is to completely steer clear of story stocks."

Bringing this back to Maverick and that 27 per cent share price jump…

The chart below shows the MAD share price flat-lining after we sent out Take Stock on Thursday, and Friday morning, up until around 10.40am on Friday when the stock price suddenly surged.

Source: Google Finance

We reckon this announcement at 10.40am on Friday may have had something to do with the share price jump.

Source: ASX website

Others may have thought differently…

Just to be absolutely clear, we had no knowledge Maverick was about to release a price sensitive announcement.

It was a pure coincidence that we highlighted the stock the day before.

But the moral of the story remains…investing is a game of patience. The MAD growth story has remained on track for a number of months. It's just the stock price that had moved (edging lower).

We hope that clears things up a little. We look forward to finding more MAD's to present to you in Take Stock, not withstanding our 'best of the best' ASX recommendations will be reserved for our paying Motley Fool Share Advisor members.

Motley Fool Share Advisor is currently closed to new members. If you wish to be one of the first to hear when it re-opens, please click here and enter your email address.

It pays to put your name down. After all, due to overwhelming demand, late last year we closed Share Advisor to new members after just 10 days. There is absolutely no obligation to subscribe.

Dismal stock picking
We weren't particularly surprised to read in The Australian Financial Review (AFR) of 2011 being "another dismal year for Australian fund managers."

According to investment consultants Mercer, investors in the median long-only Australian equities fund recorded a 10.7 per cent loss in the 12 months to December.

The AFR adds…

"Adding insult to injury, when fees and taxes are taken into account, investors would have been better off in a low-cost index fund. The S&P/ASX 200 benchmark index lost 10.7 per cent last year. And all this at a time when fund managers were telling anyone who cared to listen that it was a stockpicker's marker."

Here at The Motley Fool, we've long warned the majority of actively managed funds fail to beat the returns of the index. If you were looking for further proof, look no further than the Mercer study.

We encourage people to take control of their own money, to make their own investment decisions.

If you want to keep it simple, check out our 4 Step DIY Wealth Creation Plan.

If you're into individual stock picking, and you think you can do a better job of it than the professionals, we encourage you to give it a go. We'll be here to give some guidance, some recommendations of our own, and most importantly, some education.

Speaking of which…
The under-performance (again) of professional fund managers reminded me of Dean's excellent article of a few months ago titled My simple investing plan for this bear market. Dean has almost a quarter century of investing experience behind him, including the last 7 years full-time. When he talks, it literally pays to listen.

Europe – Bust or really bust?
We mentioned Europe at the top of this article.

Bloomberg reports European stocks rallied and French bonds rose after borrowing costs fell at the first bills sale since Standard & Poor's downgraded the country and as Europe's central bank bought Italian and Spanish debt.

"The reaction to the S&P downgrade has been somewhat muted. The move wasn't a surprise and was well-flagged for a number of the issuers," said Orlando Green of Credit Agricole Corporate & Investment Bank.

Meanwhile The New York Times warns the Greek tragedy is far from over…

"The markets have taken into account a voluntary default by Greece, most experts say. But financial experts fear the possibility of an 'involuntary' default if the negotiators are unable to reach an agreement. That could unleash violent market reactions that could conceivably produce another market cataclysm like the 2008 bankruptcy of Lehman Brothers and throw the world into another recession."

A final word of warning, and one of hope
You can get yourself all worked up about what might happen with Europe and Greece.

But I have a word of warning. Most expert predictions are the equivalent of random guesses. Don't believe me? Read all about it here.

And in any case, if we do have another market cataclysm, rather than be worried, as Dean says, we'll be ready to snap up shares in some great companies at even greater prices.

Are you prepared for a market crash?  Motley Fool readers can click here to request a free report titled The Motley Fool's Top ASX Stock For 2012.

More Reading

One MAD stock still on our radar

Why I'm buying QBE Insurance shares next week

Disclosure: Bruce Jackson has an interest in MAD. The Motley Fool has a sane disclosure policy.

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