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MAD Goes Bonkers, And The Sharemarket Bandwagon Rolls Higher Again

The S&P/ASX 200 jumped 1 per cent, but Maverick Drilling & Exploration (ASX: MAD) went even higher. World sharemarkets are off to their best start in 18 years, yet you can’t keep all the people happy all of the time

Overnight, the Dow jumped as high as 152 points before settling with 84 point rally, closing at 12,716.

On the domestic front, the Aussie dollar is again flying high, now trading at $US1.07. The S&P/ASX 200 index is again on the up, jumping 1 per cent today to close at 4268.

Lynas Corporation (ASX: LYC), Aquarius Platinum (ASX: AQP) and Pacific Brands (ASX: PBG) lead the way. Even last year’s dogs like Goodman Fielder (ASX: GFF), Flight Centre (ASX: FLT), Leighton Holdings Limited (ASX: LEI), and Computershare Limited (ASX: CPU) saw decent gains.

Death to pessimism
The Motley Fool’s War on Pessimism is clearly winning…so much so, it almost feels like a Bull Market in Optimism.

Speaking of optimism, Fool favourite Maverick Drilling & Exploration has suddenly become the hot stock of the moment on internet chat rooms.

My only question…where were they all 150 per cent ago? MAD closed another 7 per cent higher at 54.5 cents.

Back on January 12, a time when stocks were forgotten, when the world was worrying about the next global financial crisis, a Greek default, a Europe implosion, a Chinese hard landing and a U.S. recession, and Maverick Drilling & Exploration were trading at 22 cents, it was left to little old Motley Fool to fly the flag of optimism.

Now it seems everyone wants to jump on the bandwagon…

Stocks on Our Radar
Long time Fool readers will know Motley Fool Share Advisor Investment Analyst Dean Morel first suggested Maverick was cheap way back on August 1 2011. You can read all about it here in one of our regular Sydney Morning Herald articles.

Before we launched Share Advisor, our subscription-only stock recommendation service, Maverick was the first of Dean’s Stocks on Our Radar columns.

His eight ‘Radar’ selections have outperformed the market by an average of 22 per cent. Maverick is the standout, up 115 per cent relative to the market.

“I’m not paying for that sort of advice…”
Not every ‘Radar’ selection has been a winner, something one reader reminded us about earlier this week…

“What happened to Specialty Fashion Group (ASX: SFH), you were advising to buy last October. I bought for 62 cents in late October 2011. They dropped straight after, and have not been above 47 cents since. Also there is no dividend payment this year, which I was looking forward too. I guess I am a “Motley fool.” I am not paying for that sort of advice.”

Fair enough. No one likes losing money, and no one hates it more if our readers and subscribers lose money.

As usual, Dean had a sensible, unemotional response to our reader…

“In general good stock pickers are right 6 out of 10 times. For our radar stocks, five are winners at this stage, one is losing and two are even with the market. We think that is a great record and our Share Advisorpicks are doing just as well.Unfortunately Specialty Fashion Group is the one company out of all our ‘Radar’ recommendations that is currently losing on a relative and absolute basis.

We still believe Specialty will end up a winner and whether you decide to join our service, as over two thousand others have, or not, we wish you success in your investing.”

Yesterday, Specialty Fashion Group shares soared 18 per cent to 52 cents.

Eagle-eyed Dean, who lives and breathes shares, spotted the recent strength in the Specialty Fashion share price may be Delta Lloyd continuing to buy. On January 23 2012, Delta Lloyd announced it had upped its stake in Specialty to 6.3 per cent, buying over two million shares since August. The shares closed up another 3 per cent today.

Up 150 per cent, from nowhere…
We’ve said it before, and we’ll say it again. Investing is a game of patience.

Who was to know, just 14 trading days ago, that Maverick was about to soar 150 per cent? Or that Specialty Fashion was to jump 18 per cent yesterday?

We realise sharemarket investors have had a tough time of it in recent years. Patience, which worked so well from 2003 to 2007 as the All Ordinaries Index more than doubled, has been replaced by worry and panic.

The old rules still apply
But amidst the volatility and the pessimism, the old rules of investing still apply. Number one amongst them is that good stocks bought cheaply is your ticket to long-term wealth creation.

It won’t be a smooth ride, as anyone who bought Specialty Fashion can attest, including Dean himself. In early September, he revealed he bought a small position in the company.

A wealth-saving decision
Like our reader, he too is in the red. But in those dark days, when Specialty shares traded in the low 50s, Dean made one critical wealth-saving decision…

“A mistake many investors make is thinking if a company was good value at one price it must be even better value at a lower price.That leads to having your largest positions in your worst performing companies – as Peter Lynch said, this is watering your weeds. It’s better to wait to see whether your thesis was right.

A second mistake is thinking that a 10% change in price is meaningful – it’s not.

I won’t be buying more Specialty until the turnaround in the business and investor sentiment is underway. I’ll likely pay a higher price, but then I’ll be watering my flowers instead of weeds.”

Great advice, as ever.

25 years of investing experience
Dean has been actively investing for close to 25 years and has a documented market-beating track record. We can all learn a lot from his stock picking process, and his general investment philosophy. A Master of Applied Finance doesn’t go astray either.

The Foolish bottom line
Shares around the world are off to the best start in 18 years.

On Bloomberg, David Goerz summed it up best, saying “People expected things to be much worse.”

Except us, of course…

Here in Australia, Richard Coppleson of Goldman Sachs this week said the local sharemarket could soar 20 to 30 per cent in 2012.

Maybe.

In the short-term, I don’t know where the market goes from here. No-one does.

But whatever happens, we’ll remain realistically optimistic, continue our War on Pessimism, and keep searching for winning stocks.

We can’t promise another Maverick, but we’ll be trying our best.

Bruce owns Maverick Drilling & Exploration. The Motley Fool’s  disclosure policy tries hard.

P.S. If you are interested in trying Share Advisor, click here now to take advantage of a $170 saving, nearly 50 per cent off our retail price.

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