The best way to study how share markets move is to study trends.

The Trend is your Friend
Share markets and the prices of the companies listed do not move up or down in a straight line.

In March 2009, global share markets including the ASX bottomed “on pessimism” as my favourite investor Sir John Templeton would have quipped.  To provide his famous quote “Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria”.

The Australian Share Market
The Australian share market has been largely in an uptrend since the lows in 2009.

Yet this chart of the ASX All Ordinaries shows there have been nine high percentage retracements on its way to an 89% capital advance (not including dividends).

all-ordinaries-monthly-index

In fact, in 96 calendar months (including this month) since the low in March 2009, the ASX has seen:

56 Green Months (Up)
40 Red Months (Down)

This ASX bull market has spent over 41% of the time moving down and yet the market (capital value) has almost doubled in eight years.

The point is that share market investors do well when they accept that periods of volatility (falling prices) are going to occur and that these moments in time often present great opportunities to make money into the future.

 

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Dean Mico is an Independent Financial Planner specialising in creating share portfolios for direct share market investors and self-managed super funds. Dean Mico had previously run a high performing boutique share market investment fund.

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