Wall Street Bull

How the Share Market works?

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).

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.

Going a step further
I have spent a fair bit of time looking at this with my own portfolio and the portfolios I build and provide advice to on behalf of others. I wanted to understand more about what drives my outperformance and this has confirmed three things I suspected.

My portfolios since the March 2009 low:

72 Green Months (Up)
24 Red Months (Down)

What I have learned about my share market performance:

  1. When the market is up my portfolios move up at about the same rate as the market                     
  2. My portfolios fall less often than the market; and
  3. When the market falls, my portfolios only fall by about half that of the market                   

Why does this happen?
I fill my portfolio and the portfolios I provide advice to with a collection of ASX listed companies that have the combination of being:

  1. The highest quality (companies with strong balance sheets and positive cash flow); and
  2. The most profitable companies listed on the market

The quality and profitability of the portfolios I create do the heavy lifting and provide better price stability in times of volatility.

Will my portfolios fall in times of volatility in the future?

Yes, but less often than the market.

And, will they continue to outperform the market in the long run?
Absolutely, Positively, Yes!!


The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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