Share market cycles

This brings me to the topic of market cycles.

Economic cycles have been around for hundreds of years and sharemarkets have duly reflected this fact. The cycle of boom and bust has been repeated so many times that it seems sensible to conclude that there must be a fundamental tendency for this to occur, just as the tides are caused not by chance, but by the varying gravitational pull of the moon on its orbit.

What is interesting however, is that from time to time human beings manage to convince themselves that these cycles of the sharemarket have ceased to exist.

The usual justification for this pollyanna view is that of the 'paradigm shift'. The paradigm shifter argues that the world has fundamentally changed in some way that permits the economy and therefore the sharemarket to boom more or less permanently into the forseeable future.

A typical development to inspire this dangerous form of euphoria in some people was the advent of the information revolution, spearheaded by internet technology. A century ago it was the advent of radio.

Beware the paradigm shifters as you would a Jabberwock! Historically, whenever a large number of people have believed that the old rules no longer apply, the market at some point delivered a salutary lesson.

Of course, at some stage the paradigm shifters may turn out to finally be right, like the boy who cried 'wolf', but at Smartgambler we advise people to play the odds. As the famous saying goes,

'Those who do not learn the lessons of history are doomed to repeat them.'

A study of the history of sharemarkets, especially periods like 'Tulip Mania', the 'South Sea Bubble', the speculative boom in the twenties leading up to the great crash and the milder eighties version, will certainly repay the student.

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