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
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
'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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