Wednesday, 28 October 2009

Past Market Movements: Generally Upward Trend

Examination of Past Market Movements of Malaysia KLSE
What can we learn from the history of overall market movements in the Malaysia KLSE?

1. Generally Upward Trend

2. Trends Not Consistent
3. Irregular Price Patterns
4. Prices Can Be Very Volatile
5. Prices Move Volatile Upward
6. Big Booms Are Irregular


1.  Generally Upward Trend

We can see that although there are peaks and troughs, the overall tendency is for the market to be moving upwards.  From 1970 to 1981, the Malaysian market was growing at an annual rate of about 12% (Singapore market 15%).  From 1981 to 1987, the trend appears to be much less, around 4% per annum for the Malaysian market (6% for Singapore market).  The reason for the slowdown in the growth trend from 1981 to 1987 was deflation and the negative growth experienced during the first half of the Eighties. 

These trend lines may be regarded as equivalent to the intrinsic value of an individual share for they mark the inherent value of the market as a whole.  The market seems to fluctuate around these trend lines. 

In the future, the upward tendency of the market is most likely to continue although we are not sure what will be the actual growth rate. 

However, by projecting a trend which is conservatively drawn we can have some idea where the market is heading.  If we buy our shares when the market is at a reasonable level (that is when the index is around the trend line or below), we can rely on the long term rising trend to obtain our gain from the market. 

Unless we buy shares near the top of the peaks, we should be able to profit from buying shares after a few years.  It is therefore important to go for the long run.

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