Let's examine the LT graph of the S&P500, one of the world's leading market indices.
Segment 1 - The Traditional Market
The period from 1950 - 1995 was a period of consistent upward growth, with little and smallish corrections. The largest correction was in 1987 with a 23% correction, not very big by today's standards. Internationalization had yet to set in and markets were probably quite insular. Consistent growth in the market was probably due to technological advance, improvement in efficiency, basically real growth.
This was a period where you could truly say 'In the long term, markets are on an uptrend'.
Segment 2 - Today's Market
Are today's markets truly the same?
Add in usage of computers, financial derivatives, market interdependence and the following occurs:
- Trading volume has increased
- Volatility has increased
- Magnitude of movement has increased
- Market cycles have shortened (Avg 8 years)
- Largest correction 47%
Implication
...
...
