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What Does The Future Of The Stock Market Look Like?

Back in the 1800’s, John Pierpont Morgan was an American financier who dominated the finance industry in the United States. According to Jean Strouse, Morgan: American Financier (Random House, 1999), someone once ask Mr. Morgan “What will the stock market do?”, he merely replied “It will fluctuate.

That is true for the market now as it was in the last century. Therefore, as investors we should not be focusing on the daily fluctuation of the market. Instead we can use the fluctuation to our advantage.

Warren Buffett wrote in 2004 that excitement in the market and expenses are the enemies of investing. And that instead of trying to time the market, we should try to be fearful when others are greedy and be greedy only when others are fearful.

An example from our own market is Genting Singapore PLC (SGX: G13). Genting Singapore has seen its share price increase from less than S$0.40 per share back in 2008 to a peak of more than S$2.20 per share, although it is now trading at around S$1.07 per share. Yet, if we look at the volumes traded for the company, we can see that the activity was strong when the shares were rising from 2009 to 2011. Trading volumes ranged between 500 million and a billion shares every day.

Buyers and sellers were getting excited just when they should have be wary. However, now with the share at only half the price during its peak, it seems that interest in the company has fallen as well, registering less than 30 million trade a day, on average.

Why has that happened? If investors felt that the company was a good buy at S$2.20 per share, would it not be a bigger bargain at half the price? This is exactly what Buffett was trying to point out. Market get excited during boom times and investors forget why they are buying. Everyone is buying, simply because everyone else is buying.

Foolish Summary

The stock market will continue to fluctuate. Our job as investors is not to worry about which direction it fluctutates but rather be able to decide if the market is overly excited or overly fearful.  We need to control our excitement in a bull market and control our fears in a bear market. In this way, we could turn unpredictable market fluctuation into a tool to serve us rather than be influenced by them. Learn more investing hints and tips by signing up now for a FREE subscription to The Motley Fool’s weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.