Bull market trends

I am looking at a chart of the Nasdaq Composite index, which measures the performance of the more important Nasdaq-quoted companies since launch at 100 in 1973. It has risen from 100 to 14,639, a rise of 146 times. The climb has been punctuated by three severe bear markets, in 1974, 2003 and 2008 respectively. The normal direction of travel is up and the forces pushing it higher seem to me to be becoming stronger all the time. I expect it to reach six figures within a decade although that is obviously pure guesswork.

My impression also is that bear markets have been replaced by volatility, which can be very extreme. Covid-19, for example, triggered a full scale bear market move compressed into two months as the index fell from 9,824 to 6,628. There have been further bouts of wild volatility since then and there will no doubt be more in the future. Volatility has become a fact of investing life, especially with the kind of high-growth, high-momentum stocks favoured by Quentinvest.

This is why as well as the focus on share selection, which has always been a feature of the Quentinvest approach I am also developing strategies for exploiting that volatility to add to holdings at favourable prices.

Every time the market has a wobble, what I describe as snakes in an endless game of snakes and ladders, people worry that an old-fashioned two year bear market is developing. It is always a possibility but I think unlikely. Since 2009 no reaction has lasted longer than three months. Part of the reason for this is that the toxic cocktail of higher inflation, rising interest rates, governments slamming on the brakes leading to recession doesn’t seem to be happening any more.

Why? I believe this is precisely because of technology and globalisation which have made the global production process dramatically more flexible and efficient with further improvement coming all the time. Strong demand, quantitative easing and fiscal expansion are being absorbed without causing a significant rise in inflation. Also central banks are on the watch and only have to breathe caution for everybody to calm down.

Labour shortages are emerging in some countries but will this lead to inflation or more investment in automation and robotics.

So I believe it makes sense to buy and hold, to add into strength after weakness and to expect most well chosen stocks, no matter how severe their sell-offs, to eventually rally to new peaks. As I say in my e-book on the golden rules of investing with Quentinvest (launching soon) – it pays to be an optimist.

It also pays to choose the right stocks which is where the QV focus on technology comes into play. Big share price moves come on the back of something big happening. The technology revolution is a massive something big driving huge share price moves and ones which run and run. I recently alerted yet again in Quentinvest all the big names in technology, Apple, Alphabet, Amazon and others, even though they have already been recommended countless times across the QV ecosystem. The Apple share price has been rising, with periodic interruptions, since 2003 and looks set to keep climbing for years to come.

This is not surprising given the role that Apple devices and services play in our lives. Stocks like Apple are the technology revolution so 10 years from now these companies, huge as they are could be dramatically bigger as could all the companies in the second, third and fourth tiers playing their exciting part in driving the revolution forwards.